COLAs for Military Retirees: Summary of Congressional and Executive Branch Action, 1982-2004 (FY1983-FY2005)

CRS Report for Congress
COLAs for Military Retirees: Summary of
Congressional and Executive Branch Action,
1982-2004 (FY1983-FY2005)
Updated January 3, 2005
Robert L. Goldich
Specialist in National Defense
Foreign Affairs, Defense, and Trade Division


Congressional Research Service ˜ The Library of Congress

COLAs for Military Retirees: Summary of
Congressional and Executive Branch Action,

1982-2004 (FY1983-FY2005)


Summary
The Omnibus Reconciliation Act of 1982 (which applied to FY1983 budget
issues) suspended previously existing permanent law pertaining to cost-of-living
adjustments (COLAs) for federal civilian and military retirees, and changed the
COLA calculation formulas to postpone and/or reduce future COLAs for military
retirees during 1983-1985 (FY1984-FY1986). Although the COLA situation during
1983 (FY1984) remained unchanged, despite some proposals to modify the 1982
legislation so as to further reduce COLAs, the period from 1984 (the FY1985 budget)
to 1986 (the FY1987 budget) was marked by intense debate over reducing COLAs
and an actual elimination of the 1986 (FY1987) COLA. Reagan Administration
budget proposals in both 1987 (FY1988) and 1988 (FY1989) did not propose any
changes in military retirement COLA provisions contained in permanent law, a major
change from the previous several years. Neither did any such changes take place as
a result of congressional action.
The original Bush Administration budgets in both 1989 (FY1990) and 1990
(FY1991) proposed canceling the COLAs scheduled for January 1, 1990, and January
1, 1991, respectively, and reducing future COLAs. However, none of these proposals
were eventually enacted into law. The Bush Administration budgets in 1991
(FY1992) and 1992 (FY1993) did not include any proposals for reducing COLAs,
and no such proposals were acted on by the Congress.
The Clinton Administration’s budgets for 1993-1999 (FY1994-2000) did not
include any proposals for reducing COLAs, although COLA reduction proposals
were considered by the Congress during some of these years. Some were enacted in
each of the years 1993-1995 (FY1994-1996), providing that in each of those years,
disabled military retirees and survivor benefit recipients were first paid their COLA
on January 1; nondisabled military retirees first received their COLAs on April 1.
However, the FY1997-FY2005 budgets, enacted in 1996-2004 respectively,
contained no changes in the COLA formula. Hence, the FY1997-FY2005 military
retirement COLAs were first paid on January 1 of each of those years, respectively,
to all classes of military retirees. These nine years are the longest period since
military retirement COLAs were first authorized in 1963 in which no legislative
changes in the COLA mechanism have been made; the seven years FY1999-FY2005,
calendar years 1998-2004, are the longest period in which no COLA cuts have even
been proposed, let alone enacted.



Contents
Background: The Omnibus Reconciliation Act of 1982 (FY1983) ...........1
FY1984 (1983) COLA Actions.......................................1
FY1985 (1984) COLA Actions.......................................2
FY1986 (1985-1986) COLA Actions..................................3
FY1987 (1986) COLA Actions.......................................4
FY1988 (1987) and FY1989 (1988) COLA Actions.......................4
FY1990 (1989) COLA Actions.......................................5
FY1991 (1990) COLA Actions.......................................6
FY1992 (1991) and FY1993 (1992) COLA Actions.......................7
FY1994 (1993) COLA Actions.......................................7
FY1995 (1994) COLA Actions......................................11
FY1996 (1995-1996) COLA Actions.................................19
FY1997-FY1998 (1996-1997) COLA Actions..........................21
Repeal of the 1986 “Redux” Military Retirement Legislation, 1998-1999:
Effects on Future COLAs......................................24
FY1999-FY2005 (1998-2004) COLA Actions..........................26
List of Tables
Table 1. Military and Civil Service Retirement COLAs in the
Omnibus Budget Reconciliation Act of 1993........................9
Table 2. FY1994-1995 Legislative Action on Military
and Civil Service Retirement COLAs.............................12
Table 3. Military and Civil Service Retirement Cost Savings
Due to COLA Postponements, FY1994-FY1998....................15
Table 4. FY1996-FY1998 Military and Civil Service COLA Dates.........20



COLAs for Military Retirees: Summary of
Congressional and Executive Branch Action,
1982-2004 (FY1983-FY2005)
Background: The Omnibus Reconciliation Act
of 1982 (FY1983)
The Omnibus Reconciliation Act of 1982 (P.L. 97-253; September 8, 1982)
suspended previously existing permanent law pertaining to cost-of-living adjustments
(COLAs) for federal civilian and military retirees. Much of the legislative and
executive branch activity related to military retirement COLAs since 1983 has
involved efforts to repeal or extend provisions of this legislation.
Prior to enactment of the 1982 Act, military retirement COLAs had been paid
on an annual basis, effective on March 1 of each year, and based on the percentage
increase in the Consumer Price Index (CPI) of December of the preceding year over
that of the December before that. For example, the 8.7% COLA, effective March 1,
1982, was based on the percentage increase in the CPI of December 1981 over that
of December 1980.
The 1982 Act provided that COLAs for FY1983, FY1984, and FY1985 would
be effective on April 1, 1983, May 1, 1984, and June 1, 1985, respectively. It also
provided for the COLAs of nondisabled military retirees under age 62 to be
calculated according to a different formula designed to lower them relative to those
of all other military retirees. A COLA of 3.3% was accordingly paid to nondisabled
military retirees under 62, and a 3.9% COLA was paid to all other military retirees,
effective April 1, 1983. In addition, the 1982 Act required deductions equal to the
COLAs in their military retired pay from the pay of most federal civil servants who
had previously retired from the military.
This report examines executive and congressional COLA-related initiatives
associated with each of the fiscal year budgeting processes from calendar year 1982
(FY1983) through calendar year 2000 (FY2001).
FY1984 (1983) COLA Actions
The COLA situation for military retirees remained unchanged during FY1984
legislative activity (that which took place during calendar year 1983), despite efforts
from the Administration and in the Congress.



The Reagan Administration’s budget request for FY1984, submitted to the
Congress in early 1983, contained several measures related to military retirement
COLAs. The Administration proposed to:
!Cancel the FY1984 COLA scheduled for May 1, 1984. The FY1983
(April 1, 1983) and FY1985 (June 1, 1985) COLAs would occur as
mandated by the Omnibus Reconciliation Act of 1982;
!Beginning in FY1986, limit COLAs for nondisabled retirees under
age 62 to one-half of the actual percentage increase in the CPI
(frequently referred to as a “half-COLA” or “diet COLA”).
Nondisabled retirees 62 or older, retirees receiving disability retired
pay, and survivor annuitants would continue to receive full COLAs.
The First Concurrent Resolution on the FY1984 Budget (H.Con.Res. 91),
approved by the House and Senate on June 23, 1983, assumed that the effective date
of the FY1984 COLA would be delayed until December 1, 1984, with all subsequent
annual COLAs also effective on December 1. This would have had the effect of
canceling the FY1984 COLA, while advancing the effective date of the FY1985
COLA by seven months. However, Congress adjourned on November 18, 1983,
without enacting the proposed changes in substantive authorizing legislation. The
COLA situation therefore remained as enacted in the Omnibus Reconciliation Act
of 1982, under which the next military retirement COLA was to be effective on May

1, 1984.


