Adm. Winnefeld’s Thoughts on Military Compensation, Retirement Benefits

Story by Vice Chairman of the Joint Chiefs of Staff Navy Adm. James A. “Sandy” Winnefeld

This morning, Acting Deputy Secretary of Defense Christine Fox and I met with the Senate Armed Services Committee to discuss military compensation and retirement benefits.

This is a subject that weighs heavily on the mind of our military family as we work to preserve the all-volunteer force. We must figure out how to recruit and retain the best America has to offer and pay them fairly.

Above all, we have a solemn contract with the selfless young men and women who volunteer to defend our nation that we will only send them into combat with the best possible training and equipment we can provide.

Here are my opening remarks:

Good morning, Chairman Levin, Senator Inhofe and distinguished members of the Armed Services Committee. I thank you for the opportunity to testify today on the CPI-1 provision, and on military compensation in general.

And I’d like to start with the latter if I may.

First, I want to make it very clear that our magnificent volunteer men and women in uniform and their incredible families deserve the best possible support we can provide, including competitive pay and other forms of compensation.

This is especially true when they’ve experienced over a decade of wartime deployments and stress, coming on top of all the normal disruptions of military life, including the sacrifices made by our wonderful spouses and their families.

However, we must also exercise good stewardship over the resources that the American taxpayers entrust to the Department of Defense to protect the United States.

This means investing prudently to maintain the highest quality all-volunteer force, while simultaneously getting the best value for the capability, capacity and readiness that we need to win decisively in combat.

In this light, I try not to forget that the American people have been very supportive over a decade of war to those of us who wear the uniform. They provided ample funding for our combat operations. They treat us in person far differently from our Vietnam War predecessors.

Many businesses have offered generous discounts and other special benefits to the men and women in uniform. And our nation, with the support of Congress, has provided substantial increases over the last decade in compensation that have more than closed previously existing gaps with the rest of our nation’s workforce.

We in uniform are very grateful for all of this. It means a lot.

However, demanding at this point that our compensation not only remain at its currently high relative level but that it continue to rise faster than that for the average American is simply not sustainable at a time when our entire budget is under great pressure.

This growth has been substantial, and rightly so; by the 1990s, military compensation had fallen to a deeply unsatisfactory level relative to the rest of the working population in America. The quality of our all-volunteer force suffered as a result.

To address this, with the help of the Congress, we substantially increased the compensation growth trajectory in the late ’90s, and in the post-9/11 period. These increases worked.

In 2001, U.S. median annual household income was $42,000. That equated to the direct pay of an average E-7 in the U.S. military. Today, median annual household income is $52,000, roughly equal to what an average E-5 makes.

So in short the average enlisted service member surpasses the U.S. median annual household income, two pay grades earlier, or about eight to 10 years earlier, than his or her career would have in 2001.

None of this includes indirect compensation, or the special pays and bonuses we use to shape our force or very generous changes to the G.I. Bill.

To provide additional context, in 2002, the Quadrennial Review of Military Compensation or QRMC concluded that in order to attract and retain the best that America has to offer, and because of the rigors of military service, military pay should equal around the 70th percentile of civilians with comparable education and experience.

But in 2000, midgrade enlisted personnel only placed in the 50th percentile. By 2009 our higher compensation trajectory enabled us to more than close this gap. In 2012, the QRMC reported that average enlisted compensation had climbed between the 85th percentile and 90th percentile, understandably so during a decade of war.

While these percentile numbers are not a goal, they are an indicator that we can and should gradually place compensation on a more sustainable trajectory.

As Secretary Fox mentioned, Congress and the department have already made some initial adjustments, but more are probably needed. The department, with the support of the Joint Chiefs and our senior enlisted leaders, is now considering proposals that would meet that intent.

Contrary to what some are reporting, none of these proposals would reduce the take-home pay of anyone in uniform.

We believe we should make this adjustment once. We’ll still be able to recruit and retain the best of our nation into our all- volunteer force and, indeed, we are hearing from our people that they’re much more concerned about their quality of life, their continue — their ability to continue serving in a modern and ready force, than they are about maintaining the trajectory of compensation that closed previous gaps.

We realize that we will probably not get this exactly right. We seldom do. And there may be special cases and issues that require corrective action. If future upward adjustments are required in order to remain competitive for the best America has to offer, we will surely recommend them.

We’ll also do our best to ensure both active and retired communities have the most accurate information possible.

Some will say that savings can and should be found elsewhere through efficiencies. We agree. We’re working hard to do just that. And we could use additional congressional support in that area.

Yet even with our most ambitious efficiency efforts we will still need to address the growth rate of compensation.

In the end, we believe the most important way we keep faith with the fantastic young men and women who volunteer to defend our nation is to only send them into combat with the best possible training and equipment we can provide.

Controlling compensation growth in a tough budget environment will help us do just that.

