What is Sequestration? The Impact of Forced Budget Cuts to the Military Budget

This article has been updated to reflect the impact of Sequestration on the military and DoD as it occurred during 2013. It now serves as a historical reference to the impact of the debt ceiling and the associated budget cuts that impacted all levels of government during this period. Sometimes the decisions of the past…
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This article has been updated to reflect the impact of Sequestration on the military and DoD as it occurred during 2013. It now serves as a historical reference to the impact of the debt ceiling and the associated budget cuts that impacted all levels of government during this period.

Sometimes the decisions of the past can come back to haunt us. As we sit here in early 2013, we look back at August 2011 and have to ask, “What were they thinking?” In August 2011, Congress passed the Budget Control Act of 2011 to avoid surpassing the debt-ceiling, the Congressionally-mandated limit to how much our country can legally borrow.

The threat of exceeding the debt-ceiling threatened to shut down the government and cause harm to our country’s ability to borrow money in the future. As a result of the Budget Control Act of 2011, Congress enacted a sequestration, which essentially means mandated spending cuts across all virtually all government spending, including civilian and military programs, homeland security, health care, the Department of Transportation, education programs, Congressional spending, and more.

What is Sequestration?

The sequestration was enacted as part of the 2011 Budget Control Act which mandated federal budget cuts designed to save the government $1.2 trillion over the next 10 years. There are $85 billion in cuts scheduled for FY2013.

The sequestration will cause a 9% decrease in budgetary spending across the board. Which means some programs will be unilaterally cut, while others will be scaled back. The good news is that military pay will remain unaffected. Unfortunately, the services won’t have full control over how to implement those cuts. In some cases, vital programs and jobs will be cut or scaled back.

Sequestration Will Not Affect Military Pay – DoD Civilian Pay to Be Cut

sequestration military payThe Budget Control Act of 2011 was more or less rushed through Congress at the last hour, with the intent on changing the language before the sequestration took effect. Unfortunately, Congress did not agreed upon new language to the act, and the spending cuts went into effect on March 1st. Unless something changes soon, the military will see many changes. Here are a few changes we expect to see, unless something happens soon.

Military Pay Safe – Some Benefits Will Be Cut

DoD Officials have stated that pay for military members will be exempted from the sequestration cuts enacted on March 1, 2013. Base pay and benefits such as BAH and BAS should remain intact.

However, the military has already stated that some non-monetary benefits many service members take advantage of will be impacted. For example, military tuition assistance has already been cut from the Army and Marines. It is likely these changes will also affect all branches of the military. Other programs that may be affected include MWR programs and education programs.

DoD Civilian Pay Will be Impacted

DoD civilian pay will be cut in the form of furloughs, virtually across the board. The furloughs will affect approximately 800,000 DoD civilians. To put this in perspective, the US Air Force will furlough approximately 168,000 DoD civilians, to the tune of $1.3 billion in missed paychecks. Here is an infographic showing the pay cuts, courtesy of AF.mil.

usaf civilian furlough lost pay
USAF Civilian employees stand to lose $1.4 billion in the sequestration.

According to AF.mil, “Civilians may be furloughed without pay for up to 22 discontinuous (or 30 continuous) days spread over a maximum number of pay periods possible with no more than 16 hours furloughed per pay period. The covered pay periods are from April to September 2013.”

Some reports state the furloughs could cost civilians one day pay per week for the next five months, or until Congress approves a new budget. One day per week would equate to a 20% cut in pay. Each branch of service will be able to approve a limited number of exemptions for high-impact mission related jobs. These will be few and far between.

Many temporary employees and contractors have already been given layoff notices.

Sequestration Impact on Thrift Savings Plan Contributions

The Sequestration will affect virtually every government employee, including civil service employees, DoD civilians, and military members. While military pay will remain unaffected, many of their non-monetary benefits may be cut. Unfortunately, DoD civilians and other civil service employees may be subject to furloughs of up to 20% of their hours each pay period.

