Six Wins On 2015 Military Benefits


[Nords note:  If you’re reading this sentence then I’m still in Spain visiting my daughter for another month or so.  I’ve loaded up the blog’s schedule with posts through the end of the month but I’ll be slower than usual on the comments and social media.  In the meantime, don’t worry about the Military Compensation and Retirement Modernization Commission’s recommendations.  If you’re in uniform now, then you’ll be grandfathered into the current pay & retirement system.  (You may also have an option of using one of the new plans.)  Ignore the political theater.  Let the military analysts and CFPs chew on the numbers for another month or two, and then the Congressional debate will really begin.]

There’s plenty of bad news and unhappiness about the drawdown. For the first time since the pay gap was declared “closed” in 2008, Congress has only raised military pay by 1%. Their 2015 defense spending authorization falls behind their own goal of raising pay at the same rate as the Employer Cost Index. Not only is pay losing to inflation, but housing allowance rates have been reset to cover only 99% of expenses instead of 100%. There are constant threats of more cuts to other benefits, and the specter of sequestration looms unpleasantly on the horizon.

I could go on for another 2000 words about the latest threats to military pay and benefits. However dozens of other military and personal-finance bloggers are already doing that, and I’m not going to subject you to the 82nd post on the subject.

Image of handing over pay at a fenced window |

Could’ve been a lot worse.

Instead let’s stand back from the crowd and reflect on a few small wins that popped up among the losses. After reading the rest of this post, you can make your own drawdown retention decision.

This post is based on secondary sources reporting through press releases and other military media. I haven’t personally plowed through the thousands of pages of the 2015 National Defense Authorization Act or the continuing resolution, and I’m still seeking confirmation of a few rumors that emerged before the bills were signed. I’ll update this post as I verify the details.


“COLA minus 1%”

First, it appears that Congress has delayed the retiree pension cut “COLA minus 1%” for future military servicemembers. This 2013 proposal was repealed last year for current retirees and those already in uniform, but everyone who joined the military in 2014 (and then earned a pension) would have had their pension’s annual COLAs reduced by one percentage point each year through age 62. Now the start of that program has been delayed until January 2016, and its future depends upon recommendations from the Military Compensation and Retirement Modernization Commission.

Speaking of the MCRMC, a number of DoD proposals were tabled by Congress until the MCRMC reports out. It’s the most comprehensive military compensation study since WWII, and it includes significant town-hall testimony from rank-and-file servicemembers and families. It’s so big that the White House has told DoD to cancel their 2016 Quadrennial Review of Military Compensation. I hope the Commission listened to the feedback, and I hope the report (as controversial as it may be) will start a healthy discussion on military retention. Although I’m skeptical that all of the Commission’s recommendations will become law (remember REDUX?), it’s an important step in thoroughly analyzing the military pension system. DoD needs to avoid a repeat of 2013’s last-minute Congressional compromise of piecemeal pension reform. The Commission was originally tasked to report out by 1 May 2014, but it was accelerated extended to 1 February 2015 for additional input and study*.  I would not be alarmed at its recommendations until they’re actually drafted into bills and the Congressional negotiations begin.  With a new Congress and a new SECDEF, it should be an interesting conversation. A fresh start can only be good news.


(*Thanks to alert reader and MCRMC expert Jeremy for the correction!)


VA funding

Back to another pleasant surprise from Congress: the Veterans Administration’s programs and benefits for veterans will now be funded at least a year in advance. This includes veteran’s pensions (from the VA, not from DoD), the GI bill, and survivor’s payments. This lesson was learned from the government shutdown of 2013 when veteran’s benefits (and payments) were at risk of being suspended. It also encourages the VA to conduct more long-range planning without having to keep a wary eye on whether the benefits funding will actually come through. I think that Congress is realizing that we have exactly the type of VA that we were willing to pay for, and they’re trying to improve that system.


