One of the offsets for raising the defense and nondefense caps in FY2014 and FY2015 in the Bipartisan Budget Act of 2013 ( H.J.Res. 59 / P.L. 113-67 ) was a reduction in the cost-of-living adjustment (COLA) for many current and nearly all future military retirees. 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. This change would have affected almost all military retirees below the age of 62, including those collecting disability retirement, as well as individuals receiving survivor benefits. The new formula would take effect on December 1, 2015. According to CBO, this change would have saved the Department of Defense $6.235 billion over the decade. This provision of the Bipartisan Budget Act generated significant debate. Some called for a reversal, arguing that retaining the full COLA adjustment is part of a commitment to servicemembers to preserve benefits including future COLAs at the full CPI to offset inflation. Some servicemembers and advocates also argued that retirement changes should be delayed until the April 2015 report of Military Compensation and Retirement Modernization Commission provides a "holistic" solution. Others defended the COLA adjustments, arguing that the effect on most retirees would be small compared to their lifetime benefits. They also argued that the change would help restrain the growth in military compensation over the past decade. Admiral Winnefeld, Vice-Chair of the Joint Chiefs of Staff, recently suggested that these increases have "more than closed previously existing gaps with the rest of our nation's workforce." Some argued further that military retirement benefits are exceptional because servicemembers do not contribute to their basic retirement benefits, and that military personnel have also been insulated from one of the major expenses for older persons, higher health insurance premiums, because premiums for military personnel have been frozen since 1995. 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 ). The new formula, as revised by P.L. 113-76 , would have still taken effect for nondisabled retirees on December 1, 2015, but Congress would take further action. 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. Note: T he following sections were largely written before the BBA was revised by the FY2014 Consolidated Appropriations Act and S. 25 . They now reflect what would have happened had the or i ginal BBA language remained in effect. Based on the profile of the 1.94 million military retirees collecting benefits as of FY2012, about 40% or 750,000 would likely have been affected in some way by the lower COLAs that were adopted in the BBA. To get a picture of the potential effect of reducing the COLA by 1%, the demographic portrait in Table 1 shows average age, years of service, and retirement benefits, with separate entries for officers and enlisted. While active-duty personnel are eligible for immediate retirement benefits after 20 years of service, reservists generally are not eligible for retirement until age 60, and so would generally be affected by the BBA's COLA minus 1% provision for a year. Excluding reservists, some 1.6 million military retirees currently receive benefits. For nondisabled military retirees as whole, about half are below the age of 62, and most of those would face reduced COLAs for 1 to 10 years based on DOD Actuary statistics. To illustrate the effect of the original BBA, Table 1 shows that among the current retiree population, the average disabled retiree retired at age 42 after 22 years of service, receives $30,550 in retired pay per year, and is now 62 years old. Officers generally are several years older than enlisted personnel, and receive benefits about twice as large as enlisted personnel: an average of $51,450 vs. $23,650 in retired pay per year. The table breaks out new FY2012 retirees because the data on them are later used to estimate effects on future retirees had the original BBA formula remained in effect. Based on the most recent DOD Actuary data, those servicemembers who retired in FY2012 were, on average, slightly older than those who retired in earlier years (age 44 vs. 42), with one additional year of service, and received somewhat higher average retired pay ($37,700 vs. $30,550) ( Table 1 ). Higher average pay for the latest group may reflect a variety of factors, including pay raises above the Economic Cost Index (ECI) received in the past decade. Future retirees would have been more affected by the BBA's lower COLAs than the current beneficiary population because they are generally younger, so the reduced COLAs would have affected them for a longer period of time. The benefits of today's older retirees would have only been reduced for those under the age of 62. To illustrate the effect of the original BBA, Table 1 shows that today's disabled retirees generally retire at 33-34 with 10-11 years of service with lower benefits. Compared to nondisabled retirees, disabled retirees generally retire some 10 years earlier, with roughly half the number of years of service, and over $10,000 less in annual retired pay. Those retiring in FY2012 show similar characteristics (see Table 1 ). The congressional decision to exempt disabled retirees from the lower COLAs may reflect, in part, the fact that disabled retirees generally retire at younger ages, meaning that lower COLAs would affect them for a longer period of time, and that their benefits are lower as well. In addition, the life expectancy for disabled retirees is about 8 years below that of nondisabled retirees, meaning that there would have been fewer years after 62 with full COLA benefits had the original BBA remained in effect. Because of these two factors, disabled retirees would have experienced a greater loss of retirement income than nondisabled retirees. These demographic factors help explain why lower COLAs would be expected to have greater effects on disabled retirees. In addition, enlisted disabled personnel would have been more affected than disabled officers in percentage reductions to their income, because their retirement income is considerably lower (see Table 1 ). If FY2012 retirees are representative of future retirees, and the original BBA language had remained in effect, then those currently retired would have been less affected than future retirees because of the demographic characteristics described above. Similarly, disabled retirees would have been more affected than nondisabled retirees had the original BBA remained in effect. To estimate the effects of the original BBA formula on both current and future retirees, CRS used DOD Actuary data about average age, retirement income, and life expectancy for nondisabled and disabled military and CBO's projections of the CPI. To project the effect on future retirees, CRS used DOD Actuary statistics about those who retired in FY2012, the most recent data available. On average, lifetime retirement benefits for the current retiree population are about $590,000 for enlisted personnel and $1.37 million for officers based on DOD Actuary figures and CBO projections of Consumer Price Index (CPI). 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. As a point of comparison, had the COLA adjustment for current disabled military retirees in the BBA remained in effect, the average enlisted disabled retiree, with an average age of 53, would have received $13,000 or 3% less in lifetime benefits of $390,000. For disabled officers, with an average age of 66, few would experience reductions in lifetime benefits of $440,000. Disabled retirees who are younger than this average would have been affected by larger amounts and those older by lesser amounts. Had the original BBA remained in effect, future military retirees would have been more affected than current retirees.