Two other COLA-related legislative proposals in 1983 received substantial
attention but were not passed by the Congress: (1) the Administration proposal to
institute a permanent “half-COLA” for nondisabled military retirees under 62, and
(2) a provision of the Senate version of the FY1984 reconciliation bill that would
have repealed the requirement instituted in the 1982 Act that most federally
employed military retirees have an amount equal to the COLA they received be
deducted from their civil service salaries.
FY1985 (1984) COLA Actions
In FY1985 legislative action (calendar year 1984), the COLA provisions in the
Omnibus Reconciliation Act of 1982 were largely negated.
The Reagan Administration’s FY1985 budget request, submitted in early 1984,
contained several measures related to military retirement COLAs. The Admini-
stration proposed to:
!Repeal the provisions of the Omnibus Reconciliation Act of 1982
(1) authorizing COLAs effective May 1, 1984, and June 1, 1985, and
(2) providing for the COLAs of nondisabled retirees under age 62 to
be calculated on a different basis from all other retirees’ COLAs;
!Permanently shift the payment date for federal civilian and military
retirement COLAs to January 1 of each year, beginning with January

1, 1985. (This proposal, in conjunction with that described in the



preceding paragraph, would therefore have resulted in no COLA
being paid between April 1, 1983, and January 1, 1985.) At the
same time, the period of time over which the CPI was measured to
determine the extent of the COLA increase would have been
modified to reflect the increase in the average CPI between the third
quarters of successive years (i.e., the COLA paid to federal retirees
on January 1, 1985, would be based on the percentage increase in the
average CPI for the period June-September 1984 over the average
for June-September 1983).
The Omnibus Reconciliation Act of 1983 (P.L. 98-270; April 18, 1984) was
the legislative vehicle for these proposals and therefore for practical purposes
repealed comparable provisions of the Omnibus Reconciliation Act of 1982.
The Deficit Reduction Act of 1984 (P.L. 98-369; July 18, 1984) repealed the
provisions of the 1982 Act which required most military retirees working for the
federal government to forfeit their military retired pay COLAs. It also changed the
technical payment date for military retired pay (checks or electronic fund transfers)
from the last business date of the current month (i.e., the 30th or 31st of most
months) to the first business day of the next month. By pushing the twelfth monthly
military retirement payment for FY1985 from September 30 to October 1, 1985 —
the first day of FY1986 — this provision provided a one-time paper savings in
FY1985 of $1.6 billion in military retirement outlays.
The Second Supplemental Appropriation Act for FY1984 (P.L. 98-396;
August 22, 1984) had the practical effect of negating the provision of the 1982 Act
which would have provided nondisabled military retirees under 62 a smaller COLA
on January 1, 1985, than those granted all other military retirees. Thus, on January

1, 1985, all military retirees received a 3.5% COLA.


FY1986 (1985-1986) COLA Actions
The Reagan Administration’s FY1986 Department of Defense (DOD) budget
proposed to eliminate the military retired pay COLA scheduled for January 1, 1986;
there would thus have been no COLA between that paid on January 1, 1985, and that
scheduled for January 1, 1987, under existing law. The final Concurrent Resolution
on the Budget (S.Con.Res. 32; approved by both the House and the Senate on August

1, 1985) rejected the Administration’s recommendation to cancel the FY1986 COLA,


indicating initially that it would be paid as permanent law provided on January 1,

1986.


However, the Balanced Budget and Emergency Deficit Control Act of 1985,
also known as the Gramm-Rudman-Hollings (GRH) Act (P.L. 99-177; December 12,
1985) provided that payment of the FY1986 COLA was to be at least temporarily
suspended until other provisions of the GRH Act took effect, no earlier than March
1, 1986. Specifically, subsection 252(a)6(c) of GRH provided that “the amounts that
would otherwise be expended” during this period for COLAs would be withheld.
Payment of the FY1986 COLA was accordingly suspended between January 1, 1986,



and March 1, 1986. The President, according to other provisions of GRH, then
determined that payment of the FY1986 COLA had to be completely eliminated to
assist in reducing the FY1986 federal deficit. It was therefore permanently canceled.
On July 7, 1986, the Supreme Court held that the automatic spending provisions
of GRH were unconstitutional; however, the Court stayed the effects of its decision
for 60 days to give the Congress and the President time to enact the FY1986
GRH-mandated budget cuts into effect through the regular, pre-GRH legislative
process if it so desired. On July 31, 1986, the President signed P.L. 99-366, which
ratified and affirmed the FY1986 GRH budget cuts, including the FY1986 COLA
cancellation.
FY1987 (1986) COLA Actions
The Reagan Administration’s FY1987 DOD budget proposed to eliminate the
military retired pay COLA scheduled for January 1, 1987. If accepted, this proposal
would have meant that there would have been no COLA between that paid on
January 1, 1985, and the one scheduled, under permanent law, for January 1, 1988.
The final Concurrent Resolution on the FY1987 Budget (S.Con.Res. 120;
passed both House and Senate on June 26, 1986) assumed that full military
retirement COLAs would be paid in FY1987 on the basis of permanent law. The
Omnibus Budget Reconciliation Act of 1986 (Sec. 7001, Title VII, P.L. 99-509;
October 21, 1986) also provided that full COLAs would be paid according to
permanent law in calendar years 1987 through 1991, inclusive, to military retirees
(and retirees covered by other federal retirement programs as well), if
GRH-mandated spending cuts occur. (Because GRH-mandated spending cuts did not
take place for the FY1987 budget, however, this latter provision of law was not
required to guarantee the payment of a military retirement COLA for FY1987.)
Accordingly, based on the percentage increase in the average Consumer Price Index
for the third quarter of 1986 over the average CPI for the third quarter of 1985,
military retirees received a 1.3% COLA on January 1, 1987.
FY1988 (1987) and FY1989 (1988) COLA Actions
The Reagan Administration’s FY1988 and FY1989 DOD budgets did not
propose any changes in military retirement COLA provisions contained in permanent
law. As this report indicates, this was a major change from previous years. Reagan
Administration DOD budget requests from 1983 (FY1984) through 1986 (FY1987)
all contained COLA-related proposals, which usually had the aim of postponing or
eliminating COLAs to save money.
The Congress also did not enact any restrictions on COLAs in 1987 and 1988
as part of its consideration of the FY1988 and FY1989 budgets. The House Budget
Committee, full House, Senate Budget Committee, full Senate, and final versions of
the Concurrent Resolutions on the FY1988 and FY1989 Budgets all assumed the
payment of full COLAs in FY1988 in accordance with permanent law. In addition,



the 1987 amendments to the Gramm-Rudman-Hollings (GRH) deficit reduction
process (P.L. 100-119; September 29, 1987) provided for the exclusion of military
retirement COLAs from any automatic sequestrations (across-the-board budget
reductions) resulting from GRH. This contrasts with the original GRH Act, which,
as noted above on page 3, canceled the FY1986 military retirement COLA originally
scheduled for payment on January 1, 1986, and would have allowed cancellation of
future COLAs under certain circumstances. Finally, no other legislation enacted in

1987 and 1988 affected the operation of the permanent-law COLA formula.


Accordingly, based on the percentage increase in the average Consumer Price
Index for the third quarter of calendar year 1987 over the average CPI for the third
quarter of calendar year 1986, military retirees received a 4.2% COLA on January 1,
1988. Based on the percentage increase in the average CPI for the third quarter of
calendar year 1988 over the average CPI for the third quarter of calendar year 1987,
military retirees received a 4.0% COLA on January 1, 1989.
FY1990 (1989) COLA Actions
The original FY1990 budget of the incoming Bush Administration (and that of
the outgoing Reagan Administration), unlike the budgets the Reagan Administration
submitted for FY1988 (1987) and FY1989 (1988), but very much like those the
Reagan Administration did submit for FY1984 (1983) through FY1987 (1986), did
propose reducing military retirement COLAs. The Bush Administration’s COLA
reduction program had two components. First, it proposed to cancel the COLA that
would be paid on January 1, 1990. Second, through at least 1994, all military retirees
(not just those who first entered military service after August 1, 1986, as provided for
in the Military Retirement Reform Act of 1986) would, beginning with the January
1, 1991 COLA, have their COLA calculated on the basis of one percentage point
below the actual rate of inflation as measured by the Consumer Price Index-related
formula described above.
However, the bipartisan budget agreement reached between Congress and
President Bush in the spring of 1989 assumed that COLAs would be paid to military
retirees based on permanent law. Although there were no explicit statements to that
effect stated in the documents associated with the agreement, no savings from COLA
cancellations were included in the budgetary calculations released to the public as
part of the agreement. The Bush Administration thus implicitly abandoned the idea
of proposing COLA reductions for either FY1990 or later fiscal years.
In addition, the House, Senate, and final versions of the FY1990 concurrent
resolution on the budget all assumed the payment of full COLAs in accordance with
permanent law. Finally, the various statutes described above which prevented
sequestration under GRH from affecting military retirement and other Federal
retirement COLAs remained in effect.
Based on the permanent statutory COLA computation formula, therefore (the
percentage increase in the average CPI for the third quarter of calendar year 1989



