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thedrifter
03-07-06, 02:02 PM
Sweeping changes

DoD pay plans could have positive - and negative - effects on your wallet

By Gordon Lubold
Times staff writer

The military pay system needs a radical overhaul to simplify the rules, eliminate inequities between single and married people and reward those who are promoted early, a defense advisory committee has concluded after a yearlong study.

But the biggest change proposed by the seven-member Defense Advisory Committee on Military Compensation would be a total remake of the military retirement system.

This would create new pension benefits for those who serve between 10 and 20 years, but would also postpone pension payouts until retired members reach age 60.

Taken together, the changes mark a sharp shift toward "civilianizing" pay and retirement benefits, experts say - that is, making the military compensation system more like those offered by civilian employers.

The key changes include:

• Eliminating pay differences for married and single members. All members would receive housing allowances at higher with-dependents rates. This would greatly benefit single members, whose housing allowance rates are, on average, 25 percent less than rates paid to married troops.

• Fairer deployment pays. The Family Separation Allowance, $250 per month paid to troops with families while on deployment, would be eliminated and rolled into some new form of special pay that more fairly compensates all troops for deployment and hardship duty.

• More changes to the pay chart. The pay tables would continue to be reworked to provide greater rewards for promotions and less for simply managing to stay in uniform. Time in grade would be favored over time in service. Also, instead of ending pay raises at the 30-year mark, increases would continue until 40 years.

The committee says today's pay table "provides only modest financial incentives for early promotion" and "no financial incentive to stay beyond 30 years."

• Retirement. Service members would become vested in the retirement system starting at 10 years of service at 25 percent of their basic pay, with additional credit given for every year of service through 40 years.

But no one joining the military after the new system went into effect would receive retirement pay until age 60.

Service members in uniform at the time the changes were made would continue under the old retirement system or could choose to be covered under the new one.

Under the new system, members would get an amount based on their paygrade and years of service when they left the military, but using the active-duty pay rates in effect at the time they reach age 60. This would prevent erosion in the benefit's value over the years they wait to begin collecting.

• Thrift Savings Plan matching. The military would match member contributions to the Thrift Savings Plan up to 5 percent to 10 percent of a member's basic pay. The military does not now match contributions to TSP, although the Army will start doing so this spring for first-term soldiers in a limited test program.

• Incentives to stay. Lump-sum "gate pays," as much as one year's salary, would be paid to some members at certain intervals as an incentive to stay beyond 10 years. These would be similar to, but would not replace, re-enlistment bonuses. It is unclear how this would affect aviation continuation pay and other officer retention incentives.

At their core, the far-reaching proposals aim to simplify the complex military pay system, downsizing the dizzying array of more than 60 special and incentive pays while giving senior leaders more flexibility to use compensation to manage and shape the force.

But in a culture that usually measures change in minuscule increments, the plan is already prompting concern among some seasoned enlisted members who like some elements of the plan but fear that others - especially those affecting retirement benefits - may go too far.

"The devil is in the details of all this," said Chief Master Sergeant of the Air Force Gerald Murray.

Retiring 20-year retirement?

The proposals, outlined in a Feb. 28 briefing by the advisory committee, would give troops more choices and create a more "performance-based" pay system that could ultimately save the Defense Department money, supporters say.

But the recommendations also would signal a major shift away from the paternalistic system troops have known for decades and pattern it closely on private-sector models. And it would shift costs as much as possible to the private sector. One briefing slide explains a plan to raise Tricare health care fees for retirees under age 65 "to more competitive levels with premiums and cost-sharing in civilian employer plans." The Pentagon has already taken the first step in that direction with a proposal in its 2007 budget request.

The "20-years-or-nothing" retirement system was devised 60 years ago, when life expectancy was shorter and second-career options were more limited.

Today, that model has become "inflexible and inequitable," retired Adm. Donald Pilling, chairman of the pay advisory committee and a former vice chief of naval operations, said in a March 2 interview.

When the system was devised in the 1940s, the military was a massive work force in which most troops lacked skills that translated well into the private sector. And with a life expectancy of about 60, most stopped working soon after leaving the military anyway. Today, most retiring service members launch second careers and use their retirement pay as supplemental income.

Pilling said that means they don't need it like they used to.

"The need for an immediate annuity isn't as great," he said.

Only about half of all officers and 15 percent of all enlisted people stay in the military long enough to earn retirement benefits, the committee noted. One senior defense official, who asked not to be identified, said the fact that so few ultimately earn retirement benefits should tell us something.

"Younger generations want more personal control and choice," the official said. "Let people decide what is best for them and their family, and many would pick the type of thing being outlined" by the advisory panel.

Sgt. Maj. Lewis "Gary" Lee, who retired from the Marine Corps' top enlisted post in 1999 and readily describes himself as a "beneficiary of the status quo," said that while some of the committee's ideas are gaining traction, it is unclear to him what is broken in the current system that so badly needs to be fixed.

"What about the system is failing today's military?" he asked.

The answer is in the numbers. The military spends close to $40 billion a year on retired pay and survivor annuities and another $11 billion a year on health care for retirees and their families. At a time when weapons systems costs are spiraling and a war is squeezing other Pentagon priorities, getting a grip on those costs - and reducing them - is essential.

"It is clear that military compensation is eating up large portions of the budget," said Dov Zakheim, a former Pentagon comptroller.

"If we can compensate our people fairly, and do so more efficiently, there is much to be said for that," he said.

Next steps

The plan still has a long way to go before it would become reality, and it is quite possible that only pieces of it would advance. Pentagon officials have told congressional staff members that the recommendations would not, for the most part, result in formal legislative proposals this year.

In April, the committee will send a final report to the Pentagon officials, who will use it as a starting point for a broader review to begin this year, called the 10th Quadrennial Review of Military Compensation.

Because the Pentagon will be referring the recommendations for further study by the 10th QRMC, few, if any, changes would happen as part of the fiscal 2007 budget cycle.

That would push the timetable for any potential changes deep into President Bush's second term.

Whatever changes move ahead will get intense scrutiny in Congress, said a House aide who has been briefed on the advisory committee's plan.

"They are going after some very heavy-duty rice bowls here," the aide said. "We are talking about major compensation changes that could, in many instances, change the whole military culture."

One element of the committee plan looks to be on the fast track, however. David S.C. Chu, the undersecretary of defense for personnel and readiness, said March 1 that a plan to provide longevity pay increases to those with 30 to 40 years of service is part of a package of legislative initiatives prepared by the Defense Department.

The package, which includes a request for targeted pay increases for enlisted leaders and warrant officers, is under review by the White House, Chu said.

Regardless of how much headway the proposal makes, one thing is clear: Change is in the wind, spurred by personnel costs that are rising faster than any other aspect of the defense budget.

Staff writer Rick Maze contributed to this story.