Military's 1-Year 'Look Back' Retirement Provision Should Be Revoked

An administration proposal to reform the military retirement system is pending before Congress. Among other things, this proposal seeks to eliminate one of two "look back" provisions currently in effect. The provision to be eliminated allows new retirees to look back one previous pay scale for the purpose of calculating initial retired pay, plus the intervening retired pay cost-of-living adjustments. The second provision allows new retirees' initial retired pay to be calculated by using any previous active duty pay scale in effect on or after January 1, 1971, but at the grade and longevity step at which the member was eligible to retire at under the previous pay scale. Because both provisions affect the retirement system's cost and equity, GAO conducted a review to determine whether the administration's position to eliminate the first provision was justified and to determine if the services can justify the continued use of either provision.

Establishing a new retired pay adjustment mechanism could substantially reduce future costs of both provisions. In fact, the first provision would become inoperative and there would be no need to revoke it. The second provision would continue to have value, but at a reduced level, for some active duty members who currently have more than 20 years of service. However, it too would soon become worthless after the retirement of individuals in this category. The amount saved would depend on several factors, the most important being the amount by which the retired pay adjustment percentage exceeds the active duty pay increase. Eliminating either provision would produce only minimal savings in the current fiscal year. Furthermore, due to the unpredictability of future economic conditions, it is impossible to accurately project the savings to be gained from eliminating either of the provisions. GAO found that the 1-year "look back" provision now benefits most of those members who retire as soon as they are eligible. The multiyear provision could potentially benefit members of any rank who remain on active duty beyond 20 years of service, but those who benefit the most are senior officers who have had their pay limited by the Federal executive level pay cap. GAO found that the services have not demonstrated that the multiyear "look back" is a cost-effective tool.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Kenneth J. Coffey Team: General Accounting Office: Federal Personnel and Compensation Division Phone: (202) 275-5140