over the average CPI for the third quarter of calendar year 1988), military retirees
received a 4.7% COLA on January 1, 1990.
FY1991 (1990) COLA Actions
The original FY1991 budget of the Bush Administration, submitted in early
1990, proposed military retirement COLA reductions identical in nature to those the
Administration had proposed a year earlier for FY1990. The FY1991 COLA
reduction proposal of the Administration had two components. First, it proposed to
cancel the COLA that would be paid on January 1, 1991. Second, through at least
1995 (FY1995), all military retirees (not just those who first entered military service
after August 1, 1986, as provided for in the Military Retirement Reform Act of
19861) would, beginning with the January 1, 1992 COLA, have their COLA
calculated on the basis of one percentage point below the actual rate of inflation as
measured by the Consumer Price Index-related formula described above.
In addition to the Administration’s COLA reduction proposal, it was reported
that the ongoing budget summit negotiations between the congressional leadership
and the Administration, during August-October 1990 considered reductions in COLA
benefits similar, but deeper, than those proposed by the Administration. These
reductions allegedly included the following elements: (1) canceling the FY1991
COLA scheduled for payment on January 1, 1991; (2) limiting COLAs in FY1992
and thereafter to the CPI minus one percentage point for military retirees age 62 and
over; (3) providing no COLAs for military retirees under age 62; and (4) restoring the
purchasing power of under-62 retirees with a one-time recomputation of their retired
pay. After the one-time recomputation, the purchasing power of retirees over age 62
would, however, still decline due to their future COLAs being determined on the
basis of the CPI-minus one formula.2 However, the final budget agreement reached
by the congressional leadership and the Administration in late October 1990 included
no such COLA reductions.
The House, Senate, and final versions of the FY1991 concurrent resolution on
the budget all assumed the payment of full COLAs in accordance with permanent
law. Finally, the various statutes described above which prevented sequestration
under GRH from affecting military retirement and other federal retirement COLAs
remained in effect.
Based on the permanent statutory COLA computation formula, therefore (the
percentage increase in the average CPI for the third quarter of calendar year 1990
over the average CPI for the third quarter of calendar year 1989), military retirees
received a 5.4% COLA on January 1, 1991.


1 Ibid.
2 See, for example, Rick Maze, “4.1% Pay Raise Called ‘Clearly Dead’; 3.5% in Doubt.”
Army Times, Sept. 24, 1990: 3; “Retirees Cry Foul over Suggested COLA Cuts.” Army
Times, Oct. 1, 1990: 10; and “Cheney Fights for COLA.” Army Times, Oct. 8, 1990: 4.

FY1992 (1991) and FY1993 (1992) COLA Actions
The original FY1992 and FY1993 budgets of the Bush Administration,
submitted in early 1991 and 1992, respectively, proposed no military retirement
COLA reductions. The House, Senate, and final versions of the FY1992 concurrent
resolution on the budget all assumed the payment of full COLAs in accordance with
permanent law.
The various statutes described above which prevented sequestration under GRH
from affecting military retirement and other federal retirement COLAs remained in
effect in FY1992 and FY1993. The Bush Administration did propose, as part of its
FY1993 budget, to allow military retirement COLAs to be subject to a GRH budget
sequestration if one took place, but Congress took no action on this proposal and it
was not enacted.
Based on the permanent statutory COLA computation formula (the percentage
increase in the average CPI for the third quarter of calendar year 1991 over the
average CPI for the third quarter of calendar year 1990), military retirees received a

3.7% COLA on January 1, 1992.


Similarly, based on the permanent statutory COLA computation formula (in this
case, the percentage increase in the average CPI for the third quarter of calendar year
1992 over the average CPI for the third quarter of calendar year 1991), military
retirees received a 3.0% COLA on January 1, 1993.
FY1994 (1993) COLA Actions
Summary
After a year of complex and lengthy debates on military retirement COLAs,
1993 ended with the Omnibus Budget Reconciliation Act of 1993 providing that
military retirees received a 2.6% COLA on either April 1, 1994 (nondisabled
retirees) or January 1, 1994 (disability retirees and survivor benefit recipients).
Administration Proposals
The Clinton Administration FY1994 budget did not propose curtailing military
retirement COLAs.
FY1994 Congressional Budget Resolution
The FY1994 budget resolution embodied, in its budgetary assumptions, certain
restrictions on COLAs. However, as with all such assumptions, these were not
binding.
House Version of the FY1994 Budget Resolution. The following assumptions
regarding military retirement COLAs were contained in the House version:



1.All military retirees would have had their COLAs capped at $400 for
FY1994 — that COLA to be first paid on January 1, 1994;
2.Current retirees UNDER age 62 would have had their COLAs computed
on the basis of 50% of the actual inflation rate. When a retiree reached age
62, there would have been a one-time recomputation of his or her annuity
to make up for the lost purchasing power caused by the holding of COLAs
to 50% of the inflation rate. This would have been a permanent change in
the COLA formula for under-62 military retirees. Survivor benefit
recipients would have been excluded from this change; and
3.Current retirees 62 OR OLDER would have had their COLAs computed
on the basis of one percentage point below the actual inflation rate, but
only for Fiscal Years 1995-1997.
Senate Version of the FY1994 Budget Resolution. The Senate version
embodied no COLA restrictions in its policy assumptions.
Final FY1994 Budget Resolution as Enacted. The final budget resolution
embodied the following COLA restrictions in its policy assumptions:
1.Current retirees under age 62 (not all retirees, as would have been the case
in the assumptions embodied in the House version) would have had their
COLAs capped at $400 for FY1994 — that COLA to be first paid on
January 1, 1994;
2.Current retirees under age 62 would have had their COLAs computed on
the basis of 50% of the actual inflation rate. When a retiree reached age
62, there would have been a one-time recomputation of his or her annuity
to make up for the lost purchasing power caused by the holding of COLAs
to 50% of the inflation rate. This would have been a permanent change in
the COLA formula for under-62 military retirees. (This was identical to #2
of the House version, as noted above.)
Omnibus Budget Reconciliation Act of 1993 (FY1994
Reconciliation Legislation)
Table 1 itemizes congressional action on military retirement COLAs in the
Omnibus Budget Reconciliation Act of 1993 (in all versions, military Survivor
Benefit Plan beneficiaries and military disability retirees are excluded). Note that
this legislation changed the dates of COLAs, not the COLA computation formulas.
The final bill’s action on federal civil service retirement COLAs is included for
comparative purposes. As the table indicates, civil service retirement COLAs were
to have been reduced less than military retirement COLAs.



Table 1. Military and Civil Service Retirement COLAs in the
Omnibus Budget Reconciliation Act of 1993
Date COLA Paid
1994 1995 1996 1997 1998 1999
House 05/01/94 08/01/95 11/01/96 None 02/01/98 05/01/99
Sena t e 10/01/94 10/01/95 10/01/96 10/01/97 09/01/98 01/01/99
M ilit a r y 04/01/94 10/01/95* 10/01/96* 10/01/97* 10/01/98* 01/01/99
COLAs
(Final)
Civil Ser04/01/9404/01/9504/01/9601/01/9701/01/9801/01/99
COLAs
(Final)
*Changed by legislation enacted in 1994.
Reasons for Larger Cuts in Military Than in Civil Service Retirement
COLAs. After action on the Omnibus Budget Reconciliation Act of FY1994
reconciliation legislation was complete, many military retirees questioned why the
legislation provided that military retirement COLAs would be paid later than civil
service retiree COLAs in FY1995-1998. The reasons are complex, and relate to the
congressional budget process.
As noted above, the FY1994 congressional budget resolution included
retirement spending reductions based on the policy assumption of limiting civilian
and military retirement COLAs to one-half the rate of inflation for retirees under age
62 up to a maximum COLA in 1994 of $400. This generated larger estimated
savings in military than in civil service retirement, because there are more military
than civil service retirees under age 62 (in 1992, about 55% of military retirees were
under 62, compared to about 15% of civil service retirees).
The budget resolution is the vehicle through which the congressional budget
committees annually provide instructions regarding budget targets to the authorizing
committees. The authorizing committees responsible for the military retirement
program are the House and Senate Armed Services Committees; civil service
retirement is the responsibility of the House Post Office and Civil Service Committee
and the Senate Governmental Affairs Committee. Savings, in the form of reductions
to ongoing programs, are enacted in reconciliation legislation drafted in the
authorizing committees. Budget resolutions do not contain binding programmatic
changes required to achieve specified savings, but the dollar amounts of savings are
based on policy assumptions made by the budget committees. The final
programmatic changes must be made by the authorizing committees.
The authorizing committees responsible for the military and civilian retirement
programs did not adopt the policy assumptions underlying the budget resolution
proposal to pay half COLAs to retirees under age 62. Nevertheless, they were
required to save the same amount of money that proposal would have saved. Thus,



