Tackling Compensation and Personnel Challenges at the Pentagon
USMC Gen. James F. Amos, the outgoing commandant of the Marine Corps, at the passage of command ceremony at Marine Barracks Washington in Washington, DC. [DOD photo by PO2 Patrick Kelley, U.S. Coast Guard, 10/17/14]
But recent reports show other, less difficult pathways to reducing Pentagon costs as well, including trimming excess headquarter staff and reforming inefficient use of contractors to save $25 billion per year. There are no easy ways forward, but without tackling these hard challenges, the future of the all-volunteer force cannot be sustainably ensured with sufficient resources remaining for adequate training and weapons.
Reforming compensation is a hard challenge, but is necessary to preserve the all-volunteer force and keep faith with service members by ensuring sufficient funds are available for the training and capabilities required to fight and win wars. Todd Harrison of the Center for Strategic and Budgetary Assessments explains: “The all-volunteer force, in its current form, is unsustainable. Over the past decade, the cost per person in the active-duty force increased by 46 percent, excluding war funding and adjusting for inflation. If personnel costs continue growing at that rate and the overall defense budget remains flat with inflation, military personnel costs will consume the entire defense budget by 2039. But cost growth is not the only factor affecting the long term sustainability of the all-volunteer force. The fundamental structure of military compensation remains largely unchanged despite the transition to an all-volunteer force four decades ago.” Elsewhere he adds, “it’s not just about pay and benefits… we owe it to our troops to make sure they have the proper training, the best equipment in the world, so when we want them to fight in the future, they can be successful.” [Todd Harrison, accessed 7/22/12. Todd Harrison via Defense One, 1/28/15]
The military compensation commission provides a menu of options for modernizing compensation to sustainably keep faith with the all-volunteer force.
Streamlining healthcare access by moving from TRICARE to a commercial system: The Commission explains, “TRICARE often limits access to care by confining beneficiaries to a lengthy and frustrating process for obtaining specialty care and to weak networks of civilian health care providers. The adverse effect of weak provider networks is even more profound for beneficiaries living in remote locations…The Congress should replace the current health care program with a new system that offers beneficiaries a selection of commercial insurance plans.” The Commission adds this recommendation “improves access and choice in health care by allowing Service members and retirees to select from a menu of commercial health care plans…eliminates the existing TRICARE referral process, which is a source of substantial frustration to Service members and their families” and “provides active-duty Service members with a new Basic Allowance for HealthCare (BAHC) to offset costs for commercial health care.” The Commission notes this option “reduces annual DoD budgetary costs and Federal outlays, in FY 2016 constant dollars, by $6.7 billion and $3.2 billion, respectively, after full implementation.” [Military Compensation and Retirement Modernization Commission, 1/29/15]
More fairly distributed retirement benefits: The current “defined benefit” retirement system pays retirees based on their salary in the military, but is only available to Service members who serve 20 years or more. The Commission explains that “Under the current system, 83 percent of the enlisted men and women serving our Nation will never benefit from a traditional 20-year Uniformed Service retirement.” Therefore, “The Services’ retirement system should be restructured to provide retirement benefits to more than one million current Service members who would otherwise leave service without any Government-sponsored retirement savings.” To do this, the Commission recommends a new approach. Bloomberg summarizes, “While continuing to provide a defined pension benefit for military personnel [who serve over 20 years],” the recommend plan would allow all service members “to enroll in a 401(k)-type savings plan that would include some matching contributions from the government…Under the proposal, current military members would be grandfathered into the present system and wouldn’t see changes to their defined pension benefit.” While the benefits under defined pension would be reduced, the Commission claims the alternative system “increases the expected value of Government-sponsored retirement assets for Service members who retire after reaching 20 years of service” because their defined benefits combine with the 401(k) benefits open to all Service members. The Commission notes this option “reduces annual DoD budgetary costs and Federal outlays, in FY 2016 constant dollars, by $1.9 billion and $4.7 billion, respectively, after full implementation.” [Military Compensation and Retirement Modernization Commission, 1/29/15. Bloomberg, 1/29/15]
To protect the all-volunteer force, changes to the compensation system must carefully incorporate the preferences of service members and veterans to make sure the troops like the new system better than the old system. The preferences of service members are key to fairness and sustaining recruitment and retention. The Commission claims, “Active duty survey respondents indicated that they would prefer the modernized compensation system detailed in this report over the status quo by a margin of 4 to 1 while being more preferable, the proposed compensation system improves fiscal sustainability, providing a win-win solution for Service members and the Services.” Though importantly, that margin does not apply to each change proposed individually. Other extensive empirical studies have found military personnel have preferences that accommodate reforming the compensation to be more affordable, such as valuing pay over some other benefits, like commissaries. [Military Compensation and Retirement Modernization Commission, 1/29/15]
Policymakers should prioritize reforming inefficient use of contractors to save billions. In a recent report, the Defense Business Board analyzed DOD’s inefficient business practices and found that “more than 1 million people [contractors] working in the DoD’s human resources, health care, financial, logistics, acquisition and property management fields” for an annual cost of about $100 billion. “By renegotiating contracts with vendors, offering early retirements and retraining employees to be more efficient, the building could save about $125 billion between fiscal 2016 and 2020, or about $25 billion a year,” Defense News reported. Additionally, “Those savings could then be pumped back into the force, the board claims, and would equal the funding it takes to field 50 Army brigades, 10 Navy carrier strike groups or 83 Air Force F-35 fighter wings.” [Defense News, 1/23/15]
Comprehensive reform efforts mean following through and expanding current initiatives, like starting to reverse costly headquarters bloat. The Washington Post reports, “Civilian and military staff at Army headquarters… grew by 60 percent to 3,639 in fiscal 2013 from 2,272 in fiscal 2001, not including contractors.” In tracking efforts to begin to address the problem, the Government Accountability Office (GAO) recently reported, “DOD identified planned savings [from reducing headquarter staff and infrastructure] in its fiscal year 2015 budget submission, but it is unclear how the department will achieve those savings…DOD budget documents project the reductions will yield the department a total savings of about $5.3 billion from fiscal years 2015 through 2019, with most savings coming in 2019; however, specific details of the reductions through fiscal year 2019 were not provided.” Additionally, “GAO found that DOD headquarters organizations it reviewed do not determine their personnel requirements as part of a systematic requirements-determination process, nor do they have procedures in place to ensure that they periodically reassess these requirements…Without a systematic determination of personnel requirements and periodic reassessment of them, DOD will not be well positioned to proactively identify efficiencies and limit personnel growth within these headquarters organizations.” [Washington Post, 1/23/15. Government Accountability Office, 1/15]
