The military retirement system is not the main driver behind the Defense Department’s escalating personnel costs, Pentagon officials said Tuesday as they sought to assure Congress that they will not recommend retirement changes that would “hollow out” the military.

The most recent firestorm around military retirement started in July, when the Defense Business Board, a Pentagon advisory panel, issued a preliminary report that recommended major changes to the 20-year pension system. The board suggested converting the pension to something more akin to a private-sector defined contribution plan, saying the current pension system is unfair, overly generous, and unaffordable.

At least on the affordability score, Pentagon officials offered a different view before the House Armed Services subcommittee on personnel.

Not ‘spiraling out of control’

“While the department acknowledges the military retirement system appears expensive, it is neither unaffordable nor spiraling out of control, as some would contend,” said Dr. Jo Ann Rooney, the principal deputy undersecretary of defense for personnel and readiness. “The department annually contributes amounts to the military retirement fund in accordance with the requirements set forth by the DoD office of the actuary. The contributions as a percentage of military basic pay are projected to be relatively constant over time.

Nonetheless, Rooney said DoD is using the business board study as one of several data points as it works on its own review of military retirement. She said the department is applying mathematical models to several different alternatives to try to determine how each would impact recruiting, retention and other factors.

But she suggested that a 401k-style plan is not something the department would favor.

“It generally takes 15 to 20 years to generate the next generation of infantry battalion commanders and submarine captains,” she said. “As a result, the department must ensure military compensation, promotions and personnel policies all foster greater retention and longer careers necessary to create these experienced leaders. This need for greater longevity and continuity suggests there are valid reasons why mirroring a private sector compensation package might not be a proper approach for the military.”

20-year rule

The business board’s claim that the retirement system is unfair is based on the fact that servicemembers who leave the military before 20 years get no pension at all, and only 17 percent of military members serve long enough to earn a pension. Also, there is no difference in retirement pay between those who serve in low-risk positions compared to those who have more dangerous jobs.

Rep. Austin Scott (R-Ga.) said members who serve for fewer than 20 years should get some sort of retirement benefit.

“It’s necessary for us as a Congress to do something that helps that 83 percent,” he said. “There are many of them who have served overseas. They’ve spent a great deal of their time and their family’s time and contributed a great deal to the freedoms we enjoy in this country. I see nothing wrong with them being able to choose a different retirement plan.”

Vee Penrod, deputy assistant secretary for military personnel policy, said her office is looking at military retirement as part of an overall compensation strategy for service member with the aim to design something that makes sense for the 21st century. She agreed it’s worth asking whether troops who serve shorter terms should get some kind of retirement pay.

“The 20-year retirement has sustained the all-volunteer force, but I believe we should look at it,” she said. “We have a different cohort coming in every year. How do we know what people are going to want from a retirement system in the future? It may make the military more enticing to come in if and individual thinks they have something they can take with them.” But DoD officials hasten to point out that no decisions have been made about how they’d like to change military retirement. And, they repeated Secretary Leon Panetta’s assurance that servicemembers who are serving now would be grandfathered into any changes.

Creating a two-class system?

That’s cold comfort to Steve Strobridge, government relations director for the Military Officers Association of America, who testified that grandfathering is not a panacea. He said changing the military retirement system would impact the morale of service members whether they’re directly affected by it or not, and said it would create a two-class system within the military. “You have two categories of people serving side by side, who each know they have different benefits,” he said. “There is just no way as those people go through 20 years serving together that that doesn’t become a burr under their saddle.”

Strobridge made it clear that MOAA and other influential military advocacy organizations want to see as few changes as possible to the current military retirement system. He said the groups are worried by the business board proposal and several others, and no amount of analysis inside DoD can fix proposals that he said would make drastic cuts in the value of military retirement benefits.

“So many of these analyses treat people in the context of human resources, as though they’re widgets in a box instead of thinking, planning human beings,” he said. “There’s nothing in the model that accommodates the chance that we might go to war tomorrow. There’s nothing in there that accommodates that we might do the opposite — have a budget-driven drawdown. You’ve built your plans on staying for a career and we’re going to force you out. But when you have a very powerful career incentive like the 20-year retirement, it’s very resistant to day-to-day manipulation. That’s a good thing. If you want to talk fairness, the first thing we have to do is be fair to the people who suffer and sacrifice the longest, and that’s the career person. The last thing we should be doing is cutting their package to fund a package for people who leave.”

No radical changes

President Obama’s recommendations to the deficit-cutting supercommittee included a proposal for a new commission to study military retirement. It would develop a take-it-or-leave-it proposal for the President and Congress to consider. Rooney, the Pentagon’s number two personnel official, said DoD will be ready with plenty of input if that commission is actually formed.

But she said whatever happens, the department is determined to make sure it doesn’t make radical changes that hurt recruiting and retention.

“That is something we have learned many lessons on in the past, and we will not do anything to our compensation system that leaves us with that hollow force,” she said. “We know we’re facing drawdowns, and we also know that our future force very much can look different in terms of the type of force we must recruit, the qualifications, the technical aspects. That prompted us try to make sure we have the correct pay and benefits package going forward. We’re trying to view all the budget reductions strategically, and this has to be part of that discussion. But it’s not a solely budget-driven exercise.”

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