Military Retirement:

Proposed Changes Warrant Careful Analysis

T-NSIAD-99-94: Published: Feb 25, 1999. Publicly Released: Feb 25, 1999.

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Pursuant to a congressional request, GAO discussed military retirement, focusing on: (1) changes being proposed by the Department of Defense (DOD); (2) areas where GAO believes more information is needed; and (3) the opportunity to take a long-term strategic view of the military compensation system.

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.

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