Don't turn away from reforming military retirement benefits

The U.S. military is at a crossroads. We can either properly train and equip our future warriors or maintain overly generous benefits for young military retirees who have many years in the workforce ahead. We cannot do both. How the nation chooses will, to a great degree, determine how secure Americans will be in decades to come.

The president’s signature on the Bipartisan Budget Act of 2013 (BBA) is barely dry, yet several members of Congress have already pledged to undo a provision that would modestly limit annual increases to pension payments for working-age (38 to 62) military retirees, while directing budgetary savings to preserve military readiness.

ADVERTISEMENT
We are increasingly concerned that fast-growing personnel costs – including health and retirement benefits that begin at a very early age – will crowd out other defense priorities. As DOD spending on the all-in personnel costs of the volunteer force approaches 70 percent of the defense budget annually, with the prospect of additional unchecked acceleration in the years ahead, it is clear that we are heading for a readiness and procurement catastrophe if causal factors are not addressed. These factors are benefit entitlements, pensions, and military health care on the personnel side, and acquisition reform and overhead on the business side of the defense budget. Given this reality, we find the objections to the very modest proposals currently on the table, which represent a small start to the comprehensive reforms that are truly necessary, to be without merit. We urge the implementation of this beginning effort. If we fail here, the road ahead will be increasingly perilous to our national security.

Under the current military retirement system, members of our armed forces can receive pension payments and health care benefits after serving for at least 20 years, regardless of their age.  In the case of a service member who retires at age 38, pension payments and health coverage could easily continue for more than 40 years, totaling over 60 years of pay and benefits for 20 years of service, a very unusual – and expensive – benefit. Currently, military retirees of all ages receive annual cost-of-living adjustments (COLAs), which increase these payments according to the consumer price index (CPI), a common measure of inflation. Beginning in 2016, the BBA provision will reduce this COLA by one percentage point (i.e., to CPI minus one percentage point), for working-age military retirees only. When those retirees reach age 62, their pension payments going forward will bump up as if the lower COLA had never applied, and from then on, they will receive a higher annual COLA based on the full CPI. This modest and reasonable reform would reduce lifetime retirement pay by about 6 percent—from $1.7 million to $1.6 million—for an Army sergeant first class retiring at age 38. Senator Patty Murray and Representative Paul Ryan have pledged to make a technical adjustment to exempt military retirees with disabilities from the change.

Entitlement spending within the military, in the form of retirement and health benefits, poses the same challenges as it does for the entire federal budget. Indeed, many state governments are encountering this same issue, and some have implemented COLA reductions for their retirees. Those states face the tradeoff of paying for critical services today, such as law enforcement, or meeting unaffordable pension promises to previous employees.

Likewise for defense, in an era of spending caps and limited resources, fast-growing benefits are crowding out military readiness today and investments in our future national security. For example, in Fiscal Year (FY) 2013, the federal government budgeted more for military retirement and health care benefits ($143 billion) than it did for military procurement ($110 billion). When total personnel costs are considered, the contrast is even starker. The total budget for pay and benefits for active and retired service members in FY 2013 ($264 billion) was greater than the budget for military operations and maintenance (excluding healthcare-related operations, which are more appropriately classified as a personnel cost).

Congress was wise to take the first step toward military retirement benefit reform in the BBA. Much larger reforms must come in the near future. We must rethink every aspect of military spending, including benefits. In doing so, policymakers should protect the Veterans Administration and other benefits for service members who were wounded or disabled in the course of their service. Very generous health care and pension benefits for able-bodied, working age (38-62) military retirees – benefits that have no parallel in either the private or public sectors – cannot remain the same without causing damage to our war-fighting ability in an era of constrained resources.

Jones served as Supreme Allied Commander Europe and National Security Advisor for President Obama. Johnson was Commander of U.S. Naval Forces, Europe. Punaro was the Staff Director of the Senate Armed Services Committee. Wald was Deputy Commander of U.S. European Command.  All are affiliated with the Bipartisan Policy Center, a Washington think tank.