when the committees decided that delaying the date on which COLAs are paid was
more acceptable than differentiating COLAs on the basis of age, it was necessary to
include a longer delay for military retirees in the years after FY1994 than for civilian
retirees because of the requirement for greater savings from the military program.
Nevertheless, the Armed Services Committees agreed to protect from delay COLAs
to groups they perceived as more financially vulnerable, namely, military disability
retirees and survivors.
1993 Congressional COLA Reduction Proposals Not Enacted
“Penny-Kasich.” On October 27, 1993, a bipartisan group of House members
led by Representatives Penny and Kasich proposed a package of federal budget cuts
as an alternative to a budget cutting proposal advanced the previous day by President
Clinton. Initially, the Penny-Kasich proposal would have denied COLAs to all
military retirees under age 62, beginning with FY1994. It was later modified to deny
COLAs to under-62 retirees who first entered military service on or after January 1,

1994 (i.e., the proposal was fully “grandfathered”). For practical purposes, therefore,


the final Penny-Kasich proposal (which was proposed as an amendment to H.R.
3400, 103rd Congress, and was defeated in the House on November 22, 1993) would
not have affected any retirees until January 1, 2014 (when the first military members
affected would have completed 20 years of service and become eligible for
immediate nondisability retirement).
Senate Proposal, November 1993. On November 10, 1993, a bipartisan group
headed by Senator Bob Kerrey released a budget cutting proposal broadly similar to
Penny-Kasich; it called for cutting the FY1994 COLA in half, from 2.6% to 1.3%,
and, exactly like the final version of Penny-Kasich, denying all COLAs to under-62
retirees who first entered military service on or after January 1, 1994. This proposal
was never introduced as a Senate bill.
Boren-Danforth Proposal, May 1993. Another COLA reduction scheme,
never actually embodied in a bill, was proposed by Senators Boren and Danforth as
part of another bipartisan deficit reduction effort released on May 20, 1993. This
plan would have paid full COLAs on only the first $600 monthly of military retired
pay, federal civil service retired pay, and Social Security retirement. Under this
proposal, which would have been in effect during FY1994-1998, COLAs on military
retired pay above $600 monthly would have been limited to two percentage points
below the CPI increase as determined in accordance with the permanent COLA
formula. (For example, assume the COLA was computed to be 4% for a particular
year. A retiree receiving $1,000 monthly in retired pay would have had the full
COLA of 4% paid on the first $600 monthly of his retired pay; but only a 2% COLA
paid on the remaining $400 monthly.) The Boren-Danforth proposal did not exempt
disability retirement and survivor benefits from its provisions.



FY1995 (1994) COLA Actions
Summary
After legislative activity even more intricate than in 1993, the 2nd session,
103rd Congress, ended with the FY1995 National Defense Authorization Act and the
FY1995 DOD Appropriations Act providing that military retirees received a 2.8%
COLA on April 1, 1995 (nondisability retirees) or January 1, 1995 (disability
retirees and survivor benefit recipients).
Administration Proposals
The FY1995 budget of the Clinton Administration, released in February 1994,
did not propose cutting military retirement COLAs.
FY1995 Congressional Budget Resolution
The final version of the FY1995 budget resolution, approved in early May 1994,
included no cuts in military retirement COLAs. Neither did the House and Senate
versions, both approved during March 1994 (an attempt to eliminate military and
civil service retirement COLAs for FY1996 and FY1998 was defeated in the House
Budget Committee).
FY1995 National Defense Authorization Act and FY1995 DOD
Appropriations Act
Table 2, below, summarizes legislative action during 1993 and 1994 (involving
consideration of the FY1994 and FY1995 budgets, respectively) on military
retirement COLAs. The situation that existed prior to 1993, and the status of civil
service retirement COLAs, are included for comparative purposes.



CRS-12
Table 2. FY1994-1995 Legislative Action on Military
and Civil Service Retirement COLAs
(Nondisabled Military Retirees ONLY)
Date COLA Paid
1994 1995 1996 1997 1998 1999
Law Before 1993: Military and Civil01/01/9401/01/9501/01/9601/01/9701/01/9801/01/99
Svc COLAs
ilitary COLAs: Final 1993 Action 04/01/9410/01/9510/01/9610/01/9710/01/9801/01/99
223
Military COLAs: 1994 ActionNA04/01/95 (HASC/No House actionNo House actionNo House actionNo House action
(FY1995 Def Auth Act)House)*
iki/CRS-98-07/01/95 (SASC)04/01/9507/01/96 (SASC)05/01/97 (SASC)05/01/98 (SASC)No SASC action
g/w(Senate)No Senate actionNo Senate actionNo Senate actionSame as civil svc
s.or04/01/95 (Final)*(Senate)
leak
Military COLAs: 1994 ActionNANo House actionNo House actionNo House actionNo House actionNo House action
://wiki(FY1995 Def Approp Act)04/01/9504/01/96No Senate actionNo Senate actionNo Senate action
http (SAC/Senate) (SAC/Senate)
04/01/9504/01/9601/01/9701/01/98No conf action
(Final)* (Final) (Final) (Final)
Civil Svc COLAs: 1994 ActionNANo House actionNo House actionNo House actionNo House actionNo House action
(FY1995 Def Auth Act) 07/01/9507/01/9605/01/97 (SASC)05/01/98 (SASC)No SASC action
(SASC) (SASC)
No Senate actionNo Senate actionNo Senate actionNo Senate actionSame as military
(Senate)
il Svc COLAs: Final 1993 Action04/01/9404/01/9504/01/9601/01/9701/01/9801/01/99
*The April 1, 1995 payment date of the FY1995 military retirement COLA authorized in the FY1995 National Defense Authorization Act could only be paid if appropriations
ade specifically for this purpose. The House Appropriations Committee and full House versions of the FY1995 DOD Appropriations Act did not include funding of this earlier
A. The Senate Appropriations Committee and full Senate versions did include funding for the earlier COLA. In conference action, the Senate position prevailed, so that the FY1995
y retirement COLA was paid to nondisabled retirees on April 1, 1995.



COLA Action in the FY1995 National Defense Authorization
Act: Detailed Discussion
House Armed Services Committee. In its report on the FY1995 National
Defense Authorization Act, the House Armed Services Committee, in addition to
identifying $376 million to be used to fund an FY1995 military retirement COLA
that would first be paid on the same date as the civil service retirement COLA —
April 1, 1995 — also stated that it “will seek to work through the budget process to
find a solution to the disparate COLA payment dates for fiscal years 1996, 1997, and

1998.”


