Military Update: 'Pay gap' closer for mobilized troops, workers
The Military Personnel Financial Services Protection Act, designed to protect GIs from predatory financial-services agents, is delayed until the 109th Congress convenes in January.
Introduced by Rep. Max Burns, R-Ga., and passed by the House last month, HR 5011 would block the sale of bad investment products such as contractual mutual funds and costly life insurance packages pitched as investments to servicemembers.
It would require that state insurance laws be enforced on military property to stop long-standing practice of agents selling on base products banned by state regulations.
Andrew Gray, spokesman for Senate Banking Committee, said the committee will be ready to act on these issues in 2005. Committee chairman Sen. Richard Shelby, R-Ala., and ranking Democrat, Maryland’s Paul Sarbanes, have asked the Government Accountability Office and the Securities and Exchange Commission to review investment marketing practices that have targeted servicemembers.
“Once we have a clear picture of the problem, we will be able to move quickly,” said Gray. “This is a priority for us” in 2005.
Meanwhile, Sens. Hillary Clinton, D-N.Y., Michael Enzi, R-Wyo., Chuck Hagel, R-Neb., and Charles Schumer, D-N.Y, have introduced a bill identical to HR 5011 to end the sale on military bases of contracted mutual funds with heavy up-front commissions, and insurance packages with coverage values far more expensive than government-subsidized plans.
Closing the gap
Civilian employers of Reserve and National Guard members who are mobilized longer than six months could be offered new tax breaks soon to close a “pay gap” between employees’ military income and lost civilian wages.
Senate Republicans, before adjourning for fall elections, yielded to threats from Sen. Mary Landrieu, D-La., to block a $137 billion corporate tax break bill if mobilized troops and their civilian bosses didn’t get to sip at the same tax-break trough.
An angry Landrieu told Military Update on Oct. 15 that House Republican leaders, in closed-door deliberations with Senate colleagues, had tossed out her Senate-passed amendment to give Reserve and Guard employers up to $2 billion in tax breaks to continue paying some wages to mobilized employees. The idea was to entice more employers to make up any difference between temporary military compensation and pre-mobilization civilian pay.
“We thought that at the top of the list of people deserving help would be the Guard and Reserve on the front lines taking the bullets. But obviously we were wrong. Silly us,” said Landrieu. She blamed House Speaker J. Dennis Hastert (Ill.) Majority Leader Tom DeLay (Texas) and Ways and Means Committee Chairman Bill Thomas (Calif.).
Landrieu said 41 percent of reserve component members deploying to Iraq and Afghanistan “take a pay cut.” Many employers “do the patriotic thing” and make up the difference “so if the guy was making $50,000 when he left the states, and he’s making $30,000 on the front line, some of them are sending them paychecks for $20,000 to keep his family whole.”
Small businesses “doing the right thing” deserve tax credits more than most businesses so her initiative should have survived House scrutiny, she said.
“We had a $137 billion benefit package basically going out to … a wide variety of industries, large and small, none of which would actually be in business if it wasn’t for the soldiers on the battlefield.” But as Congress shaped its tax bill, she said, servicemembers “were slapped in the face.”
Landrieu vowed that Friday to “do everything in my power to slow this process down if not disrupt it entirely.”
Senate leaders apparently took her threat seriously. By Sunday they had worked out a deal with Landrieu. By voice vote, senators attached a modified Landrieu initiative to the House-passed Guardsmen and Reservists Financial Relief Act (HR 1779).
Introduced by Rep. Bob Beauprez, R-Colo., the relief act would allow activated service members to make penalty-free withdrawals from individual retirement accounts if mobilized six months or more. It would apply to anyone activated since Sept. 11, 2001 or before Sept. 12, 2005. Those who made withdrawals without tax penalty also would have two years after leaving active duty to reimburse their retirement plans.
Landrieu broadened Beauprez’ bill by providing small businesses with a 50 percent tax credit on any pay still provided to activated employees. Total tax credits per employee would be capped at $15,000 (or $30,000 in wages). Small businesses also would receive up to another $6,000 in tax credits per temporary employee hired to fill in for activated employees.
Landrieu made two big concessions, however, to lower the $2 billion cost. The employer tax credits would end, or “sunset,” in two years. Also, they would be made consistent with the retirement plan withdrawals, becoming available only when mobilizations last longer than six months.
With the Senate modifications, HR 1779 went back to the House for final passage. Republican leaders will have to decide during the post-election [or lame duck] session whether to schedule a fresh House vote.
Military and federal civilian retirees, Social Security recipients, survivor benefit annuitants and veterans drawing disability compensation will see a 2.7 percent increase Dec. 1, payable in January.
The cost-of-living adjustment (COLA) reflects inflation over the past year for a market basket of goods and services tracked by the Bureau of Labor Statistics. BLS measures changes in average prices from the third quarter of 2003 to the third quarter of 2004, using the Consumer Price Index for Urban Wage Earners and Clerical Workers.
This COLA will be the largest in four years, since a 3.5 percent adjustment in January 2001. Last January’s COLA was 2.4 percent.
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