Congress Punts on Military Compensation Reform

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.

This post appears courtesy of CFR.org.

[CORRECTION: This article originally stated that the Defense Department’s “Concepts for Modernizing Military Retirement” was drafted by the Military Compensation and Retirement Modernization Commission. The paper was drafted by the Department of Defense for the commission’s consideration.]