In reforming military compensation system, keep the whole force in mind

Almost quietly, a couple real changes to the military personnel and compensation systems are moving forward.  These changes have been long advocated for, and it has become increasingly clear that unless changes are made to the current system of pay and benefits for active duty and retired personnel, the defense budget will not be able to maintain, train, and equip sufficient numbers of personnel to carry out their missions successfully.  The most significant proposed change on the table, and one which looks likely to be adopted, is a proposal by the independent commission to change the current military retirement system.

The current system gives a man or woman who serves twenty years a generous retirement, but leaves those who are unable or unwilling to serve twenty years nothing.  The new system would add a 401(k)-style plan that would vest people earlier, but reduce the benefits to those who serve the full twenty years slightly.  Other smaller changes proposed by the Pentagon include raising the cost of health care for retirees, and slightly reducing the annual cost-of-living raises and housing and food subsidies for active duty personnel.

{mosads}Until now, the full-throated resistance of some military retirees and veterans’ groups have cowed Congress, stopping them from taking even small steps to reforming the military personnel and compensation systems in order to meet the needs of the future force. But now, there are some cracks in the dam.

Any changes to the military compensation and retirement systems needs to consider the whole force, past, present, and future.  While the Military Officers Association of American (formerly the Retired Officers Association) has the loudest voice, they are not the only group advocating for our veterans and service members, and they should not drown out the other voices.  For example, the retirement modernization so vociferously opposed by MOAA were strongly supported by the Air Force Association, the Enlisted Association of the National Guard, the National Guard Association, the Reserve Officers Association and the Veterans of Foreign Wars.  Moreover, any changes to the military retirement system is often argued against on the basis that it will adversely impact the hundreds of thousands of veterans, many of whom still bear the scars of battle.  But this ignores the fact that the vast majority of people who joined the military only serve a few years and then return to civilian life, never reaching retirement.  Moreover, veterans’ medical care and benefits are paid by the Veterans Administration, not the Department of Defense.  In exchange for a slightly lower retirement benefit, the proposed retirement change will add a 401(k)-style plan that will benefit nearly everyone in uniform – especially the millions who will not put in a full 20 years.

People also argue that any changes in benefits will jeopardize the future of the All-Volunteer Force (AVF), just as previous changes supposedly led to significant retention problems in the late 1990s.  But close examination of the data shows that there were no serious retention problems in the late 1990’s. From FY1997 to FY2001, the Army actually exceeded its retention goals for initial term and mid-career enlistments every year, and for career personnel in FY1999, 2000, and 2001. The Navy did not even set retention goals until FY2001 because it continued the post-Cold War drawdown until FY1998. During the late 1990’s, the Marines only set goals for its first term personnel, which it consistently met after the post-Cold War drawdown. By FY2001, the Marine Corps’ retention rates were actually significantly higher than during the Cold War.  The Air Force actually exceeded its retention goals for most of the 1990s. The pattern was similar among officers for each of the services.

Many also argue that military pay is already too low. But they often focus only on base pay, and ignore the other components of compensation.  For example, while the annual base pay of a staff sergeant with more than eight years of service and a family is only about $40,000, but adding the value of the separate housing, food, healthcare and retirement benefits, his or her compensation exceeds $96,000 a year.  Similarly, the base pay of an unmarried junior officer is only $40,000, but his or her total compensation is more than $86,000. 

Finally, any change to the current military compensation package, no matter how small, is harshly criticized as “breaking faith” with the men and women who have volunteered to put their lives on the line for their country. These critics are more than happy to accept changes that make military compensation more generous, including growth in basic pay much faster than the growth in civilian compensation; a new, more generous G.I. Bill, whose benefits can, for the first time, be used by the servicemembers dependents instead of just by the servicemember; and the creation of the TRICARE for Life Medicare wrap-around program for Medicare-eligible retirees, created in 2001.  They have also been happy to have the government pick up the tab for a much greater proportion of the Basic Allowance for Housing (now covering 100 percent of housing costs, up from 75 percent in 2005), and lobbying against having retirees’ TRICARE premiums, copays and prescription costs keep pace with inflation, instead shifting the cost to the government.  (Originally retirees enrolled in TRICARE plans were intended to pay 28 percent of their costs. On average, they now pay just 8 percent).  Rather than refusing all changes, changes to any arms of the military compensation – whether pay, healthcare, educational benefits, retirement, or other benefits – should be considered as part of the big picture of the military compensation system, and considered in the context of the recruiting and retention needs of our armed forces not just today, but into the future.

The men and women who serve in our armed forces deserve – and have earned – good pay, excellent benefits, and a secure retirement.  But our armed forces also need to be able to tweak the compensation package to make sure we will be able to attract and retain the soldiers, sailors, airmen and Marines that our future force requires.  Reforming the retirement system to benefit all of our service members, instead of just the 17 percent who will serve a full 20 years, is a good first step, but Congress must not stop there.

Korb is a senior fellow at the Center for American Progress and a senior adviser to the Center for Defense Information.