Sequestration impact on TSP contributionsAccording to AF.mil, “Civilians may be furloughed without pay for up to 22 discontinuous (or 30 continuous) days spread over a maximum number of pay periods possible with no more than 16 hours furloughed in pay period. The covered pay periods are from April to September 2013.”

This is a tough pill for many to swallow, as it makes financial planning difficult and will stretch many budgets. One aspect many people don’t think about after the initial shock wears off is how the sequestration will affect Thrift Savings Plan contributions. The good news is that none of the rules around the TSP are changing – the government isn’t taking away agency matching or preventing participants from making contributions. TSP Contribution limits remain unchanged. However, because agency matching is based on earnings, many TSP participants will see decreased retirement contributions this year. Let’s take a look at how the sequestration will impact Thrift Savings Plan Contributions.

Sequestration Impact on Military TSP Contributions

Based on recent information from TSP.gov, there should be no direct impact on TSP contributions for military members at this time, because military base pay in unaffected. Military members will still be able to make their normal contributions, including the contributions of special pay, bonus pay, and other allowable benefits.

Sequestration Impact on Civil Service TSP Contributions

Civil service members and DoD civilians will see the most changes with their TSP accounts. While there are no direct rule changes to how the TSP is administered, the impact of working fewer hours and receiving reduced pay will decrease the total agency contributions members receive.

Let’s take a look at how Agency contributions work, and how the sequestration will impact retirement contributions. Here is the TSP agency matching chart, courtesy of TSP.gov:

TSP Agency Contribution Chart

As you can see from the chart above, the government automatically contributes 1% of your base pay, regardless of whether you make any contributions. FERS Employees then receive a 100% match for the first 3% of their pay they contribute, then 0.5% for the next 2% of their contributions from their base pay. Nothing on the above chart is changing. However, because your pay is decreased, the total amount of your contributions will be decreased.

For example, let’s say you earn $2,000 every two week pay period and you contribute a total of 10%, or $200, to your TSP. If you are furloughed for 2 days per pay period, your pay would be reduced to $1,600, and your total contributions would be $160 if you kept things as-is.

If you make TSP contributions based on a flat dollar amount, and not a percentage of pay, then your contributions will remain unchanged. Keep this in mind, as it may impact your budget since you will be contributing the same dollar amount, but receiving less pay.

TSP Loans & Financial Hardship Withdrawals

Taking a TSP loan is an option, if necessary. But keep in mind there are several downsides of taking a TSP loan, including the need to immediately pay the loan back in full if you leave your job. If you believe you may be laid off, a TSP loan is one of the worst things you can do. My recommendation is to learn more about TSP loans before determining if this is an option for you.

TSP hardship withdrawals are an option if you absolutely need access to your cash. But again, I recommend looking everywhere else for additional cash before going down this route. There are several reasons, but mostly because it will end up costing your more money in the long run. Here is how a TSP hardship withdrawal will affect your TSP plan:

  • Your withdrawal is limited to the amount of your hardship – in other words, you must document the hardship and how much money you will need. This is also limited to a one time withdrawal. Since the sequestration will last for an undetermined time frame, you should hold off as long as possible before making this decision.
  • You will pay an immediate 10% early withdrawal penalty and any income tax associated with the withdrawal, further reducing the amount that you withdraw.
  • You will not be able to make TSP contributions for 6 months following your hardship withdrawal.

Here is more information on the downsides of TSP hardship withdrawals.

Sequestration Budget Cuts Continue: BAH, COLA, Pay Raises, and More on the Chopping Block

The sequestration related budget cuts are forcing the Department of Defense (DoD) to start getting creative on how they look for ways to cut the military budget in the coming fiscal year(s).

The DoD also looked to cut additional military benefits, including:

Of course, other cuts would also need to happen to meet the mandated budget cuts. Some cuts would be sure to include weapons system cuts, Morale Welfare and Recreation (MWR), base activities, and more.

DoD Considered Halting Promotions and PCS Moves

The DoD considered halting promotions and PCS moves for fiscal year 2014. Many military leaders were not convinced this was a feasible option, as the military would need to promote troops to backfill those who leave through normal separations and through retirement. Halting promotions would create an imbalance in the rank structure, most likely leaving the military with too few people in the middle and upper middle ranks. Halting promotions is also not very feasible due to Status of Forces Agreements (SOFA), training requirements, deployments and other military needs.