Reserve and National Guard early retirement

Next, the Reserve and National Guard forces finally caught a break on the 2008 NDAA legislation authorizing earlier retirements for deployments. For every 90 days that they deploy to combat zones or for certain national emergencies, they receive their pension 90 days earlier. However the 90-day deployment periods had to occur within the same fiscal year. This meant that periods which crossed a fiscal year before 90 days didn’t count for an earlier pension. Understandably, it became unpopular to cut a set of Reserve/Guard deployment orders starting after 2 July.

That’s now been clarified by the 2015 NDAA. The law now allows the 90-day period to cross a fiscal year, and this applies to deployments which started after 30 September 2014. This is not expected to be extended retroactively to 28 January 2008 (the date of the 2008 NDAA), and it might never be retroactive to 11 September 2001.


SBP payments to special needs trusts

Fourth: the SBP scored another huge win, although it’s simply catching up to 20th-century estate planning. Survivor Benefits Plan payments can now be designated to a special needs trust as well as to a person. (Thanks to military spouse Jeremy Hilton for pointing out this problem and its solution.) For over 40 years, by law a retiree’s SBP payments had to be designated to a “natural person”, even if it was an adult disabled child of the retiree. However disabled adults are frequently supported by a patchy collection of state and Medicaid benefits, many of which are needs-based, and most of which are worth far more than the amount of a monthly SBP payment. (See page 3 of that PDF for a detailed example.) If SBP payments went to that beneficiary then their new higher income was usually above the threshold for their other benefits, and they’d actually end up losing money. They also risked losing their subsidized housing, their support system, and perhaps their only safety net.

Now, thanks to a legislative change which could be handled by most paralegals, retirees can direct their SBP payments into a special needs trust for their adult disabled beneficiary. The income goes to the trust, not the beneficiary, so it doesn’t count against other support. SBP beneficiaries remain eligible for their other benefits yet their trustee can make sure that other (unfunded) needs are still met. Nobody gets rich from this update, but many families will breathe easier.

I’m not sure how long it will take the Defense Finance and Accounting Service to implement this legislation, but here’s an unintended consequence: thousands of retirees with disabled children will want to enroll in or modify their SBP. Neither DoD nor DFAS have an accurate database of these veterans, so they’ll have to mount a huge publicity campaign. I think they’ll broadcast this change by declaring an open enrollment period for the SBP, where any military retiree can enroll or modify their benefits. This has only happened a handful of times in the history of the program, and the last time was 2005. I get a number of questions from readers about changing their SBP (which is usually not possible) so keep an eye on this blog and your other military websites.


Commissary funding

The fifth unexpected win (in a battle that never should have happened) was commissary funding. Depending on how the numbers were reported, DoD planned to cut Defense Commissary Agency funding by $100M-$200M dollars. This gave DeCA a choice of eliminating waste in their logistics chain, or cutting commissary hours and staff. The first goal would have eventually been carried out, but it would have meant months of pain before commissary hours and workforce returned to the status quo. Fortunately, during the Congressional negotiations over the appropriations bills, most of this funding was restored. DeCA still took a cut of $10M, and hopefully they’ll continue finding new ways to cut waste without making life harder for their customers. I’m still calling this a win.

I can predict the comments now: your commissary is a 20-year-old base building with horrible food, and you can do a lot better at Wal-Mart or Costco. However hundreds of thousands of military families appreciate the convenience of being able to shop on base (especially if they’re in base housing). Most commissaries also offer price matching, coupons, and parking-lot sales. It’s our benefit, and when you show that it’s important to us then it will get better. DoD alternatives would be a voucher system or a new food allowance, and I think we’d all lose a community resource.


No pay raises for admirals or generals

Finally, here’s an interesting article from journalist Tom Philpott about capping the pay and pensions of admirals and generals. The flag ranks did not get a 2015 pay raise like the rest of the military, and the pension system is being revised to prevent them from earning more in retirement than they earned on active duty. (A few of these retirees are earning nearly a quarter-million dollars of pension. Per year.) Considering the runaway compensation of many executive positions in corporate America, this can only be a win. (And yes, I do have several classmates who are four-star admirals.  I hope they’re reading this post too!)  I doubt that an admiral or general is in it for the money, but this change will help reinforce a long-term perspective.

