The defense authorization bill agreed upon by House and Senate negotiators would affect military pocketbooks in ways both big and small.

It includes a 1.3 percent pay increase for uniformed service members. But more significant in the long run, it chips away at the military’s pension system. In exchange for shrinking pensions, it encourages current troops — and mandates that future ones — invest in the Thrift Savings Plan.

The House and Senate conference committee rejected calls for broad reforms to the military’s health care system, instead agreeing to relatively minor tweaks. For example, military families using TRICARE will have to pay more to fill prescriptions at retailers rather than military facilities. But in its report, the committee warned that broader changes would come to the system in 2017.

Taken together, the provisions continue a “penny wise and pound foolish” approach to cost savings that could incite mid-level service members to leave,  said Ret. Vice Admiral Norb Ryan, president and CEO of the Military Officers Association of America.  

“In the next two to three years, if this trend continues, we’re going to be back wondering if the all-volunteer force is heading into a ditch or not,” he said. “They have choices and it will be a couple years before DoD realizes, ‘My gosh, we lost too many of the really good ones that we needed to stay.'”

The legislation also endorses the Pentagon’s efforts to reduce administrative costs at headquarters. It directs the department to find $10 billion in savings by 2019. Some of that should come from a 25 percent cut in headquarters activities, it said. The language echoes a memo sent in August by Deputy Defense Secretary Robert Work to DoD leaders.

President Barack Obama has threatened to veto the legislation because it leaves in place the spending caps known as sequestration. The bill maneuvers around that constraint by drawing upon funds set aside for overseas conflicts.

More details of the legislation’s impact on service members and defense civilian employees are below:

Ryan: Pay raise for troops is “disappointing.”

While the House proposed a 2.3 percent pay raise for uniformed service members to match the Labor Department’s Employment Cost Index, the conference committee sided with the Obama administration’s request for a 1.3 percent increase.

“This is the third year in a row that they have not gotten the pay raise that they deserve,” Ryan said. “It’s a bad signal for the all-volunteer force.”

Generals and flag officers’ pay would remain flat under the legislation.

The bill extends the department’s authority to offer bonuses and other financial incentives to military in certain high demand fields, such as nuclear officers and some pilots.

Bill trims pensions for new troops, adds employer match to TSP

Beginning in 2018, new service members would fall under a hybrid retirement system. Their pensions would be less generous than the current formula. Instead, they would have greater incentives to enroll in the Thrift Savings Plan. The government would match their TSP contributions up to 5 percent of their basic pay. The changes would not impact current military, but those with fewer than a dozen years of service by 2018 could opt into the new system. The employer match would end after 26 years of service.

The new system will help the vast majority of troops who do not stay in the military for 20 years or more, Ryan said. But, he said, it comes at the expense of the 17 percent who do stay for their entire careers. Furthermore, he said he feared that troops would not make the most of their TSP options without a concerted educational effort by the Pentagon.

“When you’re ducking bullets or flying airplanes in a combat zone, you don’t have much time to think about your financial situation and whether you should move from equity to bonds,” he said. “This is the problem with putting a civilian-type retirement program onto a group whose conditions of service are vastly different.”

The legislation directs the Pentagon to submit a plan by March for implementing the new system.

Negotiators tweak drug copays but dodge health system reforms

TRICARE beneficiaries will face higher copays for prescription drugs at retail pharmacies beginning in 2016, under the legislation. They will not have to pay out-of-pocket for the same medicine at military treatment facilities.

The changes to the drug plan foreshadow a bigger reform of the health care system. The conference report warns that Congress will take a hard look at all of the system’s elements in 2017. Increases in fees and copays will be necessary, it said.

“The current system has not kept pace with the best practices and latest innovations in the commercial health care market and will not meet the future needs of the DOD, the service members, families or retirees,” it said.

Bill adds to the uncertainty for civilian defense workers

The legislation directs the Pentagon to cut headquarters activities by 25 percent by 2019. All headquarters, administrative and support functions should be examined with an eye towards streamlining and consolidation, the conference report said.

In addition, new civilian employees would face an increased probationary period of two years. Supervisors should track and assess the employees’ performance during that time, it said.

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