Reducing PCS moves, however, was a much greater possibility that stopping promotions. Even so, stopping all PCS moves is not always a feasible option.

While the military may be able to lengthen the amount of time that many members of the military stay at any one duty assignment, the federal government will most likely not be able to completely halt all moves.

A large number of military members are conducting initial or mid-level career training throughout the year. At the end of these training periods, which can be many months or even a year or more long, these military members and their families will need to conduct a PCS move to their next assignment.

Military members stationed overseas may face Status of Forces Agreements (SOFA) that limit the amount of time they can spend overseas. When those members reach their time limit, they must move out of the country and PCS to another base. Someone will be needed to backfill those troops who are moving.

Military Tuition Assistance Programs Cut, then Reinstated

The Air Force, Army, Marines, and Coast Guard all paused their Tuition Assistance programs during Sequestration. Of the major branches of the military, only the Navy did not cut their TA program, though they were considering a modified program that would only cover a portion of tuition.

Cutting Tuition Assistance was an unpopular move that received a lot of backlash from current servicemembers, veterans groups, and even certain members of Congress. However, military leadership was in a bind because the budget cuts were forced upon them.

Restoring Tuition Assistance received enough attention to garner over 100,000 signatures on a petition to the White House. 100,000 signatures is the required minimum to receive a response from the White House. Congress responded by passing legislation that will provide funding to the Department of Defense to enable them to reinstate Tuition Assistance Programs.

Image credits: U.S. Department of Defense Current Photos, AF.mil, TSP images courtesy of TSP.gov.

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  1. Julie brown says

    hello I’m in Germany and would like to know why we don’t get paid BAH instead of COLA the cost of living is more expensive out here and my pay checks keep shrinking because my cola keeps going more and more down and is getting difficult to support my family. It’s very upsetting when coming from the states and getting BAH and going overseas and getting COLA which is like $200 for 2 kids. Who can I talk to about the COLA situation.?

  2. Helen says

    I am the wife of a retired veteran and I must say all of this is a disgrace to our military men and women. Is this the way to show them how much you appreciate what they do for this country – they put their lives on the line and for what? Money will never replace respect!!

  3. kenneth smith says

    ok To EdWard now you try to tell us on how to stop them, i am geting real mad at both partys of doing this to us. tell me should we send them a e-mail to cnn or the wikilikes to tell them the full truth about those person of what they are trying to do with our money. or should me blow the top of what they are trying to cover up. like weedbegon, round up, this stuff came from agent orange. so stop useing them.

  4. Edward says

    I feel that what the problem here is, our government, the Congress, Senate, and House, trying to continuously line their pockets, finance their trips, and vacations with our money. They’re trying to dip into Social Security, if they haven’t already, our tax dollars, which I know they are, and now our highly deserved pay, of which we should be paid more than what we are. What we are getting is no where what we should be, and the fact that the money they so called, are saving, by not giving us our BAH, COLA, and promotion increases, will not benefit them to the least, other than change in their pockets. We need to put a stop to these thieves, by ousting them from office, which would resolve all problems.

  5. kenneth smith says

    to the people who see this i am talking about the house and senate members not the military, they sent me monday aug 12 a form for life inc i sent it back unfiled out, i will not pay for that.

  6. Spencer says

    Cutting military pay or BAH, halting promotions, or cutting COLA is not going to have a long term effect on solving our financial troubles. We need leadership that protects the young soldier, marine, sailor or airmen, and doesn’t target their already low pay. The real focus here should be on ending the wars, taking the peace dividend, and stop the unnecessary purchase of billion dollar weapon systems that do nothing to bolster American security.

  7. Edward says

    Tell the DoD to protect our benefits, or they won’t have anything to work with. Our government needs to stop coming up with ways to deplete our existence and start overlooking greed! These are privileges, these are what’s owed to us military and veterans. You want to steal someone’s money, spend less on those football, basketball, and baseball players salaries. You can vacation on their money.