House Floor Action. The full House adopted the House Armed Services
Committee language on military retirement COLAs.
Senate Armed Services Committee. The Senate Armed Services Committee
version of the authorization bill would have paid for earlier military retirement
COLAs by authorizing later civil service retirement COLAs. This would have
avoided paying for the earlier COLAs by cutting discretionary defense spending.
[Because civil service retirement COLAs are within the jurisdiction of the Senate
Governmental Affairs Committee, not the Armed Services Committee, the Senate
committee did not actually include statutory language to modify civil service
retirement COLAs in the bill it reported. The Armed Services Committee report
(Senate Report 103-282, June 14, 1994, pp. 197-99) instead contained explanatory
language for a committee amendment which was to have been offered during floor
consideration of the FY1995 National Defense Authorization Act.]
Senate Floor Action. The Senate Armed Services Committee amendment
described immediately above was never offered by Senator Nunn, the committee
chairman. Instead, the Senate adopted (by a vote of 88-12) an amendment,
cosponsored by Senators Warner and Sarbanes, which was identical to the language
in the House authorization bill.
The Senate also adopted another amendment which would have required
military and civil service retirement COLAs to first be paid on the same date,
beginning October 1, 1998 (FY1999).
Conference Action. The conference version of the authorization bill (reported
August 12, 1994) included the language adopted by both House and Senate.
However, the conference report included language strongly criticizing the use of
discretionary defense funds needed to maintain military readiness for the payment of
retirement COLAs, an entitlement that does not contribute to readiness, and stating
that for this reason “the conferees deem it imperative that an alternative method of
eliminating the [disparity between military and civil service retirement COLAs] be
found for fiscal years 1996, 1997, and 1998.”
The conference version of the authorization bill also changed the Senate floor
amendment language mandating that military and civil service retirement COLAs
be paid on the same date, whichever was earlier, to language that it was “the sense
of the Congress” that such a change should be made.



COLA Action in the FY1995 DOD Appropriations Act: Detailed
Discussion
House and Senate Committee and Floor Action. The payment of the earlier
COLA in accordance with the House and Senate authorization language was
explicitly contingent on the appropriation of the additional $376 million in
appropriations legislation. The House Appropriations Committee and full House
versions of the FY1995 DOD Appropriations Act did not include any such
appropriations. However, the Senate Appropriations Committee and full Senate
version of the FY1995 DOD Appropriations Act did, despite the previously stated
opposition of Senators Byrd and Inouye, Chairmen of the full Senate Appropriations
Committee and the Senate Defense Appropriations Subcommittee, respectively, to
the plan adopted by both the House and Senate.
Conference Action. Whether or not the FY1995 COLA was to be paid earlier
than October 1, 1995, therefore, depended on the conference action on the FY1995
DOD Appropriations Act (see the conference report, H.Rept. 103-747. September 26,
1994). Because the Senate position prevailed in the conference, the FY1995 military
retirement COLA would be paid on the same date as COLAs for civil service retirees:
April 1 in 1995 and 1996 and January 1 thereafter. Based on the existing
statutory COLA computation formula described above, the amount of the 1995
COLA was to be 2.8%. If the Senate position in the appropriations act had not
prevailed, and no money had been appropriated for the earlier COLA, no matter what
the language in the FY1995 National Defense Authorization Act, the COLA delays
contained in the 1993 OBRA would have remained, and the FY1995 military
retirement COLA would have been scheduled for first payment on October 1, 1995.
The conference version of the FY1995 DOD Appropriations Act also contained
a provision which mandated the payment of the FY1996-1998 military retirement
COLAs on the same dates mandated by the 1993 OBRA for civil service retirement
COLAs during those years: April 1, 1996; January 1, 1997; and thereafter January 1
(rather than the October 1 mandated for military retirement COLAs only in the
OBRA). The January 1 dates, it should be noted, were those that are provided in
permanent law which governed military retirement COLAs before enactment of the

1993 OBRA or the FY1995 defense authorization and appropriations legislation.


Furthermore, the earlier military retirement COLAs mandated in the FY1995
DOD Appropriations Act were contingent on two requirements: (1) the President’s
FY1996 defense budget proposing legislation to pay for the earlier COLAs in
accordance with budgetary rules for entitlement programs and mandatory (i.e., not
discretionary, spending); and (2) the enactment of authorizing legislation which
would offset the cost of first paying COLAs on the earlier dates by cuts in other
mandatory and entitlement programs.



FY1994-1995 COLA Reductions: Budgetary Aspects
The COLA reductions enacted as part of the 1993 OBRA were projected to save
$788 million in civil service retirement costs and $2.358 billion in military retirement
costs — a total of $3.146 billion in savings — during the period FY1994-1998.
Because the FY1995 COLA was scheduled for payment on April 1, 1995 and 1996;
and January 1 of 1997 and thereafter, the total savings (those that were projected in

1994) were to be reduced, as shown in Table 3.


The plan originally advanced by the Senate Armed Services Committee (which
was NOT adopted by the full Senate), by providing for earlier military retirement and
later civil service retirement COLAs, would actually have resulted in savings greater
than the original 1993 OBRA delays in military retirement COLAs. The Senate
committee plan would have decreased total costs by $79 million in FY1995 ($189
million in increased military retirement outlays offset by $268 million in decreased
civil service retirement outlays). Over the period FY1995-1999, the Senate Armed
Services Committee amendment would have resulted in $221 million in savings
($1.118 billion in increased military retirement outlays offset by $1.339 billion in
decreased civil service retirement outlays). Overall savings would have been
achieved because there are more civil service retirees than military retirees and civil
service retirement outlays ($34.6 billion in FY1993) are substantially larger than
military retirement outlays ($27.2 billion in FY1993 outlays).
Table 3. Military and Civil Service Retirement Cost Savings
Due to COLA Postponements, FY1994-FY1998
(FY1994 Budget Estimates)
Fiscal YearMilitaryMilitaryCivil Service
Retirement: Retirement: Retirement :
Original SavingsSavings AfterOriginal Savings
From 1993 OBRAEnactment ofFrom 1993
FY1995 DefenseOBRA
Authorizations and
Appropriations
1994$180 million$180 million$271 million
1995$509 million$168 million*$254 million
1996$532 million$176 million*$263 million
1997$556 million00
1998$580 million00
Total$2.358 billion$524 million*$788 million
*CRS estimates.



FY1994-FY1995 COLAs and the Military Survivor Benefit Plan
(SBP)
Background. Most military retirees participate in the DOD Survivor Benefit
Plan (SBP). Under the SBP, a military retiree can have a portion of his or her
monthly retired pay withheld to partially finance (the remainder of the costs being
borne by the government), after the retiree’s death, a monthly survivor benefit to a
surviving spouse or other eligible recipient(s). The survivor benefit is a percentage
(a maximum of 55%) of a base amount (that amount of retired pay that the retiree
selects to be used in determining the SBP benefit and cost). Permanent law provides
that whenever a retired pay COLA takes effect, a retiree’s SBP premium — the
amount deducted from his or her retired pay — is increased at the same time and by
the same percentage as the COLA [10 USC 1452(h)]. Therefore, had permanent law
regarding COLAs not been changed by the 1993 OBRA, the amount deducted from
a nondisabled military retiree’s retired pay to finance the retiree’s SBP participation
would have increased by 2.6% on January 1, 1994.
However, as noted above, the OBRA delayed nondisability retirees’ COLAs
until April 1, 1994. The OBRA did not, though, delay the increase in SBP costs to
each nondisability retiree enrolled in the SBP. Therefore, SBP premiums were
increased for the three months of retired pay payable on January 1, February 1, and
March 1, 1994. Because DOD said it could not reprogram its computers that
generate retired pay checks and electronic payments to accommodate the new law by
January 1, the three months of increased SBP premiums were taken out of the retired
pay received by retirees on April 1, 1994 — the first month of the FY1994 COLA.
According to DOD, this retroactive collection of SBP premiums amounted to less
than $15 for most retirees.
There appeared to be two DOD rationales for the increase in SBP costs to the
retirees before the COLA takes effect:
!The survivor benefits received by survivors of retirees who died
before the new COLA took effect reflected that COLA — i.e., their
survivor benefits were computed as if the COLA had first been paid
on January 1, for the retired pay accruing during December, although
the costs to the government of this increase will be much less than
the additional SBP deductions taken in by the government;
!As noted above, all survivor benefit recipients received their COLAs
on January 1, not April 1. SBP budgeting assumes a particular
balance of SBP costs to the government (payments to beneficiaries)
and costs to the individual retiree (premiums taken as deductions
from retired pay). Had the increase in SBP premiums not been made
retroactive to January 1, therefore, the proportion of SBP costs borne
by the government would have increased, contrary to the statutory
structuring of the SBP.
There has been some controversy about whether SBP deductions from retired
pay should start before a fiscal year’s COLA is first paid. It has been argued that
some or all of the earlier deductions should be waived to avoid the loss in retired pay.



