The Pentagon’s top civilian says it’s time to tame burgeoning military personnel costs, but he’s facing a test of wills with the nation’s powerful veterans groups, which don’t want their benefits cut.
Veterans groups are fighting curbs in annual pension increases for military retirees under age 62. The curbs are part of the new budget deal passed by Congress last week and signed by President Obama on Thursday.
Defense Secretary Chuck Hagel has said reforms in military compensation can’t be avoided.
“We all know that we need to slow cost growth in military compensation,” Hagel told a Pentagon news conference last week. “We know that many proposals will be controversial and unpopular. . . . Tough decisions will have to be made.”
In an era of tight budgets, personnel costs now make up nearly half of the Pentagon’s funding, and officials fear continued growth will force disproportionate cuts in other areas, such as training and equipment. Health costs alone have skyrocketed nearly 200 percent since the year 2000 and will balloon further in coming years without changes, officials say.
“Modernization is a certainty,” said James Hosek, a senior economist at the RAND Corporation and expert on defense manpower.
Those personnel costs include military pensions, which servicemembers become eligible for after serving 20 years. And though only a slight percentage stay in that long, because veterans can start drawing that pension as soon as they leave the services, ways to curb those costs is under close examination. Military retirees, however, want the belt-tightening done elsewhere, and they hope to get Congress to reverse itself.
The change provoking outrage among military and veteran groups reduces retirement benefits for working-age retirees. Starting Dec. 1, 2015, cost-of-living adjustments for pensions of retired servicemembers younger than 62 would be modified to equal inflation minus 1 percent; then at 62, retirees would receive a “catch-up” increase that would restore their pensions to reflect levels as if the cost-of-living adjustment had been the full consumer price index in all previous years. But they wouldn’t get back what was lost, meaning a reduction of nearly $72,000 in benefits over a lifetime for a sergeant first class who retires at 42, by one group’s estimate.
There are nearly 2 million retirees currently getting military pensions at an annual cost of $4.5 billion to the Defense Department. Of those, 840,000 are younger than 62 — and more than 80 percent of those were enlisted, as opposed to higher-paid officers.
Sen. John McCain (R-Ariz.) said a veteran of identical rank who retired at 38 would still wind up with $1.62 million in retirement pay over a lifetime.
But officials have said repeatedly in recent years that changes in the system would not affect current military members or retirees. Rather, they would be applied to future recruits.
“Keep your promise” is the theme of a lobbying effort by the Military Officers Association of America.
With boosts in pay and benefits in recent years, officials and defense analysts say military compensation for active duty servicemembers is competitive with the civilian sector — and well above it when comparing people with similar education and experience. But those who serve 20 year or more get benefits that can far exceed those found in civilian life.
An Army private with fewer than two years of service and no dependents earns on average about $40,400 annually, said Navy Lt. Cmdr. Nathan Christensen, a Defense Department spokesman. About two-thirds of that is base pay and the rest a housing allowance and a food allowance, with no taxes paid on the two allowances. An Army captain with six years of service and no dependents averages $93,800 annually.
Active-duty military also get all of their health care free of charge. Their spouses and children get free care at military treatment facilities. If dependents use a private doctor, dentist or pharmacy, they get the care through the department’s TRICARE system, paying no premiums and no co-pays, said Austin Camacho, a system spokesman.
The force also gets what the Pentagon calls “quality of life” benefits, such as help paying for continuing education, separate schools in some places for their children, commissaries where they buy food at an estimated 30 percent below retail prices, and exchanges where they buy other deeply discounted goods, such as clothing and household items. Greatly discounted day care is available through the Defense Department’s child development system, which officials say has grown to serve the largest number of kids daily among the nation’s employers: More than half of the 1.4 million-member force is married, and they have 1.2 million children.
While serving, some active military are, and some aren’t, able to build much of a retirement nest egg on their own. There’s a savings plan, although there are no employer matching funds, and moving every two or three years due to reassignment can affect the service members’ ability to build equity in their homes and the spouse’s ability to build a career that brings in a good second income.
Only 17 percent of service members serve 20 years, the Pentagon says. Those serving less than two decades get no retirement pay. But those who put in their 20 could potentially draw pensions and other benefits for 40 years or more.
For example, a soldier who enters at 18 and stays 20 years can start drawing pension checks worth half their base salary at 38, rather than having to wait until their 60s as most Americans with pensions do. And those military pension payments last a lifetime. It’s a practice without parallel in the private sector, although some government agencies, such as city police departments, do it.
A Navy Chief Petty Officer who earned $80,000 a year, is married and served for 20 years can immediately get a pension of about $2,200 monthly that would grow with cost-of-living increases. He or she can also get free health care at military facilities on a space-available basis and can continue using commissaries — the latter two benefits being a reason some retirees like to reside near military installations, officials say. Those who enroll in TRICARE insurance for private sector care can pick between two plans, paying $274 annually for an individual or $548 for the family for the standard plan, far below civilian insurance costs.
The retirement system hasn’t been changed materially in more than 100 years and was designed when people didn’t live as long, second careers were rare and military pay was low.
Many military retirees have second careers, collecting their pensions as well as income from their new jobs. And once past 62, they also benefit from Social Security payments, which they contributed to while in the military, and possibly 401(k) payments and company pensions.
Critics say the potential of 40 years of pension payments and other benefits for 20 years of work is overly generous, but military retirees say they deserve it for taking risky jobs that the overwhelming majority of Americans don’t volunteer for. They also say the jobs are tough on them and their families.
American Legion National Commander Daniel M. Dellinger said the group was “horrified” that the Senate could pass a bill “so unfair to those Americans who have served honorably in uniform.”
The Veterans of Foreign Wars predicted the change would prompt an exodus of those at mid-career once the U.S. economy rebounds, and that it will hurt efforts to recruit new people into the all-volunteer force.
Retirees argue that cutting troop benefits is the last thing that should be done — and some suggest efforts to curb personnel costs should first target what they see as bloated civilian staffs as well as redundant uniformed bureaucracy in which each service branch has its own medical command, cyber assets and intelligence assets — just to mention a few complaints.
By passing the pension cut now, lawmakers jumped the gun on a review panel broadly studying modernization. The nine-member Military Compensation and Retirement Modernization Commission was mandated in the last budget year to study the full breadth of issues including regular military pay, health care, the promotion system, retirement pay and family support programs.
Ideas already floated for compensation changes include earlier vesting in pensions; giving troops a lump sum on departure rather than long-term pensions; slightly increasing health care premiums; and replacing pensions with a 401(k)-type saving plan, which would be offered, not forced on current members and retirees. Some analysts say modernization will inevitably mean less generous benefits for military members, but others hope that may not be the case if creative efficiencies can be found.
The panel is scheduled to make recommendations to Congress and the president in May.