Senate panel votes to overhaul military retirement, to cut headquarters spending

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The Senate Armed Services Committee voted Thursday to overhaul the military’s compensation system, nudging it away from a defined benefit structure and adding a government-matched investment plan similar to a 401k. The vote puts both the House and Senate on the same page, though the Obama Administration is still undecided about whether and how to proceed.

The Senate committee approved the retirement changes as part of its version of the annual Defense authorization bill. The vote came just two weeks after the committee’s House counterpart approved very similar provisions, and both are based on the recommendations a blue ribbon panel made earlier this year after two years of study.

Under the Senate’s plan, the military’s existing pension system would be cut back so that, for example, a servicemember who retires after 20 years of service — the minimum period required to earn a pension — would get 40 percent of his or her base pay in retirement instead of 50 percent. To compensate for that change, the government would begin making 1 percent contributions to military members’ Thrift Savings Plan accounts two years after they join the military, and to encourage them to invest their own money, would also make matching contributions up to 5 percent of their base pay.

“Today, 83 percent of servicemembers leave with no retirement benefits. Under the new plan, 75 percent of servicemembers would get benefits,” said Sen. John McCain (R-Ariz.), the Armed Services Committee’s chairman. “This reform is also estimated to save $15 billion, and it would only apply to new members of the military.”

30 percent fewer people in the Pentagon

Describing the Senate version of this year’s National Defense Authorization Act (NDAA) as a whole, McCain called it a “reform bill” that tackles not just military retirement, but acquisition reform, DoD’s personnel system and Pentagon management.

But details of the bill were not immediately available to reporters or the public, because the Senate, unlike the House, conducts its annual markup in secret and does not disclose the legislative language it’s debating until it’s been adopted by the full committee.

McCain, however, told reporters Thursday that the committee also voted to require DoD to make significant cuts to its headquarters spending: 30 percent over the next four years, beginning with a 7.5 percent staff reduction that the Pentagon and the military services must accomplish by next year.

“We ensure that DoD is using precious Defense dollars to defend the nation, not to expand bloated staffs,” McCain said. “These reductions generate $1.7 billion in savings just for fiscal 2016. With these savings and billions more throughout the bill, we invested in crucial military capabilities. We accelerated shipbuilding for Virginia-class submarines, destroyers and amphibious assault ships, we addressed strike fighter shortfalls by fully restoring funding for the A-10, adding F-35s and F-18s and upgrading our F-15s. We invested in modernization across the services, and we’re meeting our commanders’ most urgent priorities.”

McCain has pursued the headquarters staffing issue aggressively since he became chairman of the committee earlier this year, including by chastising the Air Force for what he said was a disingenuous approach to DoD’s earlier directives to trim headquarters spending by 20 percent.

McCain claimed in March that the Air Force cuts were a “shell game” which simply moved positions and money from “headquarters” organizations to lower-level commands.

Expanded acquisition role for uniformed services chiefs

While it’s unknown how controversial the measure was during the full committee’s closed deliberations, at least one member, Sen. Tim Kaine (D-Va.), expressed serious misgivings about ordering the department to slice its management functions by arbitrary percentages.

“Secretary [Ash] Carter has been working since 2013 to implement a long-term strategy to reduce overhead without causing large-scale layoffs. These kinds of cuts are going to mean either abrupt layoffs to DoD personnel, or more likely, cuts to important programs,” Kaine said. “What headquarters actually entails is things like funeral honors for servicemembers and veterans, suicide prevention, sexual assault prevention, audit support while we’re trying to get a clean financial opinion from DoD, and the acquisition workforce while we’re trying to reform acquisition processes at DoD. These are all areas we’re trying to improve in this bill, but we’re cutting the staff to do it at the same time.”

With respect to acquisition reform, McCain said the bill the committee approved Thursday would reinsert the military’s uniformed service chiefs into the acquisition process, another cause he has championed since becoming committee chairman. But he provided few insights into what the reform would entail other than to say he wanted the chiefs to be more accountable for the military hardware their services are producing.

“They will be directly responsible for the acquisition process and any cost overruns that are associated,” he said. “They will have to certify in writing that they are aware of any cost overruns in their programs and that they are acting to resolve it in one way or another.”

Overall, the bill would authorize DoD to spend $613 billion on defense in 2016 – far above the $499 billion cap imposed by the Budget Control Act.

As one mechanism for adding funds to defense, the committee turned to the Pentagon’s overseas contingency operations account, originally meant to fund the wars in Iraq and Afghanistan. The Obama administration proposed $51 billion in that account for 2016, but the Senate bill would authorize DoD to use it for $90 billion in spending.

McCain was fairly open about the fact that the committee was using the OCO account to sidestep sequestration, since OCO funds are exempt from the budget caps.

“We used a very generous interpretation of OCO,” he said. “I think it’s about as generous as I can think of in the English language.”

The House used a similarly-generous interpretation when it passed its version of the defense bill. And those decisions, combined with the ones made by Congressional appropriators to further cut domestic agencies’ budgets in order to keep the government below the overall BCA caps led Democrats to threaten to vote against the NDAA as the full House began debate on its version of the bill on Thursday.

The White House has also signaled that the president would veto a Defense authorization bill which plusses up Pentagon spending without undoing sequestration for other agencies.

“As bridges collapse, roads fall apart and story after story is written about how our infrastructure is collapsing, all of those other appropriations bills are being cut,” Rep. Adam Smith (D-Wash.), the Armed Services Committee’s ranking member told a Capitol Hill forum organized by several Washington think tanks Thursday morning. “We are not going to let Defense out from the caps and leave the other eleven areas of federal spending subject to these cuts. That point has been absolutely clear. The hope, I guess, is that the president will change his mind sometime between now and October, but I don’t see that happening. We need to pass the NDAA, but we are not going to pass the NDAA if we don’t address this larger budget issue.”

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