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Congressional report suggests pay, benefit cuts

Nov. 14, 2012 - 04:23PM   |   Last Updated: Nov. 14, 2012 - 04:23PM  |  
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A new congressional report says military compensation programs are ripe for budget cuts because the services are having little problem recruiting or retaining qualified service members at a time when personnel costs are soaring.

The report, released Wednesday by the nonpartisan Congressional Budget Office, comes as no surprise. Congress and the Defense Department have wrestled for years over rising personnel costs and the politically difficult decision to change pay and benefits programs, which can be perceived as a reduction in support for current and former service members.

The report,">Costs of Military Pay and Benefits in the Defense Budget, with its recommendations for ways to cut costs, comes just as President Obama and congressional leaders are beginning to engage on what to include in a $1.2 trillion deficit reduction package.

Obama and congressional leaders are meeting Friday to discuss differences. At a Wednesday news conference, Obama said he expected the key sticking point to be what, if any, tax and revenue increases will be included. If that can be resolved, he said it would not take long to work out a compromise on cuts in federal spending. He made no specific mention of cutting defense.

The CBO report says the Defense Department can, for example, control the cost of cash compensation by capping military raises, and by relying more on bonuses and special pays to recruit and retain service members in critical jobs and specialties who might otherwise leave for private-sector employment.

Defense officials have already said they want to cap raises beginning in 2015 so that basic pay increases for troops are smaller than annual hikes in average private-sector salaries, but CBO says there is room for the military to be even tighter with increases. Defense officials plan to propose a 0.5 percent pay increase in 2015, a 1 percent increase in 2016 and a 1.5 percent increase in 2017, a cumulative savings of $16 billion over 10 years.

Even smaller raises would save more money, the CBO report says.

"Although retention of military personnel might suffer, that effect could be mitigated by boosting the amounts available for selective reenlistment bonuses," the report says. "One advantage of shifting some portion of cash compensation from basic pay to SRBs is that such bonuses are paid only to service members who have come to the end of an obligated term of service and are deciding whether to reenlist. That makes SRBs much more cost-effective than providing a pay raise to the entire force as a way to retain some fraction of the total."

Bigger bonuses in lieu of pay increases also save money over time because bonuses do not factor into calculations of military retired pay, the report notes.

Defense officials have not made a specific proposal to overhaul military retired pay, but they have asked Congress to approve an independent commission to look at money-saving changes in the retirement system.

The CBO report says radical overhaul is possible by replacing the defined benefit available after 20 years of service with a personal pre-tax retirement benefit based on the federal Thrift Savings Plan.

Even if DoD grandfathers all current service members so they are not affected, such a change could create immediate savings by reducing how much money the services have to put away each year to fund the future retired pay of current service members, the report says.

For 2012, the retirement contribution for future benefits was about $52 billion, the CBO said. The report does not estimate the size of the savings, saying this decision would be made by DoD actuaries who calculate retirement costs.

Health care is another area ripe for savings, the congressional report says. DoD has been trying to sell Congress on various proposals to make beneficiaries shoulder more of the costs of Tricare health coverage, but lawmakers have balked, proposing to cap future increases at no more than the annual cost-of-living adjustment in military retired pay, usually just a few percentage points.

Providing ammunition for those who want to shift more Tricare costs to military retirees and their families, the congressional report says the total Tricare Prime out-of-pocket costs for a military retiree family is just 18 percent of what a nonmilitary family would pay for the same benefit.

The report makes no cost-cutting suggestions beyond those already proposed by DoD and rejected by Congress.

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