Fix the Retirement System

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In a couple of weeks, President Obama will be releasing his budget proposal for fiscal year 2013. The proposal is expected to announce a plan to cap the amount of raises to basic pay starting in 2015; also, as reported here on October 28, 2011, you can expect the 2013 pay raise to be based on the provision in Title 37 of the US Code - just as the recently realized 2012 pay raise.

Do we need to make adjustments to how those in the military are compensated? Maybe so, but let us do it with our eyes wide open, and let us not rewrite history in an attempt to justify any changes.

First, let's go back to the why.

From 1982 to 2000, military pay raises were capped and did not track at all with the amount of increases in pay that our civilian counterparts enjoyed. During that period, the gap in military to civilian pay grew to as large as 13.5 percent.

Starting early in the new millennium, congress decided to close the gap by adding one-half of one percent to proposed pay increases. The practice of adding the half-percent continued until the 2011 raise which was strictly based on ECI alone. It was also during this time that studies were released which indicated the pay gap may no longer exists.

We are the most capable military force on the planet, and it is due of the dedicated people who serve. It is vitally important to retention that we ensure we provide compensation to our Servicemembers that is at least on par with those in the civilian sector.

Yesterday, Defense Secretary Leon Panetta and Joint Chiefs Chairman, General Martin E. Dempsey laid out a few of the budget concerns and expectations for the FY-2013 budget. General Dempsey commented that pay needs to raise at a slower rate, and the Secretary claimed, "Let me be clear, nobody's pay will be cut." The two statements together are really disingenuous. By not increasing military pay at a rate that keeps inline with the civilian sector (the current ECI data point), it is once again imposing a gap that will feel just like a pay cut.

Review figures from the New York Times,

The Pentagon currently spends $181 billion a year, nearly a third of its base budget, on military personnel: $107 billion for salaries and allowances, $50 billion for health care and $24 billion for retirement pay.

Interestingly, just as a point of interest, in 1970, one-third of the defense budget was military personnel costs.

When congress reduces the number of personnel serving on active duty to a peacetime level, the salaries and allowances number will of course fall, however, the retirement pay numbers will continue to increase.

It isn't a new concern.

May 15, 1963, the then congressman Gerald Ford from Michigan's 5th district wrote,

"I am concerned with the ever-increasing cost of retirement pay for the military. In 1954, the defense appropriations bill of $40.3 billion provided retirement pay of $386 million or 0.96 percent of the defense budget. In 1964 the $51 billion defense budget caDs for $1.1 billion in retirement pay or 2.28 percent of the total."

Today, retirement pay accounts for about 4.6% of the defense budget, and as congress decreases the defense budget, those retirement costs will garner an even larger percentage of our nation's defense spend. Because our current retirement pay system is directly linked to basic pay, each basic pay raise has a long lasting impact.

President Obama plans to, "establish a commission with authority to conduct a comprehensive review of military retirement." To be honest, I think if we took all the money spent on studies and commissions over the past 50 years and put it back into the budget, we'd be running a surplus. OK, that's a gross exaggeration, but really, the data already exists - at lease enough data to sit down with, and formulate some real solution suggestions.

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