America's Military Needs a New Retirement Plan

June 16, 2015 Topic: Politics Region: Americas Tags: U.S. MilitaryEntitlementsReform

America's Military Needs a New Retirement Plan

While recent proposals are steps in the right direction, America needs to do more to prevent an impending military cost crisis.

 

Regardless, that's actually not much money. Two years ago, the DoD’s Reserve Forces Policy Board concluded that, “The all-in cost of the all-volunteer force is one of the time-ticking bombs that could explode our defense capabilities if not dealt with responsibly.” Manpower costs, including pensions and health care for retirees, account for nearly half of the defense budget, and the Army Chief of Staff, General Ray Odierno, forecasts that 80 percent of the defense budget will go to compensation by 2023 unless we fix the problem.

Given that we’re currently spending over $20 billion a year just on pensions for military retirees, addressing these costs was vital. Continuing to offer generous lifeline benefits to young people (as early as 38 years for enlisted personnel and 42 for officers) after twenty years of service is an expensive way to keep our best personnel. The system was put in place in an era when military pay was very low; paying half their small base pay for life was both a necessary enticement to a career of service and relatively affordable. For decades now, our troops have been compensated at a very competitive level and still earn a pension plan found nowhere in the private sector.

 

Yet, since we’re quite reasonably grandfathering in those currently in the service, it will take decades to receive the benefits from these reforms. And, in the meantime, we’re actually increasing our costs in terms of both the TSP match and the continuation pay.

Still, the move to one-time bonuses is a huge step in the right direction. The cost per active duty service member has skyrocketed, increasing 57 percent in real terms between 2001 and 2012—or 4.2 percent annually—owing to annual pay raises that far exceeded inflation; improved benefits, such as a major enhancement in the GI Bill to spur recruitment and large retention bonuses for in-demand skill sets; and an explosion in health care costs. The impetus for those outlays was laudable during the height of the wars in Iraq and Afghanistan but, alas, the burden of those choices will last well into the future. Most notably, the massive increases in base pay directly impact the retirement system since pensions are calculated on a “high three” basis.

Over the very long term, then, the proposal should save money. Still, while pension reform is absolutely needed, the proposal does nothing to address the much more pressing issue of healthcare costs, which went from $17.8 billion in 2000 to $49.8 billion in 2010. The Congressional Budget Office (CBO) projects that, absent major changes, those costs will double again by 2030. CBO Senior Analyst Carla Tighe Murray estimates we could save “several billion dollars” over the next decade simply by increasing the out-of-pocket expenses paid by TRICARE users who are military retirees under 65 TRICARE to levels comparable in private sector.

The bottom line is that, while these reforms are a step in the right direction—and perhaps all that is politically possible given the current state of civil-military relations and dysfunction in Congress—they’re merely a drop in the proverbial bucket. Without more significant changes—most notably, addressing health care costs—we still face a future in which personnel costs, including those for those long since departed from active service, will overwhelm our ability to train and equip a modern fighting force.

James Joyner is a security studies professor at the Marine Corps Command and Staff College and a nonresident senior fellow with the Brent Scowcroft Center on International Security at the Atlantic Council. These views are his own.

Image: Flickr/U.S. Army​