Pentagon wrestles with how to shield current veterans from budget cuts

The Pentagon's personnel costs are skyrocketing, making budget cuts necessary. But a commission is seeking ways to do that without breaking the military's 'social contract' with troops who served in Iraq or Afghanistan.

A major review of military pay and benefits out Thursday could portend big changes to longstanding – and some say, fundamental – benefits for United States troops, including retirement pay.

The Report of the Military Compensation and Retirement Modernization Commission is being closely watched by service members and budget crunchers, who wonder whether the Pentagon will be able to walk the tricky line of reining in skyrocketing personnel costs after more than a decade of war and continuing to recruit the troops for the future.

The cost of such benefits is considerable. Personnel benefits make up one-quarter of the Pentagon budget, though the size of the overall force has been reduced by roughly half since 1990. That means that the Department of Defense spends nearly three times as much per service member on compensation as it did in 25 years ago.

Yet even as Pentagon personnel expenses soar, there is a concerted effort not to meet budgetary goals by cutting services and benefits for veterans who have returned from Iraq or Afghanistan and might need long-term care. As a result, the commission isn’t allowed to recommend any mandatory changes that would apply to current troops or retirees – they are all grandfathered in.

“That is the fundamental question that we’re posing, too – we’re demonstrating that personnel costs are going up over time and, at the same time, maybe that is the cost of this social contract, and that’s something we need to think about,” says Katherine Kidder, co-author of a report on military compensation from the Center for a New American Security that was released earlier this week.

“I’m sure the committee has spent a lot of time thinking, ‘We don’t want to break that social contract,’ ” she adds.

Any changes to military compensation or retirement benefits for future troops must go through Congress, and the commission is making some recommendations that could appeal to lawmakers and the Pentagon alike, as well as to US troops, says Todd Harrison, senior fellow at the Center for Strategic and Budgetary Assessments. “I’m an eternal optimist when it comes to compensation reform.” 

“I think we can make changes that compensation reform that would save the Pentagon money, and that the troops would prefer – win, win.”

The commission’s headline-grabbing proposal is a call to do away with the military’s storied 20-year retirement benefit, which allows troops who have served for two decades to collect upwards of half of their salaries, starting immediately upon retirement, for the rest of their lives.

Yet this benefit applies to relatively few service members. “A lot of people tend to be surprised to learn that 83 percent of folks who have served are never going to receive military retirement, because they get out before the 20-year cliff,” Ms. Kidder notes.

Some less expensive retirement plan proposals could affect more troops. The military could take generous civilian 401(k) matching programs a step further by matching 50 or even 100 percent of troop contributions. The military would reduce its costs by making troops eligible for their benefits at retirement age, instead of as early as 40 years old. At the same time, the plan would spur troops to increase their own individual contributions.

Such a change could mean that the Pentagon must grapple with the same challenges that corporations faced with the introduction of 401(k)s. When benefits become more portable, how will the military keep its most talented troops from walking out the door?

This particularly applies to sectors like cyber, where there is a high demand for such skills in both the armed forces and the corporate sector.

“What we’ve learned is what’s going to get people to stay isn’t monetary,” Kidder says.

The corporate sector pays more, but many people are motivated to join the military not for financial gain, but to be of service to their country.

The military has what is widely and increasingly considered an outdated personnel assignment process that often fails to match service members with their particular talents or skills. Nor does it allow members to know where they are going to be serving more than a couple of years into the future.

A revamped personnel system could encourage troops to stay in the force through “the ability to know where you’re going for your next assignment ahead of time, or feeling like you’re not just a cog in the machine,” Kidder says. “In other words, placing you in those jobs where you’ll be fully utilized – and engaged.”