June 14 Military Update

By Tom Philpott

The Defense Advisory Committee on Military Compensation has adopted an “action plan” to study private-sector-like changes to military pay and retirement, the kind that Defense Secretary Donald Rumsfeld has endorsed for several years.

The committee of seven “eminent authorities in the fields of compensation,” as described by the department, adopted an agenda that calls for studying over the next few months:

• A new military retirement system that would vest members in benefits earlier than the current 20-year retired pay system, but also with reduced annuities for future service members if they retire before age 60.

• Combining that reduced “defined benefit” plan with a 401(k)-type contributory plan, similar to the military’s tax-deferred Thrift Savings Plan but with some government matching of service member contributions.

• Streamlining the military’s arsenal of 67 special and incentive pays by eliminating those seen as ineffective, and increasing the use of whatever “targeted” pays would remain.

• Overhauling compensation for Reserve and National Guard forces to “recognize their full integration” into U.S. operational forces, as evidenced by their expanded role in Iraq and Afghanistan. 

• Slowing growth in military healthcare costs by raising TRICARE enrollment fees and co-payments, and making TRICARE a “second payer” plan for retirees under 65 who have employer-provided health insurance.

Studying these issues will help the committee recommend a “strategic architecture” for future changes to military compensation, said retired Adm. Donald L. Pilling, committee chairman. Draft recommendations are due to David S.C. Chu, under secretary of defense for personnel and readiness, in September.

Pilling, a former vice chief of naval operations, said whatever the panel recommends will be “fair” to the current force. The goal is not to curb compensation, he added, but to design tools to better manage the force.

In an interview after the hearing, Pilling said, “I don’t think any of the things we will recommend are going to affect the current force to any significant degree. Maybe (TRICARE) co-pays or something like that; nothing big.”

The panel should not be perceived, he said, as “scheming to take money out of their pockets, because we’re not.”

Committee members were surprisingly frank, however, in criticizing the current compensation system as outdated, inefficient and weighted too heavily toward “deferred compensation” such as retirement and retiree healthcare. Rumsfeld and Chu, who shaped the panel, have struck similar themes in testimony before Congress and other venues.

Panel member Frederic W. Cook, chairman of a consulting firm on executive compensation, noted that the idea of someone retiring at age 38 with full benefits doesn’t exist in the private sector. Also unique to the government are “pensions indexed to cost of living.”

Private-sector retirees, he said, get a “flat pension” when they retire, “and then periodically the company can take a voluntary, pro-active action and do a catch-up to inflation.”

In that way companies “get credit” for helping retirees. With annual indexing, he said, retirees come to view adjustments as “a right, an entitlement” and take them for granted.

“I’m not saying that’s how we ought to proceed,” Cook said. “But I wanted to point out the differences.”

Tom Philpott can be contacted at Military Update, P.O. Box 231111, Centreville, Va. 20120-1111, or by e-mail at:
milupdate@aol.com