An Overview Of Past Proposals For Military Retirement Reform

By one estimate, between fiscal years 1995 and 2005, total compensation costs for current and former military personnel increased by almost 60 percent. The military retirement benefit remains a significant portion of these costs, and every change to accessions, retention, and basic pay today will have a future effect on pension expenditures. This technical report provides an overview of the history of U.S. military retirement studies and associated legislation, with a particular focus on the past 60 years of proposed reforms. It is organized around the following five major issues that have driven attempts at retirement system reform: cost, equity, selective retention, civilian comparability, and force management flexibility. The author finds that cost alone is reason to analyze the current retirement system, and reform proposals of the past have focused carefully on cost. However, he also finds that, as the military's mission evolves over time, it is also important to consider the sometimes subtle incentive effects that the retirement system has on service member behavior. Beyond considerations of cost, reform of the military retirement system necessarily involves ramifications for force structure and operational readiness.

As the defense burden borne by reserve forces has increased, more attention has been paid to differences between retirement systems for the reserve and active components. This report analyzes the systems, discusses the importance of structuring compensation to enable management flexibility, considers obstacles and how they might be overcome, and provides a quantitative assessment of the reserve retention and cost effects of possible proposals.

Four bills are pending in Congress to reduce the age at which reservists can begin to receive retirement benefits. This report provides input regarding these proposals and the broader issues surrounding reserve retirement reform. Although it is important to recognize that deferring some portion of compensation can be cost-effective, the results argue in favor of providing compensation on a current rather than a deferred basis.

Military compensation is a pillar of the all-volunteer force. It is a fundamental policy tool for attracting and retaining personnel, and its structure-and the incentives implied by its structure-can affect U.S. service members' willingness to join, exert effort, demonstrate their leadership potential, remain in the military, and, eventually, exit the military at an appropriate time. Military compensation is a composite of current pay and allowances, special and incentive pays, health benefits, disability benefits, retirement benefits, and other benefits. Its importance to the readiness and morale of the force is such that it is reviewed every four years to determine whether it is adequate to meet the U.S. military's objectives. To inform the 10th Quadrennial Review of Military Compensation, this monograph presents an in-depth examination of the mix and structure of the U.S. military's current retirement-benefit system and several policy alternatives. The study included the development of a model that was estimated and used to run a series of simulations based on active-duty and reserve personnel data to track the careers and potential decisionmaking of military personnel across the services. The simulation results were then assessed in terms of their cost-effectiveness and ability to meet the services' expectations for accession, retention, and career mobility.