Military Retirement

Overall, GAO sees no clear indication that the proposed change to the military's retirement system, which would cost an estimated $13 billion in higher costs and unfunded liabilities, will address the retention issue. Although the recently reported downturn in retention rates is of concern, the nature of the retention problem is unclear. Is the problem widespread or is it concentrated in certain military occupations or year groups? Is it a transitory problem attributable to such factors as reduced accessions during the drawdown and the strong economy, of is it the beginning of a long-term problem? Understanding the nature of the retention problem is critical in crafting solutions. According to the Defense Department, the 1986 Military Retirement Reform Act has become a symbol of eroding benefits to military members. Although surveys of military personnel show increasing dissatisfaction with the retirement system, it is not clear what that really means. For example, some surveys do not differentiate between retirement pay and other retirement benefits. The link between retirement pay and retention is also unclear. According to an analysis done by the Congressional Budget Office, retention rates under the act have not been markedly different than rates under the earlier system. Even if the retirement system is found to be linked to retention, it may not be the most cost-effective way to address existing retention problems. In addition, DOD's proposed pay and retirement changes does not address other military retirement issues and their impact on the structure of the force.

GAO noted that: (1) there is no clear indication that the proposed change to the retirement system, which would cost an estimated $13 billion in increased costs and unfunded liabilities, will address the retention issue; (2) while the recently reported downturn in retention rates is of concern, the nature of the retention problem is not clear; (3) understanding the nature of the retention problem is critical in choosing solutions--pockets of problems are best treated with targeted rather than across-the-board solutions, and transitory problems are best treated with actions that can be reversed or eliminated once the problem has receded; (4) according to DOD, the 1986 Military Retirement Reform Act (Redux) has become a symbol of eroding benefits to military members; (5) although surveys of military personnel show an increasing level of dissatisfaction with the retirement system, it is not clear what that really means; (6) some of the surveys do not differentiate between retirement pay and other retirement benefits; (7) also, many military personnel appear to lack knowledge about their retirement system; (8) the link between retirement pay and retention is unclear; (9) many factors can influence a servicemember's decision; (10) the influence of retirement in this decision has not been definitively determined; (11) according to an analysis done by the Congressional Budget Office, retention rates under Redux have not been markedly different than rates under the prior system; (12) even if the retirement system is found to be related to retention, it may not be the most cost-effective tool for addressing any existing retention problems; (13) in addition, DOD's proposal does not address other military retirement issues and their impact on the structure of the force; (14) also, since the first potential Redux retirees are still more than 7 years away from retirement eligibility, DOD may be missing the opportunity for the kind of comprehensive change to its compensation system suggested by the Eighth Quadrennial Review of Military Compensation; and (15) the June 1997 Report of the Quadrennial Review called for DOD to take a broad approach to align its policies with its strategy--rather than take a piecemeal or one-size fits-all approach.