Janine Davidson

Defense in Depth

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It’s Time for Congress to Get Serious About Military Compensation

by Guest Blogger for Janine Davidson
May 13, 2014

congress capitol hill A general view of the U.S. Capitol Dome in Washington, October 6, 2013. (Jonathan Ernst/Courtesy Reuters)

By Jesse Sloman

This commentary comes courtesy of Marine Corps veteran and CFR research associate Jesse Sloman.  He addresses one of the most conspicuous “third rail” issues between Congress and the Pentagon: the question of compensation and benefits.  He calls on Congress to get the spiraling spending under control. The alternative will be a “hollow force”—well compensated but undertrained and unequipped to tackle future contingencies.

In a rare moment of bipartisan cooperation last week, the House Armed Services Committee voted to throw out the Defense Department’s plans to save money by making modest cuts to military compensation. As a result, Congress has once again stymied the Pentagon’s efforts to get a handle on the spiraling cost of servicemember benefits. The current compensation system, including pay, pensions, healthcare, and other services, carves out a larger chunk of the DoD budget every year and is simply too expensive to be sustained in its present form. In the words of retired Marine general Arnold Punaro, lawmakers run the risk of “turning the Defense Department into a benefits company that occasionally kills a terrorist.”

Spending on manpower has doubled since 2001 and is now responsible for one third of the Defense Department budget. Military health care expenses increased by 300 percent between 2001 and 2012 and the retiree pension program is similarly expected to double in cost by 2034. This growth has pushed up the DoD’s cost per service member by 57% from 2001 to 2012. Much of that increase can be attributed to Congressional action, either in the form of pay raises above what the Pentagon has requested or blocks on cost cutting proposals put forth by the DoD. This puts senior officials—both civilian and military—in a frustrating position: they are responsible for managing a compensation system that they have little control over and that they know is eating into other critical programs. Without further cuts, Secretary of Defense Chuck Hagel has warned of an impending zero-sum situation where the military “will inevitably have to either cut into compensation even more deeply and abruptly or we will have to deprive our men and women of the training and equipment they need to succeed in battle.”

In addition to the specter of a potential hollow force, Congress and the Pentagon should work together to change military compensation for another reason: it’s long overdue for an update. The current retirement system was created to serve the needs of a draft army and not the all-volunteer force we have today. Under its rules, the most generous benefits—pensions and healthcare for life—are awarded to just the 17 percent of uniformed personnel who remain on active-duty for 20 years. Those who leave prior to completing a full career, or 83 percent of military personnel, get no retirement benefits at all. Enlisted personnel are particularly poorly served by this system because they are much less likely than officers to remain in uniform long enough to retire.

There’s also a mismatch between the cost of providing certain benefits and the value servicemembers assign to them. A survey conducted by the Center for Strategic and Budget Analysis (CSBA) in 2012 found that, “[M]any…forms of compensation, while still valued, do not appear to be valued commensurate with what they cost to provide. These include the fees charged for healthcare benefits for active-duty and military retirees, and childcare, youth, and school services.” Given this disparity, it’s clear that there is room for improvement in the current system.

To its credit, Congress has already established an independent commission to study military compensation reforms. A preliminary DoD study prepared for the commission’s review recommended the creation of a two-tier retirement system, with a defined contribution component similar to a 401K for servicemembers who leave the military before they retire and a defined benefit which vests at 20 years and resembles the current pension plan. If implemented, the proposal would save over $500 million and help ensure that compensation is more evenly distributed among the total force. However, ramping up benefits for younger service members is possible only if retiree pensions are reduced. So far, that is a line politicians refuse to cross. Given the reality of declining defense budgets, it is one they may eventually be forced to confront anyway.

To achieve a sustainable system, the Pentagon and Congress will need to create and implement an affordable benefits program that assists the Defense Department in reaching its retention goals, is fair and equitable, and protects the military’s most critical constituency: wounded warriors. This is a tall order, and one that will require the next generation of lawmakers and DoD officials to gradually introduce a host of complicated and contentious policies. By ignoring the advice of senior officers and refusing to accept even small changes to the current compensation program, Congress is missing out on a crucial opportunity to jump-start a much needed reform process before costs climb even higher.

