Defense Panel’s Military Compensation Reforms Aren’t Bold Enough, Say Former Service Members

An independent panel’s recommendations to reform military compensation and retirement don’t go far enough, according to defense experts who have served in the military and in government.

The 15 recommendations from the congressionally-mandated Military Compensation and Retirement Modernization Commission include restructuring the military retirement benefits system, moving family members and some retirees out of TRICARE and onto health insurance plans in the private sector, and consolidating military commissaries and exchanges. But the recommendations, some of which are included in the current House version of the fiscal 2016 Defense authorization bill, are narrow and not bold enough to change a personnel system that is outdated and far too expensive, said a trio of panelists during an event Thursday at the Center for American Progress in Washington.

“I totally agree with merging the commissaries and the exchanges,” said Ret. Maj. Gen. Arnold Punaro, founder of The Punaro Group, who spent more than two decades on Capitol Hill, including as staff director of the Senate Armed Services Committee. “I’d go a lot further and eliminate the commissary $1.4 billion a year subsidy, and actually I’d consolidate all the [Defense Department] retail sales. Costco, Target, Walmart could come in and run that, and provide better service and save a lot of taxpayer dollars.”

The compensation reform panel did not call for cuts to commissaries and exchanges, which are popular with service members and their families. And House lawmakers did not include any provisions tweaking that sacred cow in the fiscal 2016 NDAA. But that was Punaro’s point, and one his colleagues during Thursday’s discussion agreed: Congress is wimpy when it comes to making tough choices, and the military as an institution resists change. The trio, which also included Lawrence Korb, a former Defense official who served in the Navy and is now a senior fellow at CAP, had strong words for lawmakers, the Pentagon and others charged with reforming the defense personnel system.

“The main problem you have in government is -- you find it everywhere in government -- they are just totally wedded to the status quo,” Punaro said. “I say about the Pentagon: In the field they are magnificent warriors, and in the Pentagon, they are magnificent bureaucrats. I mean, they will study something for 20 years before they ever even want to make the smallest change.”

Still, the reluctance of Congress to make any changes to the military’s compensation system, even small ones like increasing TRICARE co-pays for military retirees, has put the Defense Department in a corner. Korb, Punaro and Phillip Carter, a senior fellow at the Center for a New American Security who served in the Army, all praised the Pentagon for trying, especially recently, to propose politically unpopular reforms related to compensation and base closures only to be repeatedly shot down by lawmakers who don’t want to be seen as “breaking faith” with troops or alienating voters.

“The Congress, there’s no benefit for them, OK?” said Korb, referring to reforming the system. “Because you deal with what I call the military lobby, or the veterans’ lobby. Boy, they are all over you, and who is going to support you if you go back and make these changes? It requires real leadership on the part of the Pentagon.” Carter, Punaro and Korb all gave kudos to current Defense Secretary Ashton Carter for pushing some bold proposals, including making military careers more flexible to accommodate the 21st century workforce, and providing better recruitment incentives to attract people with cyber and language skills. Part of the issue, said Phillip Carter on Thursday, is that the military itself is not a monolith, but an institution with different constituencies within it – young service men and women, retired service members and veterans. He said the priority should be on the young warfighters who are going into harm’s way and need to be trained to do their jobs “even if it means retirees and veterans have to stand behind them.”

All three men agreed the military’s current retirement system has to go. Now, personnel who serve less than 20 years—about 83 percent—do not receive a defined benefit, which some believe is unfair given their multiple deployments during the wars in Iraq and Afghanistan. Those who do spend a career in the military can hit the 20-year mark relatively early, retire from service in their 40s or 50s, draw a pension and work elsewhere for a while. About 17 percent serve 20 years or more in the military. “We now pay almost as much in retirement as we pay the entire active and reserve force,” said Carter, who noted that the per service member spending on compensation had increased 176 percent in inflation-adjusted terms since 1990.

The Pentagon annually spends more than $100 billion on salaries and allowances, which does not include health care costs or retirement benefits. Those expenses tack on another $75 billion or so each year. All told, military compensation eats up about one-third of the department’s budget.

“I don’t think we in the defense establishment have done a very good job of showing the Congress and the American people the damage that really has been done,” said Punaro. “Technically, it is not affecting us today, but that young Marine that is going to fight in 2020 may not be as well-equipped as the young Marine is today, and you are not going to know that until 2020 or 2025.” Congress, Punaro said, either thinks “the Pentagon has too much money, or they think, ‘Why do we have to do any of these reforms because we’ve turned every one of them down, and nothing much has changed in the Pentagon.’ ”

The House fiscal 2016 NDAA, which the House Armed Services Committee approved in April, would automatically enroll new troops into the Thrift Savings Plan at 3 percent of their pay with a 1 percent government match, similar to the way it works now for federal civilian employees. Military members currently can contribute to the TSP, but are not enrolled automatically and do not receive a matching contribution from the government. Under the provision, the government match could go as high as 5 percent, if the service member contributed that amount. Service members would be fully vested in their retirement plans after two years of service. To encourage members to stay in the military, the measure includes a commission proposal to provide “continuation pay” after 12 years of service. Under the bill, service members who stay in the military for 20 years, and are thereby entitled to a retirement pension, would receive a less generous calculation for their annuity.