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

FPCD-82-38: Published: Aug 20, 1982. Publicly Released: Aug 20, 1982.

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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.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: When we determine what steps the Congress has taken, we will provide updated information.

    Matter: Congress should repeal the 1-year "look back" provision authorized in 10 U.S.C. 1401a(e).

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOD strongly opposed the recommendation to validate the cost-effectiveness of the multiyear "look back"; however, no followup action was warranted in view of the total examination of the military retirement system being performed by the 5th Quadrennial Review of Military Compensations and by the House Committee on Armed Services.

    Recommendation: The Secretary of Defense should task the services with developing data by September 30, 1983, to show whether retention of senior careerists well beyond 20 years of service has been or is expected to be a problem and if the multiyear "look back" is cost-effective and necessary for dealing with the problem, if the administration's legislative proposal is not enacted.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: DOD strongly opposed the recommendation to validate the cost-effectiveness of multiyear "look back;" however, no followup action was warranted in view of the total examination of the military retirement system being performed by the 5th Quadrennial Review of Military Compensation and by the House Committee on Armed Services.

    Recommendation: The Secretary of Defense should prepare and submit to Congress a legislative proposal to repeal 10 U.S.C.1401a(f), if the services cannot document the need and cost-effectiveness of the multiyear "look back" provision. The repeal provision should contain a provision that the retired pay for individuals who retire after the effective date of repeal would be less than it would have been had they retired on the day before the effective date of revocation. Further, if the Secretary of Defense determines that adequate alternatives are not available to retain those senior officers the services want and need to remain on active duty, he should seek legislative authority for a suitable alternative to be used selectively.

    Agency Affected: Department of Defense

 

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