Every year I hope to write a post describing how our entitlements and benefits have been preserved or even boosted, but this is a drawdown. Some of you readers joined me in the 1990s post-Cold-War “peace dividend” slashing of the armed forces by 25%. Perhaps you’ll agree that today’s drawdown is not only smaller by numbers and percentages, but also carried out (a little) better. However today we have more veterans than ever with long-term disabilities, injuries, and undiagnosed syndromes. Congress is reluctantly beginning (once again) to appreciate the true price of war. Both the Executive and Legislative branches of the federal government are learning (yet again) that just like doctors, police, and firefighters: you get the military that you’re willing to pay for.

It’s still all too easy for servicemembers (and their families) to become drawdown victims. (Ask any Army captain who was promoted from the enlisted ranks.) However you can avoid being victimized, and you can start right now: review your personal spending and push for your own financial independence. If you’re going through a drawdown with student loans, consumer debt, or an excessively materialistic lifestyle then you already have one foot in the ditch. Invest in yourself and your future: get all of the training you can, meet those promotion requirements, study for advancement, and do the best you can. If you don’t have a college degree or advanced certification (yet) then start taking classes and figure out what you want to do with your GI Bill. Families can invest in themselves too: track your spending and budget only for the expenses that really bring value to your lives. Get out of debt, try to maximize your Thrift Savings Plan and Roth IRA contributions, and then try to save even more in taxable accounts.

Once you have your feet on firm financial ground, then you can make the retention decision that’s best for you and your family– instead of one that’s driven by a paycheck.


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Related articles:
Will Congress Change Military Retirement?
From the archives: Congress Cuts Military Pensions
More Details On The Survivor Benefits Plan

WHAT I DO: I help you reach financial independence. For free.

I retired in 2002 after 20 years in the Navy’s submarine force. I wrote “The Military Guide to Financial Independence and Retirement” to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

  1. Reply
    Peter Gregory February 18, 2015 at 8:22 AM

    I live more than 100 miles from the nearest commissary, exchange so their presence or lack of them on base, is a moot point. As I think it is to any other military retired outside of Norfolk, San Diego or San Antonio. Is the supposed cost saving worth the drive and gas? No. I live 2 miles from a Target and Trader Joe’s. I think I’ll scrape by.

  2. Reply
    Wayne Perry February 17, 2015 at 6:41 PM

    Hey Doug!

    I love how you accentuate the positive in this post, but I think you may be one of the folks overvaluing the commissary to our force. And the cost to the American taxpayer.

    While there is no doubt the commissary offers quality products at affordable prices, and there is absolutely no denying that the convenience is something our families living on our bases rightly deserve, I think the question of complete commissary reform should be explored, rather than consider the funding a “win”. Because honestly, our troops would be in a much better position to win if reform happened rather than keeping military shopping benefits what they are.

    And while you can call it a win for our families, it is also a loss. It’s a loss because the staunch defense of the commissary and military shopping benefits in their current form prohibit our leaders from making changes that could lead to even more savings. And while you gave a few options as to what would happen if DeCA lost their funding, you seem to have skipped the most plausible outcome should DeCA cease to exist. And that is privatizing our shopping benefits. Perhaps even at no expense to the American taxpayer. Or at least considerably less.

    I know that some folks have a problem with Walmart, so let’s assume Target got the contract because of the uproar that would ensue from certain special interest groups if Walmart did. I bet Walmart would respond by offering a 10% discount on food purchases for ID holders.

    The defense, support and jubilation of commissary funding also hurts our troops in another way. As long as advocates like yourself, especially those giving financial advice, are guiding our younger troops to a 30% savings that isn’t quite accurate, many of our troops are missing out on even greater savings. The DoD is not Sears or Safeway. They can’t tell people something just to get them to shop at their stores. And definitely not to receive taxpayer funding. And the defense of such, in my opinion, is at the core of what is wrong with government spending.

