MILITARY UPDATE
Retiree benefit changes begin Jan. 1
By Tom Philpott
Work proceeds at the Pentagon and the Defense Finance and Accounting Service to implement a multibillion-dollar upgrade in retirement benefits. The effort soon will deliver bigger paychecks to 200,000 or more people.
What follows is a preview of how the two new programs, limited Concurrent Receipt and expanded Combat-Related Special Compensation, likely will operate. Details are not final.
First, some background. Congress approved, and President Bush signed into law, the 2004 Defense Authorization Act, with its provisions on CR and CRSC. Both take effect Jan. 1
The CR initiative is for retirees with disability ratings of 50 percent or higher. It will phase out the dollar-for-dollar reduction in retired pay that occurs when they elect to draw tax-exempt VA disability compensation. An estimated 100,000 will see retired pay fully restored, within 10 years, starting with a fixed-dollar add back in 2004. All retired pay offsets will end including for VA payments tied to dependents allowance, unemployable status or VA special monthly compensation.
As military retired pay is restored, CR recipients will see no drop in VA compensation. So the potential income gain is great, in excess of $6,000 a month for seriously disabled retirees of high rank, once phase-in is complete.
To qualify, retirees must have 20 or more years of service, or have retired under Temporary Early Retirement Authority used by the services to make early retirement offers during the post-Cold War draw down.
Retired pay offsets will remain for 300,000 retirees with disabilities of less than 50 percent. Also left out of the CR deal are more than 100,000 veterans forced by disabilities to retire with fewer than 20 years served.
The CRSC provision will expand eligibility for a tax-exempt payment to replace retired pay lost to the concurrent receipt ban. It is open to retirees with 20 or more years of service and disabilities tied to combat or combat-related training. Reserve retirees are included; TERA retirees are not.
When CRSC first took effect last June, it was limited to retirees with combat-related disabilities of 60 percent or higher, or disabilities tied to the award of the Purple Heart. The new threshold will be combat-related disabilities as low as 10 percent. Roughly 100,000 retirees are expected to qualify on top of 35,000 expected to be eligible under the first set of rules.
Here's how the provisions will take effect:
• Limited CR. Retirees need not apply. Payment will be automatic based on military and VA data of current disability ratings and direct deposit account information. The first-year CR payments are fixed amounts: $750 a month in retired pay restored for 100-percent disabled, $500 for 90 percent, $350 for 80, $250 for 70, $125 for 60 and $100 for 50 percent.
In 2005, the remaining retired pay offset will be cut by 10 percent, followed by 20 percent in 2006, 30 percent in 2007 and so on, until the offset is gone and retired pay is fully restored in 2013.
Not all 100,000 eligible retirees will see the extra pay on schedule, that is, with their Feb. 2 paychecks. At a minimum, finance centers hope to provide CR payment by that date to 30,000 retirees now drawing special compensation, of $50 to $350 a month, for disabilities of 60 percent or higher. The special disability compensation is to end as soon as CR begins.
Perhaps by March, almost certainly by April, all CR-eligible retirees should see a portion of retired pay restored, and made retroactive to Jan. 1.
• Expanded CRSC. Retirees must apply, and the key will be patience.
The services already have a backlog of thousands of CRSC applications from the 60-percent program that began in June. Review and approval of new CRSC applications could take at least several months.
Applications pending under the 60-percent program still are being reviewed and, if approved, made payable back to June 1. Applications previously denied for missing the 60-percent, combat-related threshold, or because reserve retirees didn't have 7,200 retirement points, will be reactivated and reviewed under new criteria. Retirees need not reapply.
Retirees applying for CRSC the first time should use a newly revised application form to be posted sometime before Christmas at the CRSC Web site. The Web address is www.dod.mil/prhome/crsc.html.
Retirees with serious combat-related disabilities already will be drawing CR when their CRSC applications are approved. By law, they can't receive both payments. Finance centers, therefore, will select the most favorable option and give retirees 45 days to elect the other option. Whatever payment is selected will be retroactive to Jan. 1, 2004, if qualified.
The right choice between CRSC and CR could change as more retired pay is restored under the CR phase-in formula, and as disability ratings are re-evaluated. With each change, and at least once a year during an open season feature, retirees eligible for both pays will be alerted to the more favorable option, and again given time to choose the other option.
With the number of CRSC applications expected at least to triple, the services are being pressed to speed up their review process. But budgets to administer the program and hire more staff are, as always, limited.
Questions, comments and suggestions are welcomed. Write to Military Update, P.O. Box 231111, Centreville, VA 20120-1111, or send e-mail to: milupdate@aol.com. Or visit Tom Philpott's Web site.
