RAO Davao City

United States Military Retiree Activities Office Davao City, Philippines

MILITARY COMPENSATION REVIEW UPDATE August 15, 2008

Posted by Service Officer on August 14th, 2008

The 10th Quadrennial Review of Military Compensation has suggested a new way of measuring military pay, proposed that more money be spent on special and incentive pays, and recommended restructuring the basic allowance for housing. Retired Air Force Brig. Gen. Jan D. “Denny” Eakle — former deputy director of the Defense Finance and Accounting Service — chaired the commission and briefed the media on the recommendations 12 MAR. This was just the first release of the review, Eakle explained. A second volume, covering retirement and quality-of-life aspects of compensation, will be released in the summer. Eakle said that whenever a QRMC convenes, the first question it examines always is whether military pay is comparable to pay in the private sector. The second is whether military pay is adequate to maintain the force, she said. The 9th QRMC, released in 2002, concluded that for pay to be comparable, it had to be at or above the 70th percentile of the age- and education-matched civilian population, Eakle said. Military pay followed this guidance through 2006, and targeted pay raises in 2007 and 2008 ensure DoD exceeds the 70th percentile for enlisted personnel. Officer pay exceeded this goal in 2006 and has kept pace since then, she said.

 

Eakle said the current review studied whether the comparability formula is adequate. “Basically, what we wanted to do is create something which would give military members a better means of assessing how their pay stacked up in comparison to civilians,” she said. Regular military compensation was the measure used in previous QRMCs. This included basic pay, subsistence, housing and a measure of savings on federal income tax. “But there’s a lot more to military compensation,” she said. The new system begins with regular military compensation and adds state and FICA tax advantages. Military personnel also do not pay out-of-pocket health care costs, such as co-pays, she explained, and all these folded into the panel’s calculations. The new measurement is called military annual compensation, and it sets the 80th percentile as the standard for military compensation comparability with the private sector. Pay for enlisted personnel and officers meets this standard, Eakle said. Congress revamped the special incentive pay categories from more than 60 to eight, Eakle said. “That, in fact, was a recommendation of this QRMC, and it was enacted before the publication of this document, Eakle said. “And so now it’s up to the department to begin the process of drafting out the instructions to adopt this.” The review recommended increasing the size of the special and incentive pay budget. “Today we have an S&I budget that, quite frankly, is rather small in comparison to the size of the other pay accounts,” she said. “And because of that, it doesn’t give the service as much flexibility for arranging pay.”

The review examined the basic allowance for housing and a previous recommendation to do away with the without-dependent housing rate. The review also proposed changes to the partial-BAH program. Because some single servicemembers are making as little as 52% of the pay their peers who have families receive, the QRMC recommends raising that floor to no less than 75% at first, and to 95% over time. But the gap between married and single BAH should not disappear, Eakle said. The review did recommend changes for singles living on post or aboard ships. The proposal is a new variable, partial BAH based on the value of the quarters the servicemembers occupy. The DoD standard is a one-plus-one dormitory — meaning each individual having a bedroom and a shared cooking facility and bathroom. For those living with three roommates, the review believes they are overpaying for their accommodations by forfeiting their entire housing allowance, and “we would recommend that they get a rebate on their BAH.” “The range we are talking about is going from zero for people in the one-plus-one dormitories, up to a 25% rebate for those who are living in ships with hot-bunk arrangements,” she said. “So you’d be able to give people something in recognition of the fact that housing is not at the DoD standard.”

The review also recommended staying with time-in-service pay tables. A previous commission, the Defense Advisory Committee on Military Compensation, recommended replacing the time-in-service pay table with a time-in-grade pay table. This would reward pay for performance, the commission members believed. “We looked very seriously at this recommendation, but we’ve chosen not to accept it and are not going to endorse the change,” Eakle said. She said it would exacerbate pay differentials, adding: “We don’t think that’s in keeping with our spirit of being fair and equitable to all members.”

A panel looking at military compensation has recommended dramatic changes in the military retirement system. The recommendations are part of the second volume put out by the 10th Quadrennial Review of Military Compensation. The first volume — released in March — looked at cash compensation. Retired Air Force Brig. Gen. Jan D. “Denny” Eakle was director of the panel, and she briefed the press during a Pentagon news conference 5 AUG. Eakle said critics of the current military retirement system say it is not equitable, it is not flexible, and it is not efficient. “There is a perception that the system we have today is inequitable because only 15% of all enlisted personnel and less than half of officers will ever receive anything in the system,” she said. Reserve-component personnel also believe the current system discriminates against them, especially at a time when reserve forces are being called on more, she said.