    I can’t dispute the 1.4 billion dollar subsidy in any way based on what the store means to our community. because it really is much more than just a store, but I think if we are going to get serious in these budget talks, then we should also be honest. And the honesty starts with pressuring DeCA(and the Exchange) to either offer our troops more purchasing power or find someone who can. And I know the Exchange gives money to MWR and such, so maybe we can reallocate the billion dollars DeCA gets, save our government 400 million and even offer our troops more purchasing power. Only 200 million or so now goes into MWR from AAFES and that money is raised in part by the higher prices the Exchange stores sell their merchandise for. So instead of having our troops essentially fund their own MWR programs by taxing them in the way of charging them more, we could add nearly 5 times as much revenue to the MWR stream. A stream that itself is quickly drying up.

    You never know, private companies like Publix and Target and Albertsons might start bidding on servicing our troops shopping needs which could lead to even more revenue while also expanding our troops purchasing power. If they have stores right outside the gates, most wouldn’t mind one inside the gates.

    I am quite aware of all the waste in our government’s budgets, but one billion dollars is a lot of money. And there is no doubt we could get a lot more for our money than we are currently getting. Because my family doesn’t get 30% savings. In fact, as a JR Enlisted family, the commissary would cause us to go broke if we shopped their consistently.

    If only everyone would stop towing the company line. Then we could get somewhere. But instead, we will get business as usual and our troops who need their paycheck to go the furthest will be the one’s who get the short end of the stick.

    The commissary isn’t always worth the trip, but it means something to us. But that something isn’t enough to bend the truth of the benefit the commissary is to our troops. Because if it was truly a 30% savings like advertised and advocated as, then that would be worth the trip. Every single time. But it’s not. And I don’t care what their algorithm says.

    It is OK to call the subsidy money warranted because of the convenience, not the cost savings. At least not the reported savings.

    • Reply
      Doug Nordman February 18, 2015 at 5:59 AM

      Thanks for your comment, Wayne.

      • Reply
        Wayne Perry February 19, 2015 at 3:46 AM

        You’re certainly welcoe, Doug.

        I am curious though, as someone who offers financial advice, would you encouage those who need their paychecks to go the furthest to shop at the commissary almost exclusively or would you suggest they shop the economy more?

        My experiences tell me shopping the economy is a much better deal overall to add the most purchasing power to our families budget. So I am thinking once again the commissary funding is hardly a “win” for our families. If anything, we are losing out on tremendous savings by not pushing for privatized shopping on our bases. And we are losing out on one billion dollars of taxpayer money so the DoD can do what others already do, but so much less efficiently.

        I look forward to your response to my question. I think it is time we guide our troops to better financial decisions. Misleading them about how much they can save is grossly negligent. And making the American taxpayer think their dollars are doing something they aren’t is darn near criminal.


        • Doug Nordman February 20, 2015 at 12:49 AM

          Good questions, Wayne.

          Just to be clear (for readers who might misinterpret your comment), I’m not a financial advisor in the CFP or CFA or CPA sense of the phrase. I’m just a military retiree who knows a lot about saving and investing for financial independence.

          But in the style of those types of advisors, my answer to your question is also “It depends”. I’d encourage families to shop for their food on quality and price. If your experience is that off-base stores are cheaper then shop there. If there are better bargains on base then shop there. Or keep a price book and shop each of your favorite stores for the best bargains.

          Sometimes it’s faster/easier to shop in one place or the other, or they’ll have a higher quality of some foods, or they’ll have more selection.

          Personally I shop Schofield Barracks commissary because it’s only six miles from home. They have a great selection of fruits & veggies in quantities that we can buy without worrying that they’ll go rotten. However we also shop Costco because we can buy bulk staples there more cheaply than any other store on the island, and their gasoline (loss-leader) prices even beat the military base gas station. (Costco alsos has good pizza.) If the commissary has a special or a case-lot sale then we’ll buy there instead of Costco. But we also shop at farmer’s markets.

  3. Reply
    Deserat February 16, 2015 at 10:45 AM

    Doug – great advice – right now things are in the brainstorming phase….and at the risk of overgeneralizing, 80% of those ideas get flushed (Pareto). The only thing we have control of is our behavior and attitudes. Being independent gives one options.

