GOP, Clinton, agree: Repeal DoD retirement cuts

Money can work miracles. Sometimes, it can even bring an issue back from the dead. As the 106th Congress contemplates the budget surplus, it will almost certainly undo a deficit-cutting bill passed by the 99th Congress nearly 13 years ago: the Military Retirement Reform Act of 1986.

Bitterly dubbed "Redux" by the troops, the act cut the retirement benefits of any servicemember inducted after its Aug. 1, 1986, enactment. While the troops who entered service after that date have not reached the 20-year retirement mark, tens of thousands have reached the career point at which troops traditionally choose whether to stay through to 20 or take off the uniform. The Pentagon believes that the reduced retirement benefits are a major reason that many experienced, expensively trained troops are opting to leave military service in mid-career for jobs in the buoyant civilian economy.

So with the military cheering, the administration, Senate Republicans, and Senate Democrats are racing ahead, offering competing proposals to repeal Redux-before it ever kicks in. But many outside experts-and, quietly, some congressional staffers-question whether retirement reform will really solve the military's problem.

Aspin's Legacy

Twenty years ago, in the early days of mounting government budget deficits, cutting military retirement benefits was a policy wonk's Holy Grail. Even Pentagon study panels called for cuts, and the late Rep. Les Aspin, D-Wis., made the cause a personal crusade. He finally prevailed in 1986, after years of legislative maneuvers-and after his rise to chairman of the House Armed Services Committee.

Aspin's strongest argument was that overly generous benefits, payable immediately when one leaves the service at 20 years, encouraged departures of the most competent and highly trained troops, and discouraged longer, 30-year careers.

To shift those incentives, the 1986 Military Retirement Reform Act-largely crafted by Bob Emmerichs, then Aspin's top aide-kept military retirement benefits at 75 percent of basic pay for troops staying through 30 years; but it decreased the benefit for those retiring earlier, giving 20-year retirees just 40 percent of basic pay instead of 50 percent. The 1986 act also trimmed the annual cost-of-living adjustments in retiree checks to inflation minus 1 percentage point. Then, when a retiree hit age 62, Redux gave a one-time catch-up, boosting benefits to what the pre-1986 system would have provided. The age-62 bonus was intended, said Emmerichs, to provide for older retirees who were no longer working, but avoid wastefully overcompensating the "vast majority" of military retirees who retire in their early 40s and go into second careers.

"I was here [in 1986]," recalled Rep. Ike Skelton, D-Mo., who now holds Aspin's old post-he's top Democrat on the House Armed Services Committee. "The purpose was to cause people to want to stay the full 30 years. . . . It didn't work that way."

Why? Emmerichs, now a consultant, argues that "the [monthly retirement] payment at 20 years is just too large, even at 40 percent," and provides an all-but-irresistible incentive for servicemembers to leave at the 20-year point.

"That's baloney," countered retired Air Force Col. Paul Arcari, a lobbyist at the Retired Officers Association both in 1986 and now. Redux did not increase retention, he said, for one key reason: "They didn't change the personnel policies." The system known as "up or out," which kicks out troops who do not reach a certain rank in a certain number of years, survived 1986 unchanged.

As a result, said Congressional Research Service analyst Robert L. Goldich, Redux has "had minimal, if any, impact" on the number of soldiers, sailors, airmen, and marines staying past 20.

Redux, agreed one Hill staffer, "was basically a budget-driven exercise." And it was a successful one: The Congressional Budget Office estimates savings since 1986 of $7.5 billion in unfunded liabilities alone.

But those savings have not come cheap. In a 1989 CRS report, Goldich predicted that the late 1990s would bring a retention crisis-when the first wave of troops subject to Redux reached their mid-career decision to stay or go.

Goldich's prediction, the military says, is now coming true. We are "hearing the senior enlisted-who are under the old system, by the way-raising this as one of their biggest issues of concern for the next generation," said Rudy de Leon, Defense undersecretary for personnel and readiness.

"I am convinced, from talking to hundreds and hundreds of military personnel, [that] it's a big issue for our people," said Sen. John McCain, R-Ariz., a leading advocate of Redux repeal. Rep. John Murtha, D-Pa., another repeal leader, agreed: "I've gotten more e-mails about this issue than anything I've ever done."

"What's happened is what we predicted [in 1986]," said Arcari. "We told you so."

But the unforeseen has also intruded on military life, worsening the retention crisis: "The world and military life have fundamentally changed in a decade," de Leon said. In 1986, a force of 2.2 million troops, most of them young and single, typically sat in fixed bases as the U.S. stared down the Soviet Bloc. In 1998, a smaller and more educated force of 1.4 million troops, many of them older and more of them married, sortied forth on constant deployments to put out brushfires around the world. Frequently separated from their families by this "tempo of operations" (or OPTEMPO), many troops want out of the military.