Jesse Sloman is a research associate at the Council on Foreign Relations and a member of the Truman National Security Project’s Defense Council. He served on active duty in the Marine Corps from 2009 to 2013.

Editor’s Note: This article originally misattributed the Department of Defense’s “Concepts for Modernizing Military Retirement” to the Military Compensation and Retirement Modernization Commission. In fact, this white paper was drafted by the Department of Defense for the Commission’s consideration. This has been corrected.

Post a Comment 4 Comments

  • Posted by Luddite4Change

    Much to be considered here.

    1st. Is 30% of costs being devoted to personnel “excessive”? For comparison, UPS is around 30% also.

    2. What really accounts for the 57% cost increase between 2001 and 2012? The increase in base pay was 41% (which is consistent with the long term trend for every 12 year period going back to the late 50′s).

    3. If the model used to create and balance the current system between active service and time on the retired rolls is now out of balance due to longer live expectancy (in 1947 it was 68 years currently we are at 80+), would it perhaps make equal sense to bring balance back into the equation by increasing time in service (25 to 35 year career vice the current 20/30) than by cutting cost on the retirement end of the see saw?

    4. Read the unstated assumptions in the charts for Thrift Savings Plans for Option 1 and 2 in the preliminary report? The assumption is that TSP growth needs to be 5% above the rate of inflation for the service member to see increased dollars at retirement.

    5. How do you calculate the “cost of exit” if I can take some of my retirement benefit with me at the 8-12 year point?

  • Posted by Steve Kjonaas

    They are asking the wrong people in the studies cited. The military member who drove his or her family’s through three year assignments, uprooting them and deployments are unique in iur society. This is why the system has worked for many years, as it’s predictable.

    We stayed in the military based on promises of future compensation and earned benefits. Patriotism goes so far, but we still have bills to pay and mouths to feed. Disrupt that system and expect to have a hollow force that is less willing and educated. A hollow force that will become corrupt beyond measure. Our problems are the result of not funding promises made and obligations that have been thrust to the back burner because the wrong people have been asked about priorities.

    Stop giving subsidies to large capacity companies who ship jobs overseas. Focus on the highest commodity (United States Military personnel) the U.S.A. has while there are willing people who will make sacrifices for our country. We earned our benefits and were promised that they would keep up with inflation.

    Stop balancing the budget on the backs of military personnel; because those past, present, and future deserve the highest respect.

  • Posted by Jim Murphy

    The sentence “Spending on manpower has doubled since 2001 and is now responsible for one third of the Defense Department budget” is phrased to make readers believe this represents some significant increase. Manpower is NOW responsible for one-third of the DoD budget is intentionally misleading or misinformed.

    In fact, manpower costs have been one-third the DoD budget since at least 1980. This is not new. Manpower costs, like all costs, are increasing, but manpower remains the same percentage of the budget that it has been for more than three decades.

    I am glad to see authors backing away from the ‘manpower is half the DoD budget’ figure tso many of them threw around the past couple years. Chief of Naval Operations, Admiral Jonathan Greenert, testified before Congress that “About 50 percent of every Defense Department dollar goes to personnel predominantly as compensation.”

    There is a big difference between half and one-third, and compensation was actually less than one-quarter in FY13, coming in just below 25%.

    I’m afraid the author of this blog started to lose me early when I read the quote from General Punaro. The General has also stated previously that military retirement is a “middle-class entitlement program.” Quite a comment coming from a man who made millions working for a Defense contractor. As I wrote in Proceedings magazine in October 2010, “Current benefits are far from middle-class entitlements for those who earn significantly less than the wealthy bureaucrats seeking to reduce them.”

  • Posted by Dean

    Part of the problem is jurisdiction in Congress. For all who wear the uniform of our country we start out under the Armed Services Committees, but for many, including retirees, we end up, at some point in our military career, under the jurisdiction of the Veterans Affairs Committees. BUT a soldier is still the same person for life, it is just that Congress does not regard that fact as important. Perhaps it is time for Congress to have at least one-third of its members on Armed Services to also be on Veterans Affairs to help resolve many of these compensation matters.

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