Second Volume of Tenth Quadrennial Review of Military Compensation Released

Washington – The Department of Defense released today the second volume of the report of the Tenth Quadrennial Review of Military Compensation (QRMC), which assesses the effectiveness of military pay and benefits in recruiting and retaining a high-quality force.

Every four years, DoD commissions a complete review of compensation principles and concepts for members of the armed forces. The 10th QRMC began in 2006.

DoD will study the recommendations for potential implementation and send selected proposals to Congress as proposed legislation.

The second part of the QRMC reviewed non-cash and deferred compensation, focusing on the following four topics: retirement, Tricare, recruiting and retention incentives for health care professionals, and quality of life. Significant recommendations for each area follow.

Retirement. The commission recommended the department conduct a multi-year test of a new retirement system, to increase the services’ force management flexibility. This new retirement system would provide automatic contributions to service members’ TSP accounts, vesting, payments for reaching service milestones and separation pay. The commission maintains the new retirement system will provide greater equity, flexibility and efficiency, and may result in larger individual monetary outcomes.

Tricare. To ensure retiree fees for Tricare are fair to all retiree populations, the commission recommended under-65 retirees using Prime pay 40 percent of the Medicare Part B premium, and under-65 retirees selecting Standard/Extra pay 15 percent of the Part B premium. Family premiums would be set at twice the individual premium regardless of family size. Premium increases would be phased in over a four-year period. Over the years, the share under-65 retirees paid of their health care costs has declined, while over-65 retirees are paying a significantly higher portion of their health care costs. The commission’s recommendations will return a sense of parity between the two retiree populations, while ensuring the health system remains economically viable.

Medical Personnel. The commission examined options to increase the recruiting and retention of medical, dental and nurse corps personnel. The commission’s recommendations included increasing benefits for the Health Professions Scholarship, improving active duty nurse recruiting by expanding the market and adding educational opportunities, recruiting non-citizens with U.S. health degrees and leveraging inter-service transfer bonuses.

Quality of Life. The commission provided several recommendations to improve the efficiency and effectiveness of quality of life programs, including the adoption of health care and dependent care flexible spending accounts, creation of education vouchers, formation of military charter schools and changes to the child care system. The committee further suggested the department change the way it develops the overseas cost of living allowance rate, to be consistent with the methodology used in the continental United States.

This is the second volume of the study, covering non-cash and deferred compensation. The first volume was released in March, and focused on the following cash compensation areas: pay comparability, special and incentive pays, pay for performance and housing.  Full recommendations, in greater detail, can be viewed on the Web at http://www.defenselink.mil/news/QRMCreport.pdf .

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  1. I keep trying to find the punch line for the sad joke presented in Chapter 2 (Military Retirement), Volume II of the latest release of the 10th Quadrennial Review of Military Compensation (QRMC). You know, the one that goes “What did the QRMC commission say to the Soldier with 20 years of service? …

    The commission goes to great lengths to convince the reader that the current 20-year compensation program is rigid, inflexible, and just plain old mean to those overworked and underpaid “Force Managers;” as if there’s some underground, brooding, handwringing group of guys facing nervous breakdowns because they can’t adequately shape the force due to the antiquated retirement system. A quick read through Chapter 2 reveals glaring fallacies, half-truths, and broad assumptions that the commission uses to rationalize their new retirement proposition which ultimately devalues the sacrifices of our dedicated service members.

    The first glaring fallacy starts in the history paragraph under Chapter 2, “Background.” Here the commission tries to contrast 1950’s era service members’ lower post-retirement wage earning potential with today’s service members’ higher potential as proof that an immediate 20 year retirement benefit is no longer needed. Never mind that somewhere in the post WWII history of our professional armed services the immediate 20 year benefit stopped being about the post-service “earning potential” and starting being about a just compensation for 20 years of hardships, forced movements, deployments, time away from family, long working hours (under many times arduous conditions), and great potential for bodily harm, mental duress, or even the opportunity for one to give his life for his country. Evidently, those justifications and many more like them must have slipped the commission’s collective reasoning, just like “lifetime health care” did some others so many years ago.