And while a booming Information Age economy offers ever-higher wages for the troops' increasingly high-tech skills, 20 years of deficit politics have eroded the value of their retirement pay. Military pay raises were capped at levels below civilian wage growth for 12 of the past 17 years. And what extra income the troops did receive often came as one-time or short-term "special pays" and bonuses (flight pay, housing allowances, re-enlistment bonuses, and so on) that saved the Treasury money-and that were left out of retirement-pay calculations. A Redux retirement check for 40 percent of basic pay today would amount to only about 25 percent of what the troops were actually earning before they retired.

As a result, said de Leon, "in 1986 . . . your focus was on retaining people past 20 [years' service]. In 1999, your key challenge is to get people to stay in that 10-to-12-year period so that they'll do 20-let alone 24, or 25, or 30."

So, with the President's blessing, the Pentagon has proposed to spend $30 billion over the next six years on three incentives: a 4.4 percent pay raise for all the troops in 2000, and 3.9 percent annually in 2001-05; extra raises targeted to mid-career troops; and the partial repeal of Redux. The retirement reform would loosen the 1986 COLA caps and restore the benefit for retiring after 20 years to the full 50 percent.

The Politics of the Irresistible

The President's proposal is the second attempt at a major pay boost for the military in the past four months. Last fall, the White House and Congress moved late in the congressional session to spend some part of the growing budget surplus to bolster what they feared was becoming a "hollow force."

That effort was kick-started on Sept. 29, 1998, when the Joint Chiefs of Staff, after months of demurrals, testified before the Senate Armed Services Committee that military readiness was slipping, retention of key personnel was eroding-and that fixing Redux was their first priority. Hill staff agree that before the hearing, Redux had been largely off the radar. But with a national security threat to arouse the Right, and struggling middle-class soldiers to arouse the Left, both parties had Redux-repeal bills out within two weeks.

McCain and fellow Armed Services Republican Pat Roberts of Kansas introduced their bill on Oct. 7. But House Democrat Murtha had beaten them by two days. Murtha, a senior Democrat on the Appropriations Committee, got the committee's ranking member, David R. Obey of Wisconsin, to bring up Redux repeal in conference with the Senate. "I asked the Republicans," Obey recalled, but "they said it cost too much money."

So Murtha went to the White House. The Administration had been pondering the problem all year-but Murtha catalyzed a quick decision: Go for it.

So White House budget negotiators proposed partial Redux repeal-restoring the 50 percent benefit, but keeping the COLA caps-to then-House Speaker Newt Gingrich, R-Ga., and Senate Majority Leader Trent Lott, R-Miss. Clinton's then-chief of staff, Erskine B. Bowles, "offered it, twice, to Gingrich and Trent Lott," said Murtha. "They turned it down, twice."

A Republican staffer countered that "Gingrich and Lott wanted to do this," but said that disputes with the White House over funding, combined with a reluctance to resolve such a major issue in haste, caused them to defer the issue until 1999.

Gibed Obey: "You could've done this reduced package for about the same cost as Newt's additional C-130s [military transport planes, built in Georgia]-a hell of a lot better investment than that pork."

Republicans found themselves in the unaccustomed and uncomfortable position of having lost control of a defense issue. "There was a feeling that we needed to win back a core constituency, which was the military," said the Republican staffer, "[though] that was not the primary focus."

So, while the White House rolled out its new pay plan as a Christmas present to the troops in December, McCain and Roberts rallied Republicans for a bill "raising the ante a little bit," in Roberts' words, on a Clinton plan that was "a good first step, [but] maybe too little, too late."

Introduced on Jan. 19 and co-sponsored by all Senate Armed Services Republicans and Lott, the GOP plan went the President one better. It offered $5 million a year in "special subsistence allowances" for military families on food stamps (a longtime personal passion of McCain's); a military thrift savings plan so that servicemen and -women could set aside money for retirement in tax-free accounts; a basic pay raise half a percentage point higher than the Administration's; and a choice of retirement plans. Each career servicemember could either opt for the full pre-1986 system, with a 50 percent benefit after 20 years' service, fully adjusted for inflation every year-worth from about $100,000 to $200,000 more over a soldier's lifetime, depending on rank; or choose the lower, COLA-capped Redux benefits, plus a $30,000 up-front bonus.

Because data from the exit incentives used during the drawdown show that more troops chose the smaller lump sums than opted for the larger life-time annuities, Republicans tout their bill as combining greater choice with lower cost.

Democrats felt left out of this bidding war for the hearts and minds of the troops: The Republicans "jumped the gun," complained Senate Armed Services Democrat Max Cleland of Georgia, "and put their bill in first, without any consultation with us." So, on the same day the Republicans introduced their plan, Cleland put forward his own proposal-endorsed by all the committee Democrats and Minority Leader Thomas A. Daschle, D-S.D.