    We are certainly headed for interesting times – both in and out of the military….

    Tenga un buen vacacion…hasta luego – B

    • Reply
      Doug Nordman February 17, 2015 at 9:25 PM

      Gracias, Deserat… y vacacion es muy bien!

  4. Reply
    Peter Gregory February 16, 2015 at 4:37 AM

    If you go back to the 1970’s, Congressional testimony 40 years called for better coordination and integration between the VA/DOD/Champus/Tricare. Should Tricare go away in its present form I do not see many folks shedding a tear, it can be bulky and hard to navigate depending on conditions being treated.

    As someone who does a VA disability rating and does use both the VA and Tricare at times depending on medical needs I see the best and worst of both systems. With the VA by and large the onus of responsibility is upon the person to prove or make the system work for them, or be your own advocate. Tricare lacks the byzantine nature of how the VA operated at times, but the Achilles heal of Tricare is doctor access and accepting because of reimbursement rates, especially in non-military centric areas. If anything comes out this commission if it forces the DOD and VA to better integrate health care, so much the better. But I do not complain, my brother who works for a Fortune 500 company pays over 12K a year in premiums, before the cost-shares kick in. I have some medically complex issues to manage, but my average cost per year over the last 5 years has been about 2K once all said and done. We do not know how fortunate we are as community sometimes.

    • Reply
      M Meier February 16, 2015 at 2:12 PM

      I have been using the current Tricare system (Prime) since the last 1990’s and have had no trouble with it. I don’t know about the other versions, but don’t lump them all in one basket if it isn’t a program you’re using. I like Tricare Prime the way it is.

  5. Reply
    carla February 15, 2015 at 11:24 AM

    Well i wish they would do something about the camp lejuene water contamination. After fighting 2 years for disability he got 20%. Now mind you he is terminal and had 2 claims in. So he gets 263 a month. Fought the nurse for 2 years on free medical to.

    • Reply
      Doug Nordman February 16, 2015 at 2:31 AM

      Thanks for your comment, Carla. I’m sorry that the VA and DoD are giving you guys such a hard time.

  6. Reply
    Peter Gregory February 14, 2015 at 2:47 AM

    This is more of a philosophical question rather than economic, but the reform commission does pose the issue, what is the intrinsic value of the traditional 20 year career? Is it diminished at the expense of other options? And that is the risk going forward. In that if the cost, personal, financial, family, marriage, mental can no longer be squared with that the government asks or requires of its armed services, or devalued to the point that military service is now viewed as a less than noble occupation (think the REDUX era) then you have the hollow force all over again. Why would one stay even to the 12 year mark?

    Another caveat is that the commission assumed that if its recommendations are implemented that the average service person ages 18-30, will possess far more financial literacy and sophistication than would be expected their peers in the civilian population. Many HS graduates cannot even balance a check-book, good luck with that.

  7. Reply
    Stephanie February 13, 2015 at 4:00 AM

    Great perspective. Thanks for the share.

  8. Reply
    Peter Gregory February 12, 2015 at 4:30 PM

    I think the fact all the commission’s recommendation was put to normal legislative process, where you need 60 votes to release to the floor for debate, rather than fast-track or a BRAC like up or down, will tend to moderate the process. Divided congress and president of the different party will tend to push the heavy lifting post the 2016 cycle.

    Though on first read it seems to borrow some of the old assumptions of REDUX and tries to repackage for a defined contribution age. Changing military retirement is hard because it is a Title 10 matter in federal code, its supposed to be hard to change. Retiree health care, especially as applies to the working age, under 65 cohort is a different matter. If any changes are implemented in this congress, it will be in that area.

    • Reply
      Doug Nordman February 12, 2015 at 11:21 PM

      Thanks for your comment, Peter.

      I’m happy with any Tricare change that makes Prime more appealing to doctors, but I’m skeptical that Title 10 law will be changed anytime soon. I think the current retirement system will be around for at least another decade.

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