1994 (FY1995) Legislation. The Senate version of the FY1995 National
Defense Authorization Act included a floor amendment which would have prevented
the COLA-driven increases in SBP premium deductions from military retired pay
from taking effect before the actual COLA is granted for the retired pay itself.
However, this provision was NOT adopted by the authorization conference
committee, and hence the earlier premium deductions will continue, unless modified
by later legislation. Previously, legislation had been introduced (H.R. 4046 and S.
1817, 103rd Congress) that would have prevented the increased SBP deductions from
taking effect before the actual payment of the COLA, applicable for any COLAs
which are payable after the legislation’s enactment. For further information on the
SBP, see CRS Report 94-779, The Military Survivor Benefit Plan: A Description of
Its Provisions.
Military Retirement Options of the Entitlement Commission
On December 5, 1994, the staff of the Bipartisan Commission on Entitlement
and Tax Reform issued a report containing numerous options for cutting a broad3
range of federal entitlements. These options were reiterated in the Final Report of
the Commission, released on January 27, 1995.
Those options included in the report that would affect military retirement are:
!A cap on the combined total of military retired pay and social
security. Under this proposal, the combined total of military retired
pay and social security could not, for persons retiring from the
military after January 1, 2000, exceed 80% of the high-3 years of
basic pay. If a retiree’s combined benefit exceeded the cap, military
retired pay would be reduced, but by no more than 50%. In
computing the combined benefit, only social security benefits
resulting from military service would be counted; social security
based on civilian employment would not be counted. The cap would
be computed by DOD at the time a military member retires;
thereafter, it would be adjusted upward annually to reflect wage
growth in the civilian economy, until the retiree becomes eligible for
social security at age 62;
!Reducing the percentage of high-3 basic pay received for each year
of service between 20 and 30 years. Military members covered by
the Military Retirement Reform Act of 1986 (those who first
entered the military on or after August 1, 1986) accrue retired pay
at the rate of 2% per year for each year of service through 20. Thus,
for 20 years of service, retired pay is calculated at 40% of high-3
basic pay. The 1986 Act also provides that for each year of service


3 The Commission was established by President Clinton in late 1993 in response to
concerns about entitlement growth raised during congressional debate on the 1993 OBRA.
It finished its public deliberations on December 15, 1994. Its published products included
a letter to the President and both houses of Congress, various packages of entitlement and
tax options prepared by different groups of Commission members, and analytical and
supporting documents.

past 20, through the 30-year mark, retired pay is calculated at the
rate of 3.5% per year, reaching a maximum of 75% of high-3 basic
pay [(20 years of service X 2.0%) + (10 years of service X 3.5%)].
The Entitlement Commission staff option would have reduced the

20-30 year accrual rate from 3.5 to 2%. Thus, under this proposal,


a retiree with 30 years or more of service would thus receive a
maximum of 60% of high-3 basic pay rather than 75%. In addition,
the Commission staff proposed dropping the one-time recomputation
of retired pay upward at age 62 for the first 20 years of service, as
noted above, although it would have retained the one-time
recomputation at age 62 to make up for the lost purchasing power
caused by the holding of COLAs to the inflation rate minus one
percentage point;
!Cutting military retirement COLAs. The Commission staff
suggested two possible COLA options: (1) revising the CPI, by
1999, to make it more accurate, which the Commission believes
would result in lower CPI figures, or limiting COLAs to the CPI -
0.5% until the CPI revisions were completed; and/or (2) suspending
all COLAs for one year. These options would affect a wide variety
of other federal programs in addition to military retirement.
In addition, two other options to change military retirement were discussed in
the individual views submitted by Commission members and contained in the
Commission Final Report. These included:
!Limiting COLAs to (1) the full percentage amount or (2) the
maximum percentage COLA of the 20th percentile of retirees,
whichever is larger. (For example, assume the lowest 20% of
retirees receives no more than $1,000 per month in retired pay, and
that the COLA is determined to be 5%. All retirees receiving no
more than $1,000 per month in retired pay would get a 5% COLA,
i.e., a maximum of $50 — 5% of $1,000. Any retirees receiving
more than $1,000 per month in retired pay would get only a $50
COLA as well;
!Placing a cap on all federal entitlements, without exception,
including military retirement.
The Commission’s Final Report to the President and the Congress did not
endorse any specific program cuts. However, the Commission report, as with other
such commissions and groups, formed part of later debate on Federal entitlements,
including military retirement.



FY1996 (1995-1996) COLA Actions
Summary
After legislative activity at least as intricate, if not more so, than that which took
place in 1993 and 1994, the first session, 104th Congress, ended with the FY1995
National Defense Authorization Act providing that military retirees would receive
a 2.6% COLA on April 1, 1996 (nondisability retirees) or on January 1, 1996
(disability retirees and survivor benefit recipients).
Administration Proposals
The Clinton Administration’s FY1996 budget, released in February 1995, did
not propose delays or cuts in military retirement COLAs.
FY1996 Congressional Budget Resolution
The final FY1996 congressional budget resolution did not include any policy
and budget assumptions regarding COLAs, although the Senate version had done so.
FY1996 National Defense Authorization Act, FY1996 DOD
Appropriations Act, and FY1996 Omnibus Budget
Reconciliation Act
Table 4 summarizes legislative action during 1995 on the FY1996 military
retirement COLA payment date (the formula for figuring the percentage amount of
COLA was never in dispute), and compares various proposals with previous statutes
regarding both military and civil service retirement. This table applies to
nondisabled military retirees only; the COLA payment date for disabled retirees and
survivor benefit recipients has never varied from the permanent statutory date of
January 1 of each year.



Table 4. FY1996-FY1998 Military and Civil Service COLA Dates
(Military Disability Retirees and Military Survivor Benefit Beneficiaries EXCLUDED)
FY1996 FY1997 FY1998
Mil Ret: Permanent Law01/01/9601/01/9701/01/98
(10 USC 1401a)
Mil Ret: Law Enacted ina04/01/96b10/01/9710/01/98
1994
Civil Svc Retirementc04/01/9601/01/9701/01/98
(Current Law)
Mil Ret:04/01/96Applies to FY1996 onlyApplies to FY1996
FY1996 Budget Res(Sen Budgetonly
Committee/Sen floor)
No Assumptions (House
Budget Committee/House
floor)
No Assumptions
(Final Resolution)
Mil Ret: FY1996 Defensed04/01/96 (HNSC/HouseApplies to FY1996 onlyApplies to FY1996
Authorizationfloor)(HNSC/House floor)only (HNSC/House
04/01/96(SASC/Senate floor)01/01/97(SASC/floor)
04/01/96 (Public Law)Senate floor)01/01/98
01/01/97 (Public Law)(SASC/Senate floor)
Same as civil serv.
(Pub Law)
Mil Ret: FY1996e04/01/96 (HNSC/House01/01/97 (HNSC/House01/01/98
Reconciliation floor)floor)(HNSC/House floor)
No provisions (SASC/SenateNo provisionsNo provisions
floor)(SASC/Senate floor)(SASC/Sen. fl.)
No provisionsNo provisionsNo provisions
(Conf version)(Conf version)(Conf version)
aPermanent law as amended by Section 2001, P.L. 103-66, Omnibus Budget Reconciliation Act of 1993, 107 Stat. 312
at 335; and Section 8114A, FY1995 DOD Appropriations Act, P.L. 103-335, 100 Stat. 2648. Superseded by Sec. 631,
FY1996 National Defense Authorization Act, P.L. 104-106, Feb. 10, 1996; 110 Stat. 186. b
Only if legislation to authorize such expenditures had been passed, and if offsetting reductions in other budget outlays
were identified. Otherwise, reverts to 10/01/96. See Sec. 8114A, FY1995 DOD Appropriation Act, P.L. 103-335, 108
Stat. 2648. Repealed by Sec. 631, FY1996 National Defense Authorization Act, P.L. 104-106, Feb. 10, 1996;

110 Stat. 186.c


Proposed language in FY1996 Omnibus Budget Reconciliation Act, as passed by the Congress and vetoed by the
President, would have made payment date a uniform April 1 for all years.d
House version originally identified $406 million in discretionary defense spending cuts to pay for an April 1, 1996
military retirement COLA. Senate version included no specific funding mechanism in bill language, but Senate bill is
reported to have included $1.8 billion in direct — mandatory, or entitlement spending to be used to pay for COLAs
first payable on April 1, 1996, and January 1 of 1997 and 1998. Conference version would have (1) required payments
of COLAs to be made on dates indicated and contains no specific funding mechanisms and (2) repealed Section 8114A,
FY1995 DOD Appropriations Act, P.L. 103-335, 108 Stat. 2648. First version vetoed by President Clinton; House failed
to override veto. Second version enacted into law February 10, 1996; Sec. 631, P.L. 104-106; 110 Stat. 186. e
Vetoed by the President.



