050 National Defense:Reform Military Compensation

Rationale:

Active-duty soldiers receive compensation for their service in several ways: basic pay, health care, retirement, and additional non-pay benefits, such as education. In the past several decades, the cost for military personnel has grown drastically. From 2001 to 2012, the costs are estimated to have risen by 42 percent. ((Bipartisan Policy Center and American Enterprise Institute, Trends in Military Compensation: A Chartbook, July 18, 2014, p. 13, (accessed November 12, 2014 12).)) The cost growth has become very problematic for the Department of Defense. In order to keep these costs from consuming the entire Pentagon budget, the military has responded the only way it can—by cutting end strength. This is not a viable solution, as military end strength must be determined by military requirements and strategy.

Congress must reform the various compensation systems. This is not simply a cost-cutting exercise. The fact is that some of these systems were originally crafted when the DOD was created and are truly outdated. For example, the DOD retirement benefit is still a pension system from 1920 that provides no benefits to those who leave the military with fewer than 20 years of service (( Roy Wallace, David Lyle, and John Smith, “A Framework for Restructuring the Military Retirement System,” U.S. Army War College, Strategic Studies Institute, July 2013, p. 2. )). Most of the private sector no longer uses a pension system; furthermore the average person today will change jobs every 4.4 years. ((Jeanna Meister, “Job Hopping Is the ‘New Normal’ for Millennials: Three Ways to Prevent a Human Resource Nightmare,” Forbes, August 14, 2012, Forbes, (accessed November 12, 2014).)) Reforms are necessary to align the military compensation system with today’s generation in order to better recruit and retain soldiers.

There have been many proposals for compensation reform. Many of these have merits; however the exact reform package should be informed by the findings of the Military Compensation and Retirement Modernization Commission, which will release a report in February 2015.

In general, compensation reform should:

• Consider all aspects of soldier compensation, including basic pay, retirement, health care, and other non-pay benefits;
• Reforms should reduce costs to the military in order to afford the necessary end strength to meet military requirements; and
• Reforms should not merely cut costs but should enforce a strong recruitment and retention system to sustain the all-volunteer force.

The estimates above are an example of possible savings from CBO’s reform proposals for TRICARE and basic pay. The exact savings will be based on the details of the plan.