    The second and almost comical fallacy comes under the paragraph labeled “Impact on the Force.” Here, the commission equates Force Managers first as dictatorial tyrants, as if by a stroke of the pen able to separate those personnel they deem unable to retain past 10-12 years of service. Then in the same breath, Force Managers are portrayed as welfare case workers, feeling “obligated” to retain until 20 years all personnel who’ve made it past the 10 year mark “even if their skills are not needed to meet mission goals or if they are not making productive contributions to the force.” This broad assumption of a Force Manager’s authority coupled with an apparent complete lack of understanding of military promotion and retention policies leaves me wondering on whom exactly did the commission do its research – the Peace Corps? I can’t speak for the other services, but how successful a Soldier is in the United States Army is largely dependent on their performance. If anything, questionable personnel are retained because the services can’t keep a sufficient number of targeted ranks or military occupations and Force Managers have to plug the holes in the dam due to poor management policies, increased operational tempo, or other factors which cause people to leave the services. Anyone remember the mass exodus of Army Captains or where all the Apache pilots went in the late 1990’s? Is there any misunderstanding why the current Army promotion rates are around ~99% for Captains and ~97% for Majors? This has nothing to do with a welfare retention policy and everything to do with current demands and future projections.

    Without missing a beat, the commission throws in the completely irrelevant statistic that “according to the Department of Defense (DoD), less than 15 percent of enlisted personnel and 47 percent of officers become eligible for the [current] military retirement benefit.” So let’s see, using this logic we should get rid of the Medal of Honor because clearly less than 15 percent of service members ever qualify for the Medal of Honor so why even offer this award with its lifetime benefit anymore? You may have missed this, but the above mentioned percentages don’t really lend truth to the claim about the welfare minded Force Managers, otherwise a lot more that 15 or 47 percent of service members would be retiring at 20 years with our welfare inclined retention policies, right?

    Next the commission actually starts to make some sense in the section titled “Equity,” but in keeping with tradition, they blow it and completely miss the mark when they start comparing military retirement with civilian/private sector retirement systems. While a system for vesting military members at an earlier date in their service is long overdue, the idea that most civilian retirement systems don’t pay out until 59 1/2 years old, therefore the Armed Forces should follow suit is ludicrous! Do I really need to state the glaring differences between civilian sector work and 20 years of dedication as a professional military member? Is the commission really that out of touch with military sacrifice, hardships, demands, lifestyle, etc…? Do they really think 20 years at a factory or a Fortune 500 is comparable to 20 years in the military? And just like a broken record, they throw in for good measure our current earning potential, as a way to say “see, they can really get a good job NOW, so they don’t NEED that immediate retirement payout anymore.”

    The “Management Flexibility” section has got to be one of my favorite readings from this chapter. You get the impression that we’re seriously considering revamping the current retirement system because some challenged Force Managers might have too hard a job to accomplish and may actually have to work some days past bankers’ hours. First they revisit the dictator/welfare Force Manager paradox; then we get a short history of Cold War to Expeditionary Army evolution; and then, we read about this new paradigm of “flexibility to meet diverse and changing situations” as a launching point for why certain military occupations don’t really need to ever reach 20 years. The fun doesn’t stop here as they unashamedly try to pin the high turnover permanent change of station (PCS) rate on the current retirement system rather than maybe look at a more realistic issue: namely that 24 months is about the most time anyone would want to stay in a unit with a 12-month on / 12-month off deployment cycle. They also highlight pilots with average flying duty experience of 13-15 years and make the overt assumption that any pilot on duty after 15 years is another example of our welfare retention system because it’s just too awkward to graciously let them go. And I thought that we needed those pilots for senior positions; to lead, manage, and maybe provide those unique aviation insights gained from 15 years or more of experience. I must have missed the transition where they became useless at a desk job and were only kept in the service again because of the welfare system we saw earlier. I’m glad the commission clarified that.

