Military Update: Allowances shield overseas servicemembers from weaker dollar
Despite a three-month drop in the value of the dollar against foreign currencies, the buying power of 290,000 servicemembers overseas largely has been protected by a system of allowances that are tied directly to exchange rates, say Department of Defense officials.
A weakening dollar can squeeze travel budgets for American tourists and raise the cost of imported goods, a setback for many U.S. businesses. But the Defense Department’s Per Diem, Travel and Transportation Allowances Committee in Alexandria, Va., is there to insulate U.S. servicemembers overseas from currency fluctuations.
“We are looking at them constantly and making adjustments as warranted,” said Roy Sammarco, chief of the committee’s economics and statistics branch.
The “adjustments” to protect the military from a weak dollar involve two payments available overseas: a Cost-of-Living Allowance for all and, for members and families living off base, an Overseas Housing Allowance.
The committee daily collects exchange-rate data from banks that serve U.S. military abroad. In countries where few servicemembers are assigned, the committee tracks daily currency rates through the Wall Street Journal.
When there is a 5 percent change in the dollar’s value, up or down, the two allowances are adjusted on the next payday, either the 1st or 16th of the month. The system cannot make daily changes, said Sammarco, and indeed needs a week’s lead time to make next payday changes.
So, if by the 9th of the month the value of the dollar has changed 5 percent or more, servicemembers will see a change to overseas allowances in midmonth paychecks. Similarly, a change of 5 percent or more by the 23rd of the month will impact the following first-of-the-month payday.
“That 5 percent threshold must be met on the review day,” said Sammarco. “If not, we don’t make a change. We wait until the next pay period to see whether that threshold is crossed or not.”
One weakness of this “accumulator” method of adjusting allowances is the time lag responding to currency fluctuations. To compensate for the lag, Sammarco said, as allowances are raised, the committee will set them a little higher than the review-day currency rate. Likewise, when allowances are reduced, they will be lowered a little more than currency data supports.
“Over time, it balances out,” he said.
From Sept. 1 to Dec. 1, the dollar’s value fell 9 percent against the euro and 7 percent against the Japanese yen. Allowances rose to keep pace, Sammarco said. In Germany, for example, members saw four allowance adjustments over three months and are likely to see another in Dec. 16 paychecks.
Susan Brumbaugh, chief of the committee’s COLA section, said servicemembers should understand that the currency-driven adjustments are automatic, based on exchange rate and a set formula, and not influenced by the tightness of service budgets or even the demands of war. No corners are cut to hold down the cost of protecting their buying power, she said.
Push for disability pay
Pentagon lawyers are studying the 2005 National Defense Authorization Act to determine if a provision to restore full military retirement to 100-percent disabled retirees next month can be interpreted to apply to 28,000 retirees who have lesser disabilities but are deemed unemployable.
At stake for these retirees is, on average, more than $46,000 in restored retirement payments — called also Concurrent Retirement and Disability Payments — over the next nine years.
Congress last year voted to phase out over 10 years the ban on “concurrent receipt” of both military retirement and disability compensation for 150,000 retirees with 20 or more years of service and disability ratings of 50 percent or greater. This year’s law ends the phase-out and lifts the ban as of Jan. 1, 2005, only for retirees with “disabilities rated as 100-percent.”
A Bush administration source familiar with the ongoing legal review, at various levels in the departments of Defense and Veterans Affairs, said a straight-forward reading of the law appears to limit accelerated concurrent receipt, as reported earlier, to retirees with disability ratings of 100 percent.
A senior congressional staff member said that, indeed, was what Senators assumed when they voted for the provision and what they asked Congressional Budget Office to “score” by providing cost estimates.
Yet the same administration that had argued in years past against any relaxation of the concurrent receipt ban now has its legal experts studying whether the new law should be viewed more broadly, to include retirees with ratings below 100 percent but eligible for 100-percent-level compensation because the VA has classified them as “IU,” unemployable.
Officials expect an internal legal opinion in one to three weeks and it will be weighed at “highest levels,” a source said. That review will occur too late to affect January retirement checks, payable in February. In fact, the Defense Finance and Accounting Service has been told to prepare the first round of checks assuming a narrow view of “100-percent” disabled.
Adding to the confusion for folks who have followed this issue are revised estimates on the number retirees impacted. Congress estimated that 15,000 retirees with 20 years or more years of service have 100-percent disability ratings, and that another 15,000 are rated IU. The revised totals are 23,000 retirees with 100-percent ratings and 28,000 unemployable.
The new cost estimate of restoring full retired pay immediately to those 28,000 is $1.3 billion over nine years.
Current rates and more on how allowances are set can be found at the committee Web site: https://secureapp2.hqda.pentagon.mil/perdiem/.
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