Military Employee Benefits

Military employees earn pensions, post-retirement health and other benefits over the course of their working years, but these benefits are not paid until the employee retires. The federal government accrues a liability for the amounts earned but not yet paid. Pensions represent the largest liability for military employee benefits, followed by the post-retirement health benefit liability.

The cash measure reflects the payments made to retired military in the current year but not the estimated long-term costs. While the Department of Defense (DOD) records outlays for the accrued costs in the year the benefits are earned, these are receipts of the military retirement-related trust funds—as such, they are intra-governmental transactions and therefore not reflected in the cash deficit.

The accrual deficit reflects an annual expense for the estimated long-term cost of these benefits each year as services are rendered. The annual expense also includes accrued interest on the outstanding liability, adjustments for any changes to the plan’s benefits or assumptions, and any deviations between actual experience and assumptions.

The military employee benefit liabilities (see table below) reflect the estimated present value of the benefits that have been earned but will be paid in the future. As such, it represents the estimated future spending associated with this fiscal exposure that has been reflected in the accrual deficit and will affect future cash deficits. The change in liability from the previous year represents the primary difference between accrual and cash measures of military employee benefits and is generally equal to the accrued expense for payments that will be made in the future less cash outlays to pay current retirees' benefits, which were expensed in the past.

Military Employee Benefit Liabilities (By Fiscal Year, Dollars in Billions)

Fiscal year
2009 2010 2011 2012 2013
Accrued liability $2,026.7 $2,190.9 $2,225.9 $2,337.0 $2,293.1
Pensions 1,177.1 1,262.7 1,361.3 1,482.0 1,524.2
Post-retirement health 825.8 904.7 842.3 833.3 747.6
Other (e.g., insurance) 23.8 23.5 22.3 21.7 21.3
Change in liability from previous year 25.6 164.2 35.0 111.1 -43.9
Change in liability for pensions 23.0 85.6 98.6 120.7 42.2
Change in liability for post-retirement health 5.2 78.9 -62.4 -9.0 -85.7
Change in liability for other (e.g., insurance) -2.6 -0.3 -1.2 -0.6 -0.4

What drives changes in military employee benefit liabilities?

The accrual measure depends on assumptions and projections for salaries, life expectancy, interest rates, inflation, and other economic and demographic variables. As such, changes in these assumptions or deviations between actual experience and these assumptions can lead to large changes in the military employee benefit liability and the accrual deficit itself.

It should be noted that DOD could not provide evidence for a significant amount of the estimated military post-retirement health benefit liability related to the cost of direct health care provided by DOD-managed military treatment facilities.