President Obama has asked Congress to phase in a plan allowing a group called Chapter 61 retirees to receive military retirement pay and Veterans Affairs disability checks.
This week we explain more details of the plan which, if enacted, would boost pay for 103,000 veterans by more than $2 billion through 2014.
The proposal means that more people will be eligible for disability compensation and retirement pay for the years served. For many decades, Chapter 61 retirees’ retirement pay had been reduced by the amount of their disability benefit.
Gary McGee, assistant director of military compensation for the Department of Defense, explained the changes ahead for that group of retirees if Congress agrees to Obama’s plan. He also provided sample calculations to show how the impact will vary widely based on individual circumstance.
Most Chapter 61 retirees were forced out of the service by ailments or injuries before they could serve 20 years and qualify for regular retirement benefits. Others served their 20 years, but still qualified for a tax-exempt disability retirement for permanent medical conditions.
The administration would expand eligibility for the dual payments, which started in 2004 and were applied only to retirees who qualified for disability ratings of 50 percent or higher from the Department of Veterans Affairs.
Regular retirees with VA ratings of 40 percent or lower have their retirement pay offset by VA disability compensation.
Why has Obama targeted Chapter 61 retirees for extra pay? The White House’s Office of Management and Budget developed the idea as an affordable compromise. It would cost $5.4 billion over 10 years versus the $45 billion it would cost for Obama to fulfill a campaign pledge to extend both payments to all disabled retirees.
The schedule to expand pay to Chapter 61 retirees would begin Jan. 1 for those having fewer than 20 years of service and VA ratings of 90 percent or more. After 2011, the benefits will be extended to those with less than 20 years of service, including steps for those with lower VA ratings each Jan. 1 until 2014. On Jan. 1, 2014, a small group of Chapter 61 retirees receiving VA disability compensation and not included earlier would become eligible.
McGee said calculating pay for Chapter 61 retirees involves three moving parts: gross retired pay based on military disability; retired pay earned for years of service, and VA compensation. To prevent duplicative disability pay, a special rule states that when the amount of disability retirement exceeds retired pay earned for total years’ served, the difference can be offset by the amount of VA disability compensation.
Applying the precise formula here isn’t possible but McGee gave examples, using rounded pay numbers, to show the practical effect:
An E-4 with four years of service is rated 50 percent disabled by the Department of Defense and 90 percent by the VA. On base pay of $2,200 a month, a 50 percent defense rating provides disability retirement of $1,100. Because a 90 percent VA rating pays $1,600 a month, this E-4 under current rules would opt for the VA compensation and get nothing for his service time.
Under the new proposal, however, he would receive retired pay for years served. That’s four years multiplied by a 2.5 percent for 10 percent. Apply the 10 percent to base pay of $2,200 for $220 a month in retired pay. This would be paid in addition to the $1,600 in VA compensation.
An E-7 with 18 years of service also is rated 50 percent disabled by defense and 90 percent by VA. On base pay of $4,000 a month, a 50 percent rating provides disability retirement of $2,000 a month. That’s better than $1,600 in VA disability compensation.
But under the new proposal, retired pay would be calculated on years served (18 x 2.5) for a 45 percent multiple applied to base pay ($4,000). The result: $1,800 a month. This E-7 originally would have accepted $2,000 in disability retirement, because it paid $4,00 more than VA compensation. Under the new plan, he would get $1,800 from defense plus $1,600 from VA, a total of $3,400 monthly.
An 0-4 with 12 years of service is rated 70 percent by defense and 90 percent by VA. On base pay of $6,000, a 70 percent rating provides military disability retirement of $4,200. This retiree now would take the $4,200 rather than $1,600 payable for a 90 percent VA rating.
Actual retired pay for 12 years of service would be 30 percent of $6,000, or $1,800 a month. Accepting this $1,800, plus $1,600 in VA compensation, would fail to match $4,200 in disability retirement. So this retiree will not receive any additional retirement under the new plan.
To comment, e-mail milupdate@aol.com, write to Military Update, P.O. Box 231111, Centreville, VA, 20120-1111 or go to militaryupdate.com.
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