Truman National Security Project

Modernizing Military Entitlements Will Enhance Readiness

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By David Small | 8.6.13
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Last week, Michael O’Hanlon of the Brookings Institute and Mackenzie Eaglin of AEI penned a pointed opinion piece claiming that military entitlements are killing military readiness. I couldn’t agree with them more that the Department of Defense’s entitlement accounts are eating its readiness and modernization accounts. In other words, we soon won’t be able to afford to buy bombs and bullets, or train our troops to employ them, because our military entitlement programs—retirement, health care, compensation—are eating up too much of the pie.

First, the military retirement system needs to be completely revamped.  Who in their right mind thinks it is okay to retire from anything as early as 38 years old? That’s the age troops who enlisted at 18 after high school can take home 50 percent of their base pay for the rest of their life if they serve 20 years.

To clarify a misnomer – nobody, particularly those with a family, can live off that retirement and not continue to work. Most people in the public sector reading that paragraph likely glossed over the “base pay” caveat. A Soldier’s paycheck consists of his base pay, as well as (if authorized) housing allowance and subsistence allowance, the latter two untaxed and making up a large chunk of one’s paycheck ($1,554 for the lowest ranking military person, living single in Washington D.C. or $699 outside Fort Polk, La.). These allowances to offset off-base living expenses are an oft-overlooked perk of military life. When I left active duty as a Captain with 10 years, my transition assistance counselor told me I had to aim for jobs with $10,000 more in salary than my Captain’s pay to make up the difference in my untaxed income. These allowances stem from an antiquated formula from when everybody lived on base and most ate at the chow hall. These allowances need a review too.

My father retired after 25 years and my grandfather after 30 in the Marine Corps – both as field grade officers – and both needed to continue working to remain within the middle class.

As a reservist, if I retire after 20 years, I also get a similar deal, but not until I reach age 60 since I wasn’t “full time.” My retirement is based on a point system whereby the more reserve duty I pull, the more points toward retirement I get. I have to get a minimum of 50 points a year for that year to be considered one of my 20 “good” years. Some of my points earned include time deployed three times. If I were to get 365 points a year for 20 years, I’d have that golden ticket for an “active duty” retirement, move to the beach and drink pina coladas for the rest of my life. Given the significant reliance on the Reserve and Guard today, it seems the Active and Reserve retirement systems are due for a convergence.

Congress doesn’t need to commission a study to revamp this mess. In 2011, the Defense Business Board reported to the Secretary of Defense on modernizing the military retirement system. Read it here. http://dbb.defense.gov/Portals/35/Documents/Reports/2011/FY11-5_Modernizing_The_Military_Retirement_System_2011-7.pdf

This very practical report compared the origins of the military retirement system with today, finding the current retirement system has not been meaningfully modified or adjusted to reflect the creation of the All Volunteer Force established 40 years ago.

The report noted the current system was “designed in an era when life spans were shorter, draft era pay was substantially less than civilian sector pay, second careers were less common, and skills acquired during military service were not transferrable to the private sector.”

It also states “the present retirement system is tied to base pay and has therefore increased in direct proportion to the substantial increases in base pay that have occurred over the past ten years. As a result of these increases, today’s regular military compensation is higher than that of average civilians with the same level of education. Enlisted and officer pay now ranks in the top quartile of all high school graduates and college graduates, respectively.”

While such a retirement system certainly would attract our best and brightest to stay until retirement, the fact is most of our services are not designed, nor do they desire, for all their Soldiers, Sailors, Airmen and Marines to stay in that long.  Today, 83 percent of the force gets out after their term of enlistment or somewhere mid career without reaching that 20-year vested point. The Air Force recently announced an offer of 15-year retirements for certain career fields to try and get people to leave in a force-shaping measure.  So the 20-year vesting doesn’t even facilitate maintaining a right-sized force.  Compared to my own Federal Employee Retirement system (FERS) plan, I’m vested to retain employer-matching contributions to my Thrift Savings Account (like a 401K for the government) after only 3 years.

In other words, like Eaglin and O’Hanlon said in their article, while those who stayed stateside for 20 years through the 1980s waiting for the Soviets to plunge through the Fulda Gap get this posh retirement, our combat vets who went to Iraq and Afghanistan 3-4 times who “got out” after their second enlistment get to leave with a unit coin, handshake and “job well done” from their commanding officer.

I’m not discounting the service of our previous generation of veterans. They served their country honorably, volunteering to fight if and whenever called upon. And I don’t suggest changes to the benefits they were both promised and earned. But I am saying that our entitlement programs are on an unsustainable course and if not changed now, will bankrupt our national security in the very near future.

The report (which I remind you was issued two years ago) said in 2011, the retirement plan will accrue 33 cents for each dollar of current pay for a total of $24 billion and rising at an unsustainable rate. By 2035, the annual military retirement payment is forecasted to be $116.9 billion and with a total life cycle to grow to $2.8 trillion by FY34. Inflation and expanded life expectancy will only compound these numbers, as will any increase to military base pay, which Congress likes to tack on. I mean, who doesn’t want to look like they support our troops?

Recommendations from the report revolve around a retirement contribution model (like every other business in the world, including the rest of the federal government). Didn’t Detroit just go bankrupt due in part because of its antiquated pension plan? For those readers who took offense to the comparison of the profession of arms as a business and wish to wave the flag with the “I volunteered to fight and die” argument, I will remind you that I, too, took the oath. I’m talking about future generations’ ability to do that fighting part of your own argument. Either change the business model, or go to war with sling shots instead of M-16s.

To tackle our military’s growing fiscal fiasco, we’ve got to attack the big rocks first—the things where we will get the most bang for our buck given the uphill battle it will be to make change in a politically sensitized arena with a gallant veterans’ lobby in Washington. The commissaries and exchanges (aka on-base Food Lion and Wal-Mart respectively) are not major players in the entitlements budget. Could Wal-Mart take over operations on base? Perhaps. But what incentive would they have to do so? I read somewhere that DoD approached them already. Wal-Mart’s response was that they would subsidize purchases at their already established stores around bases. At least ideas are flowing.

Respondents to the Brookings/AEI article seem to think proponents for entitlement reform are going after a Private’s paycheck. Nothing is further from the truth. Should Soldiers’ paychecks slow to the rate of inflation now that they make a decent buck? Probably. Likewise, nobody is saying the Veteran’s Administration shouldn’t adequately and fairly care for and compensate somebody suffering the wounds of war.

The veterans’ lobby has a noble focus, for sure. We do indeed owe a huge debt of gratitude for those who have fought for our freedom and way of life. But those who came before us and their Congressional supporters should not compromise our future national security by refusing to recognize this growing problem and taking action. The grandchildren of those very people will be living in an America threatened by who knows what. To combat that unknown foe, we must act today in modernizing our military’s entitlement plan. This Defense Business report was issued more than two years ago. It’s time for somebody to get to work.

David Small is a member of the Truman Project’s Defense Council. Views expressed are his own.