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Tame the Pentagon's Personnel Costs

Adjust Retirement, Health Care for Future Troops

Dec. 5, 2011 - 03:45AM   |  
By ARNOLD PUNARO   |   Comments
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In an October speech at the Wilson Center, U.S. Defense Secretary Leon Panetta said, "The fiscal reality facing us means that we have to look at the growth in personnel costs, which are a major driver of budget growth and are, simply put, on an unsustainable course."

This fiscal reality was underscored by former Joint Chiefs Chairman Adm. Mike Mullen, who termed the deficits as the top national security threat.

Our military, which is the finest in the world, faces increasing threats and decreasing resources. DoD can reduce its overhead, improve purchasing and even shrink the size of the force, but the albatross hanging around its neck is military entitlements - retirement, health care, the "up-or-out" promotion system, an antiquated pay and compensation system, and an extensive benefits network.

Panetta is correct. "We must keep faith with the troops who are currently serving and who have served in the past." That does not mean these "entitlements" can't be reformed since their basic structure has not changed materially in 60 years.

When the draft was in full swing in 1969, the chairman of the President's Commission that created the All-Volunteer Armed Force stated that the AVF would not be sustainable unless three major changes were made:

Replace the 20-year military retirement system.

Reform the up-or-out promotion system.

Change the basis for pay and compensation from time-in-grade and longevity to skills and performance.

In the 38 years since the 1973 implementation of the AVF, neither DoD nor Congress have made any of these required changes.

It has caught up with us. Taking-care-of-people expenditures now consume 50 percent of the defense budget. DoD and Congress have expanded these costs and unfunded liabilities at an alarming rate.

Panetta indicated that military health care and compensation costs alone have increased by 80 percent since 2001, while the size of the active military went up less than 5 percent. The costs for those no longer serving are also growing at an exponential rate.

The American taxpayer finances approximately $108 billion a year for 2.3 million military retirees: $50 billion in actual pay to the retirees, $20 billion a year into the accrual fund for future costs, $22 billion a year in interest costs and $5 billion for concurrent receipts.

These costs are not static. Without changes, the retirement fund's $1.3 trillion liability will grow to $2.7 trillion in 2034 and $4 trillion in 2046. This retirement system was designed at the end of World War II, when military pay was low and tied to a draft force, and life-spans were much shorter.

These staggering costs are for a system that benefits less than 20 percent of those who have served in the military. The other 80 percent, including that percentage of those in our current wars, depart with less than 20 years and receive no retirement benefits.

Taxpayers fund an additional $52 billion a year for a military health care system that provides unlimited health care and support to 5.5 million retirees and their families, a substantially higher number than the 1.4 million currently serving on active duty and their 1.9 million dependents.

Multiple studies and commissions, including an analysis by DoD's own Quadrennial Review of Military Compensation and a recent analysis by the Joint Staff, have emphasized the importance of reforming the military health care system, retirement and the general approach to overall compensation and benefits for military service members.

There is ample precedent for grandfathering those currently serving. Such an approach is the only fair way to make future changes. The first military member to retire under a revised system will not enlist or be commissioned until Oct. 1, 2012, at the earliest, and will not retire until 2032. Nevertheless, savings could begin to accrue in the near term. Consider the impact of three common-sense adjustments that can be made now:

Change the multiplier used for calculating retirement pay from 2.5 percent of base pay for each year in service to 2 percent, (i.e., 40 percent at 20 years of service or 70 percent at 35).

Base the calculation on the average of the highest five years of pay versus the current highest three.

Delay payment of pension benefits to the same age as currently exists for Guard and reserve service members who do 20 or more years - age 60.

If these measures were implemented, the government could cut the deficit by more than $350 billion over 20 years, as these funds would not have to be deposited to cover future costs as the current law and benefit structure requires.

These adjustments, or ones similar, should be considered by a commission established by law to develop reforms to military retirement, health care, pay, compensa-tion and promotion. This commission should review all the elements considered benefits for the current force and the retired force, and should be led by experienced individuals such as Gen. Colin Powell, Gen. Jim Jones, former Sens. Sam Nunn and John Warner, and former Reps. Ike Skelton and Duncan Hunter.

If the nation continues to ignore the three changes identified by the President's Commission on an All-Volunteer Armed Force and every recent study, an ever-increasing percentage of funds from a flat or declining top line will go to those who no longer serve. In an era of persistent fiscal constraint, our future military will either be too small to deal with the threats or too hollow and untrained to meet the challenges because there will be insufficient funds for research, modernization and training.

Arnold Punaro is a retired U.S. Marine Corps major general. He served as staff director of the U.S. Senate Armed Services Committee for 13 years.

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