The Democrats matched the Republicans' pay raises and thrift savings plan. In place of McCain's food stamps allowance, Cleland, a former Veterans Administration head, added his own personal passion: increasing Montgomery GI Bill education benefits by 13 percent, and letting troops use them for their children's education. "When they get into that eight-to-10-year mark in the military," said Cleland, "they've got young kids. . . . They're thinking about college already." Take care of the kids, and you keep their parents in uniform, he said. On retirement reforms, however, Cleland offered only the administration plan.

The compromise: the best of both worlds for the troops-and perhaps the worst of both for budgeteers. On Wednesday, Jan. 27, Senate Armed Services Chairman John W. Warner of Virginia announced a composite bill with all the Republicans' increases plus the Democrats' potentially bank-busting boost to education benefits. The committee formally approved the bill that afternoon.

In the House, however, the train is moving more slowly, with Redux proposals likely to wait for the defense authorization bill, which can take all year to get passed. But Skelton, the Armed Services panel's top Democrat, has already declared: "This is the year to take care of the troops."

Even archliberal Rep. Barney Frank, D-Mass., who opposes the Administration's defense increases in general, said that "I'm for the pay and benefits parts. ... It is not fitting for a great nation to take lower-income people to defend it."

With such broad support, some form of Redux repeal seems sure to pass.

Yet, as many of their bosses rush to embrace the idea, a surprising number of senior congressional staff members express grave doubts about overturning the hard-won 1986 reform so quickly. Most declined to be quoted, even anonymously, but one Senate staffer typified their chief concern: "The military does not seem to have done a lot of study of what would result in increased retention for military personnel. [We are] worried that a lot of the support for the retirement benefit is anecdotal."

In fact, one of the few statistical analyses that the military has made public could undermine the case for Redux repeal. As compiled by the Center for Naval Analysis, a semi-independent think tank, surveys of Army officers and of Army and Navy enlisted personnel show that dissatisfaction with the retirement system has shot up in recent years-but only to, at best, fourth of the top-five grievances, consistently well behind "time separated from family."

Lawmakers acknowledge that retirement may not be the only issue prompting troops to leave early.

"The most resonant issue [is] pay and retirement . . . but it's not the only issue; it's part of a complex of factors," said Sen. Jack Reed, D-R.I., a new member of the Armed Services Committee and a former Army Ranger who left service before completing 20 years. "Pay and benefits, OPTEMPO, family concerns, [opportunities for] further rank, opportunities outside ... were the forces that I experienced."

Archrepealer Murtha himself acknowledged that the troops complain "more about deployment and the tempo of operations than anything else." Skelton also said that fixing Redux will not be enough: "We have to have an entire multi-year program aimed at supporting the troops."

The military argues it has already embarked on such a program. Besides addressing pay and retirement, the services are working hard to ease the tempo of operations. The Air Force and Army are introducing new rotation schemes to spread the burden of deploying to Saudi Arabia, Bosnia, and other hot spots more evenly among units; the Navy is eliminating minor inspections and short sea trips, to give sailors more uninterrupted time ashore with their families. "You have to work across the board," said Undersecretary de Leon, on "a host of things." Retirement, he said, is just one axis of an advance on all fronts.

Analysts still doubt that spending billions on retirement benefits is the best use of scarce funds.

"Going back to 50 percent is throwing money down the rat hole," said Emmerichs. "[If] you want to use dollars . . . to affect retention, there are a number of ways to do it, [but] everything I've ever seen [says] retirement is the least effective." Cut the retirement benefit package by a dollar, Emmerichs and other analysts say, and add that dollar back anywhere else-to basic pay, housing allowances, health care, subsidized child care-and it will keep more troops happily in uniform for longer.

One of the military's favorite think tanks, RAND, reluctantly agrees. Computer models do show that repealing Redux would definitely increase retention, said RAND analyst Beth J. Asch-but, when pressed, she allowed that those same models also show that "it tends to be much more cost-effective to put your compensation dollars in active[-duty] pay [instead of retirement]. To create a given effect on their behavior, it takes less dollars."

CRS' Goldich, however, is skeptical of any models: "The statistical analysis is virtually impossible to do."

Asch acknowledged: "Some of that stuff, you just can't measure. . . . How do you get data on people's perceptions of inequity?"

But perceptions count, and count heavily. "Morale is based on perceptions," said Sen. McCain, "many times as often as it is on reality." For troops who feel less respected than their predecessors, every dollar lost to Redux is an insult as well as an injury.

In fact, some analysts suggest, even if Redux repeal was not such an emotionally charged issue before the Joint Chiefs raised its profile on Sept. 29 last year, it is now.

"If it is repealed, if will have a positive effect on retention; and if it is not, it will have a substantially negative effect-just because it's gotten so much notoriety," said Goldich. "It has such a symbolic value now, it will have very real effects-even if the rationale for it is a symbolic one."