    In the section titled “Efficiency” we get to the real heart of the matter. “DoD expenditures on the military retirement system are CONSIDERABLE.” When any government appointed commission uses the words “expenditures” and “considerable” in the same sentence, you know someone’s in trouble. Of course we’re reminded that 2007 retirement pay was equal to 7 percent of total military compensation and how INEFFICIENT deferred compensation really is. Then we get Mathemagic 101 and a detailed explanation of why the high discount rate proves that deferred pay is bad but immediate pay (discounted, at that) through career bonuses and lump sums is good; all this based on the dated 2001 Warner and Pleeter study of discount rates. This study in turn itself was based on a 1990s drawdown-era analysis of military members’ choices between lump sums or distributions of separation pay over time. Hmmm… I’m an E5 Sergeant with 7 years of time in service, married, with two kids, and you’re offering me a lump sum of $16,655 or $2,776 a year for 14 years. Hmmm… $16,655 now or $231.33 a month… Hmmm… Lots of bills now, separation in 90 days, no job prospects yet, or $231.33 a month… It’s not very complicated to see why the majority of E5’s chose the $16,655. The point is the commission is using this data as the basis for why they predict everyone will jump on board with the “more now, less later proposal.” The commission also neglects to share the critical Warner and Pleeter observation that education played a key role in the understanding of the discount rate, in that the higher-educated service members better understood the value of the annuity versus the lump sum. So, the commission is basically going to use the mass ignorance of long term fiscal security to recommend the government devalue your service to save a buck.

    The section on “Evaluating Alternative Retirement Systems” goes on to list the various groups who since 1948 have made similar proposals to change the current system, as if the sheer number of attempts to sell these reduced benefits schemes justifies the current commission’s lackluster deferred compensation proposal. The commission then gives its recommendation for a new retirement plan. On the surface, some of the plan’s details actually make sense: a 10 year vesting, a modified payout for the Reserves and National Guard because of their increased utilization, and somewhat matching funds from the DoD. However, these all fall under the “pass GO, but DON’T collect until you’re 60 or 57 years old” version of Monopoly. This once again highlights that the commission is completely out of touch with the concept that the SACRIFICES made over a 20 year span of service JUSTIFY an immediate payout. The commission, not wanting to appear completely uncaring, throws you a bone with the option that if you really, really, really, want to collect your pay before age 57 (for those of you with over 20 years of service), well, that’s ok. Just sign here to reduce your benefit by 5% per year for each year you are short of age 57. So based on their example, a 45 year old retiree with 25 years of service would only receive 40% of 62.5% of their base retirement rate. That’s 40% of 62.5%.

    Under this plan — I’ll call it the QRMC Immediate Plan (QIP) – let’s assume a Second Lieutenant came in the service this year at age 23, making $2555.70 a month in basic pay and with an average of 3.5% annual pay raises. If he retires after 25 years with a base rate of $7717, his actual retirement benefit would only be about $2653 a month if he elected to receive it at age 48. That’s a total of $1,018,704 in compensation if he lived until age 80.

    With the Current Retirement Plan (CRP) he would receive $3647 a month starting at age 48, or $1,400,521 over his post-retirement lifetime if he lived until age 80.

    Under what I’ll call the QRMC Deferred Plan (QDP) he would collect $4823 a month starting at age 57, or $1,389,141 over his post-retirement lifetime if he lived until age 80. Even though the monthly payout is higher, because payments are not received until starting at age 57, the total compensation is lower during the same lifetime expectancy to age 80.

    Even more dramatic results are seen for a typical 18 year old who enlists and retires at age 38 as a Sergeant First Class (E7). His respective post-retirement lifetime payout would be $81,873 under the QIP, $1,470,547 under the CRP, and $935,696 under the QDP. The difference between the CRP and the QIP being a staggering loss of over $1.3 million dollars over that E7’s lifetime from age 38 to age 80! No wonder the bean-counters look at these proposals with mouthwatering glee.