  8. Terry says

    It is estimated that there is over $1 billion in fraud on free Lifeline cell phones. An investigative reporter, without lying, was recntly able to get three free phones in one day. The cell providers don’t verify your eligibility, and the federal government is not asking for verification when they recieve your paperwork from the providers. You can cut my benefits after your eliminate fraud like this across the board, and those who never served take a cut form whatever federal benefits they are recieving…

  9. Donald May says

    Problem today is none of these clowns in Washington never wore the uniform and do not understand what 20-30 years in military means and younger folks not serving in the military in large numbers any more don’t care. You see all the baloney of people on TV discussing the military and how appreciative they are that men and women are willing to serve and put up with hardship,being crippled or killed but that is all it is,they are just happy others are willing to do this so they do not have to.

  10. Andrew Heil says

    This might seem like I am a bit greedy, but the United States needs to stop supporting countries that have their own money. What happens to all the money that is confiscated in federal crimes? Who authorized all these uniform changes, military vehicles being given to foreign countries, and reduce the politicians salary since they helped put us in the position we are in.

  11. William Graniczny says

    I agree with Douglas Marin on 08/06/13—- all of us veterans & active duty need to form an alliance of a million or more to be heard. I am a U.S.ARMY veteran 1967- 71, canines. I hope the military wallet can put something together to unite us.

  12. kenneth smith says

    this is right they are trying to cut my pay as i have prostate cancer from agent orange, right now i am getting 100% pay but they want to cut my money down to 10% to $129.00 a month. but i also got kicked out of the army to. i just wonder how far they will go to try not to pay any money we get from our gov?.
    i am 63 yr old. you all need to stand up to fight for your rights to keep your money to. i was in cu-chi vietnam in 1969. with this unit 3rd 13th 25th infy/arty CoD.

  13. Douglas S. Marin says

    Everyone can complain all they want but until we all get together and raise our voices as one group they might listen. A thousand voices is but a whisper in the forest but a million voices yells out the injustice like a buzzsaw cutting down a tree after tree. That is what we need to do so let’s do it or quit complaining.

  14. C-Dubya says

    I just find it interesting that not once have I heard the POTUS say that he would take a pay cut or any of the politicians in office either (both Democrats and Republicans). Sure, put the pressure on the military to make cuts. Take away morale boosting functions, take away benefits, close commissaries, weaken our military. Make it so no one would even want to serve. Heck, why don’t they just give us bb guns and slingshots to train with while their at it.
    I remember this quote from an 80’s movie – I believe it was “Wargames” with Matthew Broderick – ” I don’t know how World War 3 will be fought but World War 4 will be with sticks and stones.” Seems that is the direction where America is going right now with all of the cuts…

  15. JW says

    Wouldn’t have much affect as 52% of Congress are millionaires…

    Now you see one reason why they don’t do much work.

  16. kenneth smith says

    i sure would like to cut both members pay by $ 50.000.00 a month and let them see what is like for them, or see them out on the streets to.

  17. Jon says

    These furloughs have been a huge issue. I have also seen problems with our civilian contractors losing jobs and being paid less. At least we have been lucky enough to get our military TA back. I am worried we might hear something different in October but for now it is safe.

  18. Lyn says

    Yes! I hear you. Equal pay cuts for the legistlature. I believe another way to make a cut is to go back to what the Founding Fathers did…work for no pay. Or maybe the states should pay for those they are sending to Federal Congressional positions. Let the states control the payroll of their own representatives out of state taxation instead of Federal. Just sayin’

  19. Shirley Smith says

    What a shame, Here we go again, Military families already have to survive on a very low income and now more cuts in pay, health care benefits. It is just so sad that my Husband served 21 years in the Navy and has retired. But still works as a civilian employee for the Military and they are going to take more money out of our pockets. And it is affecting our childrens college tuition assistance. That is one of the great reasons they joined the Military, Because we cannot afford to pay for them. I just don’t see our economy getting better for all that serve and dedicate there lives to serving our Country. I really don’t understand why our government officials can’t once step up and take a pay cut.

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