Instead of using the full Consumer Price Index (CPI) to adjust retired pay each year, as has been customary in recent years, Section 403 of the Bipartisan Budget Act (BBA) substituted the CPI less 1% for all current and future military retirees under the age of 62 (except those already receiving reduced COLAs under the Redux retirement option). At age 62, beneficiaries would receive a bump-up in their benefit level to the amount they would have received had a full COLA adjustment been included each year rather than the lower COLAs. In subsequent years, this new benefit level would be adjusted using the full CPI. According to CBO, this change would have saved the Department of Defense $6.235 billion over the decade. Most Recent Action

In January, responding to concerns raised about the effect on disabled military retirees who tend to retire younger and have shorter life expectancies, Congress reversed the COLA adjustments in the BBA for disability retirees and survivor benefit recipients with passage of the FY2014 Consolidated Appropriations Act ( H.R. 3547 / P.L. 113-76 ). On February 11, 2014, the House passed an amended version of S. 25 , to modify the impact of the reduced COLA provision of the BBA so it only applied to individuals who become members of the uniformed services on January 1, 2014, or later. The Senate passed this amended version on February 12, and the President signed it into law ( P.L. 113-82 ) on February 15. Hence, all currently serving military personnel who joined before January 1, 2014, and all current retirees are effectively excluded ("grandfathered") from the COLA reduction provision of the BBA. Only those individuals who join in 2014 or later and subsequently qualify for non-disability retirement will ultimately be subject to the COLA provision (along with REDUX retirees, who opt into a reduced COLA retirement in exchange for a cash bonus). Since non-disability retirees typically must serve 20 years before qualifying for retirement, the first major cohort of non-disability retirees to be impacted by this provision will be those who retire in 2034. The average age of nondisabled current retirees is 61 for enlisted and 66 for officers, suggesting that many retirees would not have been affected by reduced COLAs under the original BBA or would have been subject to lower COLAs for fewer years than future retirees. To estimate the effect on future nondisabled military retirees under the BBA formula, CRS calculated average lifetime retirement income for enlisted and officer retirees with a full CPI adjustment and with the CPI less 1% as set in the Bipartisan Budget Act. Enlisted personnel would have received a total of about $1.67 million rather than $1.73 million in lifetime retirement benefits, a $69,000 or 4.0% reduction in a 36-year period; Officers would have received a total of $3.74 million rather than $3.83 million in lifetime retired pay, an $87,000 or 2.3% reduction in a 36-year period (see Table 2 ). Based on those data, CRS estimated that lifetime retired benefits for the average disabled military retiree would have been affected as follows if the reduced COLAs had remained in effect.
In addition to raising budget caps in FY2014 and FY2015, the Bipartisan Budget Act (BBA) reduced the cost of living adjustments (COLAs) provided to working-age military retirees under the age of 62 from the full Consumer Price Index (CPI) to the CPI less 1%. Military retirees would then receive a "bump-up" at age 62 that would raise their benefit level to an amount that included full rather than partial CPI adjustments for each year below the age of 62. This new benefit level would then be increased for full CPI adjustments in later years. According to CBO, this change would have saved the Department of Defense $6.235 billion over the decade.
Based on data published by the Department of Defense (DOD) Actuary about the characteristics of FY2012 military retirees and CBO projections of the CPI, CRS estimates that for the average nondisabled future retiree, lifetime retirement income under the BBA's lower COLA would be about:
$1.67 million rather than $1.73 million in lifetime retired pay, a $69,000 or 4.0% reduction for enlisted personnel; and $3.74 million rather than $3.83 million in lifetime retired pay, an $87,000 or 2.3% reduction for officers.
The impact of the BBA's reduced COLAs on disabled retirees would have been larger because they tend to retire younger and thus would have faced COLA reductions for more years. CRS estimates that the lifetime retirement income for disability retirees under the BBA formula would have been reduced by $123,000 or 9.6% for enlisted personnel and $144,000 or 5.3% for officers.
In response to concerns about potential effects, Congress restored full CPI COLA adjustments for disabled military retirees and survivors in the FY2014 Omnibus (H.R. 3547/P.L. 113-76) signed by the President on January 17, 2014. Several bills were also introduced that would reverse the COLA decrease for non-disabled military retirees as well. Although the reduced COLAs would not have gone into effect for non-disability retirees until December 1, 2015, some Members called for action sooner.
On February 11, 2014, the House passed an amended version of S. 25, to modify the impact of the reduced COLA provision of the BBA so it only applied to individuals who become members of the uniformed services on January 1, 2014, or later. The Senate passed this amended version on February 12, and the President signed it into law (P.L. 113-82) on February 15. Hence, all currently serving military personnel who joined before January 1, 2014, and all current retirees are effectively excluded ("grandfathered") from the COLA reduction provision of the BBA. Only those individuals who join in 2014 or later and subsequently qualify for non-disability retirement will ultimately be subject to the COLA provision (along with REDUX retirees, who opt into a reduced COLA retirement in exchange for a cash bonus). Since non-disability retirees typically must serve 20 years before qualifying for retirement, the first major cohort of non-disability retirees to be impacted by this provision will be those who retire in 2034.