As the legislative process evolved during 1995, the House and Senate ended up
assuming that the legislative vehicle for determining the date on which COLAs
would first be paid to nondisabled military retirees would be the FY1996
reconciliation bill — the proposed “Balanced Budget Act of 1995" — although the
House and Senate had addressed the issue earlier in the year in their versions of the
FY1996 defense authorization bill. However, due to procedural concerns in the
Senate over the extent to which the Senate could include COLA-related provisions
in its reconciliation bill — the so-called “Byrd Rule” — the first version of the
FY1996 reconciliation bill ultimately did not address the COLA issue at all. Not
only did the bill not specifically mention COLA dates, it appears that $1.8 billion
incorporated into the mandatory spending assumptions of the bill, in order to pay for
COLAs to be first paid on April 1, 1996, and January 1 of 1997 and 1998 — was
applied to other programs during conference action on the first version of the FY1996
reconciliation bill. The first reconciliation bill, however, was vetoed by the
President.
A complicated situation then arose. If no COLA legislation had been approved
as part of the FY1996 legislative program, then the situation would have “defaulted”
back to the COLA dates in previously enacted law. These dates were those enacted
as part of the Omnibus Budget Reconciliation Act (OBRA) of 1993 — October 1 of
1996, 1997 and 1998. (The 1993 OBRA was amended in 1994 by the FY1995 DOD
Appropriations Act to allow the FY1996 COLA to be paid on April 1, rather than
October 1, 1996. However, such earlier payment was contingent on authorizing
legislation being passed to do so and offsetting savings being identified to pay for the
earlier COLA. With the enactment of the FY1996 DOD Appropriations Act into law
on December 1, 1995 without COLA provisions, if no other FY1996 legislation had
set COLA dates, then it is difficult to see what legislative vehicle would be available
to authorize the earlier COLA and identify the offsetting savings — hence, without
further legislation, the FY1996-1998 COLAs would have reverted to October 1.)
However, the FY1996 National Defense Authorization Act, signed into law on
February 10, 1996 (P.L. 104-106; 110 Stat. 186), mandated that COLAs first be paid
on April 1, 1996; January 1, 1997; and whenever in 1998 civil service retirement
COLAs are first paid. (The FY1996 DOD Appropriations Act, P.L. 104-61,
December 1, 1995, did not have any COLA provisions).
FY1997-FY1998 (1996-1997) COLA Actions
Summary
In FY1997 and FY1998, military retirement COLAs were first paid on
January 1 of each of those years respectively. The percentage increase was 2.9% for

1997 and 2.1% for 1998.


Administration Budget
The FY1997-FY1998 DOD budgets of the Clinton Administration included no
proposals for changes or cuts in military retirement COLAs — i.e., the budgets for



all five years assumed that the law as it stood after enactment of FY1996 legislation
would stand: payment of each fiscal year’s COLA on January 1 of each year.
FY1997-FY1998 Congressional Budget Resolutions
FY1997. The House version of the FY1997 budget resolution embodied the
same assumptions as did the Administration’s budget — an FY1997 COLA paid on
January 1, 1997 and later COLAs to be the same as civil service. It simultaneously
provided for civil service retirement COLAs to be paid on April 1 of the years 1997
through 2002. Because current law provided for FY1998 and later military
retirement COLAs to be paid on the same date as civil service retirement COLAs, the
House resolution thus had the effect of assuming FY1998 and later COLAs would
be paid on April 1 as well. The House Budget Committee estimated this would save
$1.067 billion from FY1998 through FY2002. Because the policy assumptions
underlying budgetary amounts are not binding, this did not assure that passage of the
House version would have delayed military retirement COLAs until April 1 of each
year. What it would have required is that somehow, either through the COLA delays
or through other cuts in mandatory (direct, or entitlement) spending, equivalent
savings be achieved.
However, the Senate version of the FY1997 budget resolution did not address
the issue of military retirement COLAs, and the Senate version prevailed in
conference. Therefore, the final congressional budget resolution, passed by the
House on June 12, 1996, and by the Senate on June 14, contains no policy
assumptions regarding military retirement COLAs.
FY1998. Neither the House nor the Senate FY1998 budget resolutions, and
hence the final resolution, contained any assumptions regarding changes in military
retirement COLAs. However, the resolution did assume a slight technical change in
how the Department of Labor’s Bureau of Labor Statistics calculates the CPI. This
change assumed that the CPI would be 0.3 of a percentage point less than it otherwise
would have been.
FY1997- FY1998 National Defense Authorization Acts
FY1997. The House version of the FY1997 National Defense Authorization
Act did not address the issue of military retirement COLAs. The final version,
signed by the President on September 23, 1996 (P.L. 104-201), accepted the Senate
version of the Act, changing the effective date of the FY1998 COLA from (1)
payment on whatever date the civil service retirement COLA is paid to (2) January

1, 1998.


FY1998. There were no COLA changes in any of the various versions of the
FY1998 National Defense Authorization Act.



Other Proposals for Changes in Military Retirement COLAs,
1996-1997
Concord Coalition Plans, 1996. In 1996, the Concord Coalition (a
bipartisan group devoted to reducing the federal deficit) endorsed eliminating COLAs
for all nondisabled retirees (military and federal civilian) under age 62, having a one-
time recomputation upward at age 62 to reflect the purchasing power due to the lost
COLAs, and then the payment of COLAs at a rate of the Consumer Price Index less
one percent thereafter (i.e., the same formula as is mandated by the Military
Retirement Reform Act of 1986 for persons who first entered the military on or after
August 1, 1986).
The “Centrist Coalition” Proposals, 1996. On April 25, 1996, a group
of 11 Republican and 11 Democratic Senators known as the “Centrist Coalition”
released a plan, not fully formulated, calling for reducing both COLAs and the retired
pay computation formula for retirees under age 50. COLAs would be established at
April 1 of each year through FY2003; COLAs would be capped in FY1997 and
FY1998 at the CPI less 0.5%, and in FY1999 and thereafter at the CPI less 0.3%.
Details of the cuts in the computation formula were not yet available. A similar
proposal was considered in the House, but likewise not adopted.
Other Senate Proposals in 1996. A floor amendment to the Senate version
of the FY1997 budget resolution was similar to the “Centrist Coalition” proposals.
It would have reduced military retired pay for retirees under age 50; limited COLAs
to the first $50,000 annually of retired pay for current and future retirees; and reduced
COLAs by 0.5% below the CPI. As with other, similar amendments, it also failed.
The “Blue Dog” Democrats’ CPI Proposals, 1997. In February 1997,
a group of conservative House Democrats, known colloquially as the “Blue Dog”
Democrats, released a balanced budget proposal which proposed several types of
limits on federal COLAs, including military retirement. Under the Blue Dog
proposal, the overall COLA would be reduced by 0.8% (for example, a COLA of
3.0% would be reduced to 2.2%). However, the reduced COLA would be applied not
to each individual military retiree, but to the average military retired pay for an
average retiree. Each retiree’s pay, no matter what the amount, would then be
increased by the latter amount. For example, continuing to use 2.2% as an example
of a Blue Dog-computed COLA, if the average retiree was receiving $1,600 per
month in retired pay, the COLA increase for all retirees would be 2.2% of $1,600, or
$35.20 per month. Each retiree, regardless of how much the retiree was receiving in
retired pay, would have his or her retired pay increased by a flat $35.20 per month.
While this was been defended on grounds of equity, it has been attacked for
“penalizing success,” by giving higher-ranking personnel a much smaller percentage
raise than lower-ranking retirees.
Proposals to Change the CPI, 1996-1997. Various authorities have
asserted that the CPI overstates the rate of inflation, perhaps by as much as about one
percent yearly, and that it should therefore be revised downward. Such a change
would cause the annual military retirement percentage COLAs (and all other federal
benefits receiving CPI-based COLAs) to decrease accordingly. In general,



