Academic journal article AEI Paper & Studies

Expanding Access While Saving Money in the Military Retirement System

Academic journal article AEI Paper & Studies

Expanding Access While Saving Money in the Military Retirement System

Article excerpt

Foreword

As budgetary pressure threatens to cut military spending past the almost $1 trillion in cuts enacted since the beginning of the Obama administration, defense planners must increasingly balance competing commitments to force modernization, global operations, and military training. Sequestration-imposed cuts are only adding to reductions facing procurement and maintenance programs. Unfortunately, these external pressures, however trying, are not the only challenges facing the Pentagon. The US defense budget is increasingly facing pressure from within as spending on personnel--military, civilian, and contractor--continues to increase due in large part to health care and retirement compensation costs. Without reform, these internal pressures will afford little flexibility to defense policymakers hoping to manage the defense budget in a time of fiscal uncertainty.

In a recent AEI paper, John L. Kokulis explored the potential for reforming rapidly increasing military health care costs. (1) He explained how structural inefficiencies and low cost-sharing requirements have helped drive up these costs beyond private-sector averages. Moreover, while the US Department of Defense's (DoD's) medical costs constituted just less than 6 percent of its total budget in 2001, they have comprised close to 10 percent of defense spending in recent years and will only continue to grow in the future. (2)

Similar trends are driving up the cost of military retirement compensation. Between 2001 and 2011, outlays from the military retirement trust fund increased by almost 49 percent. (3) Going forward, retirement compensation is predicted to consume an increasing share of the total defense budget. The Congressional Budget Office (CBO) expects that between 2012 and 2022, total outlays from the Military Retirement Trust Fund (MRTF) will increase by about $26 billion, or more than 50 percent. (4) While not all of this money will come from DoD--the Treasury pays for part of MRTF's total bill--each expanding dollar going toward retirement benefits necessarily cannot go toward buying the best training or equipment possible for current and future service members. It is out of obligation to the military of the future that the Pentagon, Congress, and the administration must look at the tough but necessary reforms outlined in this paper.

While military retirement reform offers lower immediate potential savings than military health care in the short-run, without reform, the current system offers little flexibility for DoD to plan force structure or promote efficiency, both of which will be critical in modernizing the military in the face of new challenges and shrinking budgets.

In this paper, Patrick Mackin, a veteran of multiple Quadrennial Review of Military Compensation (QRMC) reports, proposes several important steps to chart a better path forward. For one, Mackin proposes a defined benefit plan that is vested at 10 years of service, with an annuity that begins between ages 55 and 60 to increase equity by rewarding service members who do not stay in the force for a full 20 years, while also encouraging careerists to stay in service beyond the 20-year cliff. Additionally, Mackin proposes a Thrift Savings Plan supported by government contributions, vested at five years of service, and a series of milestone payments to incentivize service members to attain key career landmarks. Importantly, this system would service all (nondisability) members of the military: active, reserve, and National Guard. This model, based on a continuum of service, would allow service members to more readily switch jobs within the military, both keeping essential experience in the force and providing better value to America's military.

The Pentagon already appears to be moving in this direction, and for good reason. (5) The reforms embodied in this proposal represent a more equitable, sustainable, and overall superior path forward than the current system. …

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