The retirement proposal would offer a defined benefit, defined contributions, “gate” pays and separation pays. The defined benefit would be 2.5% of the average basic pay for the highest 36 months of the individual’s career multiplied by the number of years of service, with servicemembers vested at 10 years of service. Payments to retirees would begin at age 60 for those with less than 20 years of service and at age 57 for those with 20 years of service or more. Servicemembers could opt for an immediate annuity, but the payout would follow the Federal Employee Retirement System methodology — a 5% penalty per year for early withdrawal. The defined contribution portion would be an automatic government-funded Thrift Savings Plan. Servicemembers would not have to match any government payment. The government would not put any money in for the first year, but would put in 2% of base pay for two years of service, 3% for three and four years of service, and 5% for five and more years of service. Again, this would be vested after 10 years of service.

The military also would make “gate pays” to servicemembers who reach specific years of service. These would vary by years of service and skills, Eakle said. “This is a payment made for achieving a particular year of service,” she explained. “And within the services, they would have the flexibility to vary this by year of service as well as by skill. That way, they could begin to shape the skills by dragging people further into their career by offering them an incentive.” Finally, the system would include separation pays to servicemembers that would also vary by years of service and skills. “The separation payments would be made available by the service to members that they wished to entice to leave,” Eakle said. This would be a permanent tool services would have available, she added.

The panel used a Rand Corporation computer model to test the recommendations, but Eakle said the panel members would like a large-scale test in the Defense Department. “Therefore, the recommendation of this QRMC is that the Department of Defense conducts a multi-year test of this system. The way the test would work is this: All four services would be asked to identify some skills that have different types of retention patterns — some that stay not very long, some that stay longer periods of time — and ones they wish to influence. The test would offer people in those skills in the first eight years of service an opportunity to volunteer. If someone was selected for the test, they would be paid all of the TSP that they should have earned up until that point, and it will be put in their TSP account for them. The program’s vesting rules would in fact apply to all those individuals. So should they achieve 10 years of service while they are in the test, they would fully own it. At the end of the test period, people who are in the new system who wish to revert to the original retirement system would be allowed to do so.” she said. Any change in the retirement system would require action by Congress. DoD officials said they will carefully examine the panel’s recommendations and then decide if they should move forward. The study will take at least six to 12 months, so any decision would be made by the next administration, DoD officials added. [Source: AFPS Jim Garamone article 5 Aug 08 ++]

The Quadrennial Review of Military Compensation has recommended fee changes to Tricare, the military’s health care system. The recommendations would mostly affect retirees and will not affect active-duty servicemembers or their dependents, retired Air Force Brig. Gen. Jan D. “Denny” Eakle, the director of the study, said in a Pentagon briefing today. “Retiree fees ought to relate to how much the plan is worth. The … higher-value plans should have higher premiums associated with them. The panel believes fees need to be fair to all retired military members. They ought to reflect how much income an individual has, so that if they make more money and are therefore better able to pay for a system, they should do so,” she said. One problem is the fee structure for Tricare has not changed in 13 years. In 1995, servicemembers paid 27% of their health care cost. Today that share is less than 12%. Over-65 military retirees — those using the “Tricare for Life” program — have been paying the Medicare Part B program fee of 25%, but this is due to rise. “Essentially what this says to you is that we are asking our older retirees, who are in fact the least likely to hold jobs and therefore have the lowest incomes, to pay the most for their system,” Eakle said.

But Tricare for Life is a much more generous program than Tricare Prime. Eakle said, “We believe we need to get some parity between our older and our younger retirees. The panel wants to redress some of this imbalance. We believe that the under-65 retirees should begin paying 40% of the Medicare Part B premium using the same fee structure that is laid on by the Medicare system, adding that this should bring the system into a semblance of parity. In addition, we believe that the under-65 retirees … who elect to use Tricare Standard and Extra need to pay a small fee for that. And we would suggest to the department that that fee be set at 15% of the Medicare Part B. We think the family rate should be set at double the individual rate and that the premium increase needs to be phased in over four years.” Other recommendations include using the Medicare deductible rate — $135 per person in 2008 — for Tricare. The panel also recommended to the department that all co-pays and co-insurance for any preventative service be provided at no cost to all members and retirees who have access to Tricare. The final panel recommendation to DoD is to establish an open enrollment period for Tricare, Eakle said. [Source: AFPS Jim Garamone article 5 Aug 08 ++]

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