Think tank recommends ways to rein in military pay, benefits

Maya Alleruzzo/AP file photo

The government must reform military pay and benefits to help the Defense Department rein in spending, according to a new report from a left-leaning think tank.

The Center for American Progress praised Pentagon proposals to cut personnel costs, which include capping pay raises for service members beginning in fiscal 2015, raising TRICARE enrollment fees for military retirees to keep pace with increases in health care costs, creating a 401(k)-based retirement system to replace the current vesting system, and increasing the age at which service members can receive their pensions.

The report, which outlined recommendations for “thoughtful” spending cuts while maintaining a robust national defense, also recommended reducing the number of active-duty personnel stationed in Europe and Asia, something the Obama administration also has proposed.

Some personnel-related reforms CAP supports include:

  • Limit pay increases beginning in fiscal 2015. “By repeatedly passing pay raises above and beyond the Pentagon’s request, Congress has driven military pay out of line with the Pentagon’s own standards,” the report stated. “Basic pay accounts for about half of military cash compensation -- service members also receive tax-free allowances for housing and subsistence, a variety of other tax breaks, and an array of special and incentive pay.”
  • Raise TRICARE enrollment fees and deductibles for working-age retirees to reflect increases in health care costs during the past 20 years. Until 2011, TRICARE enrollment fees for military retirees younger than 65 had remained the same since 1995. As of Oct. 1, all retirees enrolled in TRICARE Prime now pay between $39 and $79 more annually than they did before.
  • Implement an enrollment fee for TRICARE-for-Life.
  • Mandate the working-age military retirees above a certain income level can enroll in TRICARE only if they don’t have access to other health care plans through their employer or spouse.
  • Transition to a 401(k)-style retirement system. Specifically, military personnel with more than a decade of service could choose to stay in the current system or switch to a 401(k); those with less than 10 years of service could enroll in the new 401(k) system or a modified version of the current pension setup, which would vest at 10 years but “provide slightly less retired pay -- 40 percent of base pay at 20 years, rather than 50 percent permitted under the current system.”
The 2011 Budget Control Act mandates $487 billion in Defense spending cuts over the next decade; if sequestration occurs in January, the Pentagon will have to slash an additional $500 billion from its budget during that time frame. Defense annually spends about $107 billion on salaries and allowances, which does not include health care costs or retirement benefits. Those expenses tack on another $75 billion or so annually. All told, military compensation eats up about one-third of the department’s budget.

There are three major components to military compensation: pay, health care and retirement benefits. In that sense, it’s similar to many pay and benefits packages elsewhere in government and in the private sector. But that’s where the similarities end. Take pay, for example. The military has more than 70 types of pay and allowances for service members. A typical active-duty service member receives basic pay, housing and food allowances, an annual pay increase, and some tax breaks. Service members also are eligible for combat pay or other kinds of incentive pay based on their specific jobs and any special skills, such as proficiency in a foreign language.

Health care and retirement benefits together cost the Pentagon less in actual dollars today than pay, but much more in political capital and good will among troops, retirees and their families. The House this spring shot down the administration’s recommendations to raise health care premiums for military retirees based on their retirement pay, in addition to other fee hikes.

The Pentagon now has a 20-year cliff-vesting retirement system, which some critics would like to replace with one providing some benefits to all service members regardless of their tenure. Personnel who serve less than 20 years -- about 83 percent -- do not receive a retirement benefit, which some believe is unfair given their multiple deployments during the wars in Iraq and Afghanistan. Those who do spend a career in the military can hit the 20-year mark relatively early, retire from service in their 40s or 50s, draw a pension and work elsewhere for a while. About 17 percent serve 20 years or more in the military.

“Military pay and health reform will allow the Pentagon to achieve substantial savings in the near term,” the report said. “Retirement reform, however, presents the greatest opportunity for savings.”

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