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COLAs and Military Retired Pay

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October 15, 2014

Issue: Government retired pay promises must be kept, including annual cost-of-living adjustments (COLAs) to prevent erosion of retirees' purchasing power by inflation.

Background: Despite previous prospective changes that reduced future retired pay value by 25% since 1980, and subsequent retention problems that led Congress to repeal those changes in 1999, some government and private sector critics continue to allege the military retirement system is "overly generous." During the 1990's, legislators proposed or enacted multiple changes or delays in annual cost-of-living adjustments (COLA), singling out retired servicemembers for discriminatory COLA penalties. Too often, critics wrongly equate federal retirement compensation--earned by decades of selfless service and sacrifice--with unearned federal welfare programs.

Civilian retirement standards don't apply to the military, which entails far more arduous service conditions: 20 to 30 years of hazardous duty, frequent moves, extended family separations, overseas service, long hours of overtime without extra pay, forfeiture of many personal freedoms most civilians take for granted, and an "up-or-out" promotion system. The vast majority of military members face forced departure from service before age 50, with no vesting before 20 years. Retaining a high-quality career force over the long term requires a strong reciprocal commitment between member and service.

Retired pay increases, provided for in statute since 1871, are part of the commitment. Since 1963, COLAs have been tied to the Consumer Price Index (CPI), a Bureau of Statistics metric that measures changes in inflation. Without COLA protection, inflation would erode nearly half of real retired pay value for a 20-year retiree by age 62.

The 2009 COLA, announced in October 2008, was an incredible 5.8% for most recipients of military retired pay, VA disability compensation, Survivor benefit Plan annuities, Social Security, and other federal annuity programs.

However, inflation in 2009, 2010 and 2011 (when compared to the 2008 baseline) actually declined providing no COLA for 2010, 2011 and 2012. A quick reminder: the law doesn't allow a negative COLA. Modest COLAs of less than 2% followed in 2013 and 2014.

MOAA Position:
MOAA is committed to resisting any attempts to single out uniformed services retirees for special COLA penalties and any proposals that would allow long-term erosion of real retired pay value.  

Key Bills/Status: No bills have been introduced, but the Deficit Commission and others have recommended adopting a “chained COLA” that would depress the current COLA as a means of reducing long-term costs and would have a huge impact on the value of retired pay over the long term. MOAA will remain vigilant in the 113th Congress to fend off any proposals that will devalue earned retired pay.