proponents of the change argue that the existing mechanism for computing the CPI
fails to account for both consumer behavior changes and changes in the quality of
goods which contribute to minimizing the rate of inflation. Opponents suggest that
the assumptions made by those who wish to change the CPI formula and computing
methods are difficult, if not impossible, to verify, and that some of them in fact
should not be counted as reducers of inflation. Some comparatively minor changes
in the CPI formulae, resulting in CPIs lower by 0.25% a year or less than they
otherwise would be, have been implemented without much controversy.
For further information on the CPI controversy, see CRS Report 95-670,
Adjusting Benefits for Inflation: Impacts of Policy Change.
Repeal of the 1986 “Redux” Military Retirement
Legislation, 1998-1999: Effects on Future COLAs
The Military Retirement Reform Act of 1986: Summary of 1998-1999
Congressional Action Leading to its Near-Complete Repeal. Throughout 1998
and into 1999, there was increasing discussion of whether some or all of the future
retired pay cuts contained in the Military Retirement Reform Act of 1986 (P.L. 99-
348, July 1, 1986; 100 Stat. 682 et. seq.), also known as the “Redux” cuts, should be
repealed. Eventually, the Redux retirement reductions were almost completely
repealed by the FY2000 National Defense Authorization Act (Sections 641-44,
Subtitle D-Retired Pay Reform, Title VI,-Compensation and Other Personnel
Benefits, P.L. 106-65, October 5, 1999; 113 Stat. 512 at 662-64). The Redux statute
would have substantially cut the retired pay for those retirees who first entered
military service on or after August 1, 1986. With very few exceptions, military
personnel do not become eligible for retired pay until completing 20 years of service.
The Redux formula, therefore, would not have been used to compute any significant
number of retirees’ pay until mid-2006 (it applied to a very small number of
disability retirees starting upon its enactment).
Redux: Changing the COLA Formula.4 For military personnel NOT affected
by Redux (i.e., who entered service before August 1, 1986), each December a COLA
equal to the percentage increase in the CPI between the third quarters of successive
years is applied to military retired pay for the annuities paid beginning each January
1. For example, assume that the CPI rises from an average of 500.0 in the third
quarter of 2008 (the average of the CPI for the months of July, August, and
September 2008) to an average of 520.0 in the third quarter of 2009, an increase of
20.0 points, or 4.0% of 500.0. The military retired pay that accrues during December

2009, and is actually paid to retirees on January 1, 2010, would be increased by 4.0%


above the amount paid the previous month.
For military personnel whose retired pay would have been computed in
accordance with Redux, the 1986 Act modified the above formula by providing that


4 For a description of the non-COLA aspects of the Redux retirement legislation, see CRS
Issue Brief IB85159, Military Retirement: Major Legislative Issues.

annual COLAs would have been held to one percentage point below the actual
inflation rate for retirees under age 62. Retirees covered by the Redux formula would
thus have received a 3.0% increase, rather than 4.0%, in the hypothetical example
described in the paragraph immediately preceding this one. However, under Redux,
when the retiree reached age 62, there would have been a one-time recomputation of
his or her annuity to make up for lost purchasing power caused by the holding of
COLAs to the inflation rate minus one percentage point. After this one-time
recomputation, however, future Redux COLAs would have continued to be computed
on the basis of the CPI minus one percentage point.
Repeal of the 1986 Redux Legislation: Beginnings and the Administration
Proposal. Most discussion about repealing Redux in 1998 and early 1999 revolved
around changing its non-COLA aspects. However, the legislative process, including
the Administration’s own proposal, which eventually led to the repeal, included
variations in the original Redux COLA formula from the beginning.
In late December 1998, the Administration announced that it would propose a
repeal of Redux that would replace the COLA formula for Redux-eligible retirees
with the formula used for federal civil service retirees covered by the Federal
Employee Retirement System (FERS) — the pension plan for those federal civil
servants who were first employed by the government on or after January 1, 1984.
The FERS formula is less generous than the formula for pre-August 1, 1986 entrant
retirees, but more generous than the original Redux COLA provision. FERS
currently operates for civil service retirees by giving them a COLA of the CPI minus
one percentage point, if the annual CPI increase is over 3%; a flat 2% COLA if the
annual CPI increase is between 2 and 3%; and the full CPI if the actual CPI increase
is less than 2%.
Early Legislative Action: The Senate Bill. On January 27, 1999, the Senate
Armed Services Committee reported out S. 4, the Soldiers’, Sailors’, Airmen’s, and
Marines’ Bill of Rights Act of 1999 (S.Rept. 106-1), which would have offered a
military member two choices regarding retirement, of which one would have to be
chosen at the 15-year mark: (1) decide to retire under the pre-Redux formula, with
full pre-Redux COLA protection, or (2) decide to retire under Redux, including the
original Redux COLA formula, but receive an immediate $30,000 cash bonus. The
full Senate passed the bill on February 4, 1999.
Redux Repeal in the FY2000 National Defense Authorization Act. There
was no House action on S. 4, noted above; after the Senate passed S. 4 the legislative
vehicle for military retirement changes shifted to the FY2000 defense authorization
bill. On May 17, 1999, the Senate Armed Services Committee reported out its
version of the authorization bill (S.Rept. 106-50), and the bill passed the full Senate
on May 27, 1999. The COLA provisions of the Senate bill were identical to those
of S. 4 — an option for the individual to select either Redux or pre-Redux COLA
formulae. However, the House version of the FY2000 defense authorization was
quite different. The House Armed Services Committee’s bill, reported May 19, 1999
(H.Rept. 106-162), and the full House bill, passed June 10, 1999, provided the same
two options as the Senate — retirement under Redux with a $30,000 bonus or
retirement under pre-Redux and no bonus — but the House COLA provisions were
less generous than those of the Senate. The House in fact adopted the



Administration’s proposal for the option involving the $30,000 bonus; members who
selected this would have their COLA computed on the same formula as used in the
Federal Employee Retirement System (FERS) as described above. The final version
of the bill, however, (P.L. 106-65, October 5, 1999, Sec. 641), contained the House
plan — the FERS formula was rejected, and those retirees covered by the 1986 Act
will have the option of a Redux or pre-Redux COLA formula, depending on whether
or not they opt for the $30,000 cash bonus.
FY1999-FY2005 (1998-2004) COLA Actions
In each of the seven fiscal years FY1999-FY2005, all military retirement
COLAs were first paid on January 1 of those years. The percentage increases were

1.3% for 1999, 2.4% for 2000, 3.5% for 2001, 2.6% for 2002, 1.4% for 2003, 2.1%


for 2004, and 2.7% for 2005. There were no proposals in the Administration budgets
and no congressional actions directed at any COLA changes in these years. These
seven years are the longest period since military retirement COLAs were first
authorized in 1963 in which no legislative changes in the COLA mechanism have
been even proposed. Similarly, the eight fiscal years FY1997-FY2005 (calendar
years 1996-2004), contained no changes in the COLA formula, the longest such
period since 1963 in which no actual changes were made.5


5 COLAs for retired military personnel were first authorized by Sec. 5(g), P.L. 88-132,
October 2, 1963; the Uniformed Services Pay Act of 1963; 77 Stat. 210 at 213 et. seq. For
post-1963 COLA changes which took place before the period this CRS report covers (pre-
1982/FY1983 COLA-related actions), see U.S. Congress. House. Committee on Armed
Services. Title 37, United States Code; Pay and Allowances of the Uniformed Services (Asndst
Amended Through December 31, 1990). Committee Print No. 3. 102 Congress, 1
session. Washington, U.S. Govt. Print. Off., 1991: 182-83; and Office of the Secretary of
Defense. Military Compensation Background Papers. Compensation Elements and Related
Manpower Cost Items; Their Purposes and Legislative Backgrounds. Fifth Edition,
September 1996: 559-61.