Hearing of the Senate Armed Services Committee - Recent Changes to the U.S. Military Retirement System

Hearing

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Senator KING. Thank you, Mr. Chairman. In light of the fact that we have a second panel, I think I'll submit my questions for the record. I just have one observation in light of Senator Kaine's comments. I always thought that the passing of the first budget out of
a divided Congress in 28 years was somewhat miraculous, but I think today we've established that this provision, this CPI Minus One provision, confirms that, because we cant find parenthood. It was an immaculate conception, I think, this provision. Immaculate misconception might be a better term for it.

But I appreciate your testimony and I'm going to have some questions for the other panel. I associate myself with everyone else here. I don't think we should wait until the commission. I think we should fix this. It's not a huge item. It should be fixed, and I think
our veterans and people that are receiving pensions for some odd reason may not fully trust us to resolve this in 2015. So I think we should take care of it as soon as we can.

Thank you, Mr. Chairman.

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Senator KING. I'd like to follow up a bit. There's been a lot of discussion about keeping faith, about contract, about all of those kinds of things. Cast your mind back, if you would, to when you signed up. What do people who sign up sign? What are they told? Is there something that says if you sign here you will get health care, if you sign here you will get a certain level of retirement benefits?

I'm just asking you, what are people told when they sign up that the government is committing to them?

General TILELLI. Sir, I think there's no contract signed. What you sign is your oath of office, which is to support and defend the Constitution of the United States and do whatever you're told to do. The fact is it's the nuanced business of all of those things that are told that are not in a contract--retirement pay for example, medical care for life for example, commissary for example. All those things that are never put down on a piece of paper, because folks who serve are not serving to become rich. They're serving to serve the country. And the fact of the matter is, maybe General Sullivan's memories are better than mine, but I remember signing my oath of office, to be quite frank with you, and that was it.

Senator KING. Any others?

General SULLIVAN. I may look younger than him, but I'm a little bit older. And my memory is not better than his. Over time I learned, since all my buddies retired, they retired at 2.5 percent a year, 50 percent. I didn't sign a piece of paper. I signed up to serve and I took my oath.

Senator KING. But even if it wasn't on a piece of paper, what were the expectations?

General SULLIVAN. Well, the implicit contract was that I would have a retired pay if I stayed for 20, it would be 50 percent of what my last pay slip said, and that I would have medical care or they'd pick me up off the battlefield, either myself or my remains, and bring them home.

Senator KING. I think it's clear from this hearing this morning and I'm sure you were here for the first panel--that everybody on this committee, A, didn't agree with this piece that was in the budget deal; two, wants to fix it; three wants, to fix it now; and
four, as we go forward wants to work off a principle of grandfathering of what's in the law. I think that's where this committee is.

Now, Dr. Chu, I'd like to follow up on one of those points. There's been a lot of talk about grandfathering. If everything is grandfathered and nothing changes except prospectively, what does that mean in terms of budgetary effect? Because we operate around here on a ten-year budget window, but in my simpleminded way, if everything's grandfathered that means there's going to be no savings for 20 years. The first savings will be 20 years plus one day if something is changed at the beginning.

By the way, I think there should be something at the time of enlistment that says this is what the expectations are and this is what the benefits will be, so there is some clarity on that.

But Dr. Chu, how do we grandfather and yet at the same time do anything at all with regard to personnel costs?

Dr. CHU. I should begin by reminding all of us that grandfathering does not necessarily even preserve the change. So REDUX, the retirement change made in the 1980s by Congress, at Congressional initiative, grandfathered everyone, including the cadets and midshipmen at the military academies. That did not preclude the Congress from reversing course when it came--when the first savings actually were going to take effect, the first cohort that would have a slightly smaller annuity, came up to that point.

So I think it's this issue of expectations, the issue of buy-in, so to speak, from the affected parties that's crucial to a successful transition in the regime.

To your immediate question, how do we save if everything is grandfathered, I would point out the grandfathering we discuss is mostly one-sided. So any reduction raises the issue of grandfathering, but a new benefit is not generally awarded only to those who want to serve prospectively. That's been actually the way new benefits have been awarded. They've been awarded to everyone regardless of the period of service, in general.

So I think one issue on grandfathering is when new initiatives are taken more thought might be given to to whom do they really apply, what's the purpose of the new benefit and what kind of effect do we wish to achieve.

and annuity changes would show up in the DOD budget as a saving immediately, if they were reduction, that is to say, because those are both funded by set-asides.

Senator KING. Even though the savings might not be--

Dr. CHU. Even though the cash savings are not for 20 years or whatever, you would get an immediate DOD budget savings. The Treasury would not see a saving because the Treasury would have a smaller receipt from DOD for the payments, but a larger outlay.

So yes, from a technical perspective you would see DOD budget savings for those things that are subject to prefunding, which is in the military just the TRICARE for Life program and the annuity payments for longevity of service. But you would not see the same for other things.

Senator KING. Thank you. Thank you, gentlemen. Thank you very much. This is important testimony. As I say, I think it's safe to say, as you can see from the hearing today, that this committee anyway is very firmly committed to fixing this problem.

Thank you.

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