    Another consideration beyond the scope of this blog is the investment power that service members have under the CRP as opposed to letting the government managed your money until age 57, which is effectively what happens with the QDP.

    The bottom line is that under the proposed QIP, unless you stay in the service for 28 years or longer, the CRP that we have is still the highest in overall compensation, not to mention you get the compensation immediately as opposed to waiting up to 20 years. The others devalue the service member from thousands to over a million dollars in compensation over the service member’s post-retirement lifetime, based on longevity calculations. At best, compensation is the same under the QIP, but ONLY if you to stay in the service for 28 years or longer before retiring.

    So how many personnel actually stay in for 28 years or longer? Let’s see, that’s typically in the realm of Major General (O8) or higher, Chief Warrant Officer 5 (CW5), or Sergeant Major (E9). Starting to see the picture? The proposed QRMC plans do nothing but devalue all but the highest grade of service members’ worth, and those survive only because of their longer length of service. Those who worked hard through dedication and performance and made it to the 20 year mark to earn that immediate benefit are shortchanged by either taking a drastic reduction for immediate payments or being forced to wait up to 20 years to collect nearly the same amount as the Current Plan, but over a shorter time span. We haven’t even addressed other factors, such as how service members are 20 years behind civilians in the savings of the single largest American asset: your home. Because the average service member has to move 7-9 times in a 20 year career, most don’t have the luxury of investing in the same house and building equity as many civilians do. Some may be able to afford buying and subsequently leasing out that asset, but the vast majority of service members rent or buy, then sell upon a PCS, effectively throwing that long-term equity down the drain.

    Of course I can’t wrap this up without offering my own recommendations since criticism should always be offered with solutions. So here are my recommendations:

    1. Vest service members at 10 years of service.

    2. Use a sliding scale for deferred compensation between the 10th and 20th year of service (i.e. at 10 years you collect 25% at age 50, or reduce 5% per year.) At 20 years you collect 100% of the benefit (e.g. 100% of 50% of your High 3 plan).

    3. Use targeted bonuses as a retention tool.

    4. Factor in a more equitable distribution timeline for the overworked Guard and Reserves.

    I can share a personal observation that, when asked about the proposed changes, all of my peers in my Intermediate Level Education staff group said they would have definitely made some different career decisions and many may not have even stayed past ten years had this QDP proposal been enacted years ago. That would have been a significant loss of talent to the Army in experience, education, and capabilities wrapped into these 15 outstanding, multi-skilled officers and leaders. I can’t blame them — who would want to make the typical sacrifices that we do for 20 years, only to be told “the almost-full check will be in the mail… in 15-20 years, or you can have some McDonald’s gift certificates today – take your pick.” I don’t think the commission also took into account that a 10 year vesting is very tempting for those who have had enough and decide to leave because of one too many deployments, working for the same negative boss at Camp Swampy for too long, a change in family status, or for whatever reason valuable performers generally decide to leave the service early.

    The bottom line is that it’s all about counting beans. The commission did recommend several years of trials before a decision is made whether to revamp the current system. With such a sensible gesture I’d like to nominate the commission itself as our first trial of “volunteers.” Let’s see how long that works out.

    Seven percent is a worthwhile investment in the force we have today and the security it brings tomorrow. I pray the President and Congress see the deferred payout proposal for what it really amounts to – selling our service members short, too short. Maybe then instead of finding a new punch line, we can scrap that joke all together.

    For more additional information you can read Volume II of the latest release of the 10th Quadrennial Review of Military Compensation here:

    http://www.defenselink.mil/prhome/docs/Tenth_QRMC_Feb2008_Vol%20II.pdf

    U.S. Army Major Shane F. Liptak is currently a student assigned to Fort Gordon, attending the Intermediate Level Education Common Core Phase I of the Command and General Staff College.

    The views expressed by this author are his own and do not represent the views of the Command and General Staff College, the United States Army, the Department of Defense, or any other U.S. government agency.