Now regarding the CPI-minus-1 provision: we are very pleased that the bipartisan budget act prevented a government shutdown and gave us at least a couple of years of long-needed predictability in our budget.

However, the inclusion of the CPI-minus-1 provision has clearly led to considerable and understandable anxiety among those who are currently retired or who are planning for retirement.

I want to make it clear that Chairman Dempsey and I and the service chiefs and senior enlisted leaders support grandfathering any changes to our retirement structure. The chairman has testified several times on this point.

And the current CPI-minus-1 provision does not fit within that principle. We believe changes to our retirement plan, if appropriate, should only be made after the [Military Compensation and Retirement Modernization Commission] takes a holistic look at the many variables involved in such a plan.

Accounting for changes in the cost of living is only one of those variables, and is far too soon to reach a conclusion on whether it should be part of a grandfathered plan. I’d also say that however and whenever the specific provision is addressed should not permanently remove cost of living adjustments as a potential variable in a future grandfathered plan.

In other words, we don’t have to rush in to this. We just need to make sure we get it right.

However, as Secretary Fox said, we’re grateful that the appropriations bill does exempt military disability retirements and survivors of members who die on active duty.

We thank the Congress for this correction. It’s an important signal to those in our force who have sacrificed the most.

Thank you again for the opportunity today, and for your continued, strong support for our magnificent men and women who serve and who have served. And I look forward to hearing your views and your questions.

Thank you, sir.

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  • msr2day

    When I retired after 20 years of service, I was advised that my retirement pay would allow me to live comfortably. At this time, my yearly income from retirement is $2,000/mo. Now because the US Budget is $750 billion in the red, military benefits/pay may no longer keep pace with the current US median income of $52,000 (since there is no longer a war that needs warriors). Please check what that means in terms of my income and the meaning of CPI-minus-1 provision. Yes, I continued to work and my military retirement was banked/invested toward my children’s and my further education (look at the inflation there if you want to see a really terrifying story). I was re-organized out due to sale of my firm to a larger corporation two years ago, and have to date been unable to find comparable work since (wrong skill sets I guess – thus I require yet more education). So much for trying to save for retirement which might start at age 75 if I’m lucky. Fortunately my children can still go to University; and my work life, started at 13 years of age, will amount to 62 years (that is minus this current time out without pay and loss of saving/investment opportunity). If inflation is what makes the economy grow, if tossing out older workers to make way for younger ones remains best practice – then the US looks headed for more than just future FINANCIAL crisises.

    CPI-minus-1 provision
    CPI-minus-1 provision

  • Von Cain

    Hamilton: Military retirement, 83-percent never make it

    This column explains why the current military retirement system is an incredibly good deal for the U.S. taxpayer and why the Obama Administration’s proposal to change it would defeat the currently successful re-enlistment and retention rates for our volunteer armed forces. (Fair disclosure: The author served 20 years on active duty and is retired at half pay.)

    Shortly after entering active duty, yours truly asked a seasoned personnel officer: “Why is my base pay only $222.22 per month when so many of my college classmates who went into civilian life are making twice or three times that?” What follows is a reconstruction of that conversation:

    “Lieutenant, your low pay is because the military system is ‘deferred compensation,’ meaning you do not have to pay anything upfront toward retirement which will be ‘vested’ if you complete 20 years of active-duty service. So, we are ‘deferring’ your pay for you to draw later as retirement. If you make it through 20 years, you get half-pay for life and almost-free medical care. But if you do not complete 20 years of service, you don’t get any retirement. Nada, zip, zero.”

    “Well, what could I expect to happen during the next 20 years?”

    “Lieutenant, as an infantry officer, you can expect to live abroad for about 10 years, much of it in disease-ridden, Third World countries you would never ever want to visit on vacation. You will be moved 15 to 20 times. You can expect your household goods to be lost at least once. Off and on, you can expect to be separated from wife and family for about six years. You can expect to be wounded at least once. Or, killed. But that only happens once.

    “After you reach about 10 years of service and you are at a point when you are most valuable to the military, you can expect the civilian bean-counters in the Pentagon to try to find ways of getting rid of you short of the 20 years you need to draw retirement. Do not give them any reasons to do that. If you get hurt, shake it off. Don’t report it. The bean counters don’t want retirees with medical problems. Also, the military has an “up or out” policy. Go to graduate school at night and on weekends to stay competitive with your peers. Do not give them an excuse to throw you throw out short of 20 years.”

    “OK, of all the second lieutenants who came on active duty this year, what percent of us will make to 20 years?”

    “Out of your year-group, about 6 percent of you will make it, meaning the USA will never have to pay a dime in retirement to 94 percent of you. It is a cruel deal for those who don’t make 20 years; however, it is a sweetheart deal for the U.S. taxpayer. For the troops who do make 20 years, they will have played ‘you-bet-the-best-years-of-your-life,’ and won.”

    Returning to 2011: Today, due mainly to better battle-field care, 17-percent of the force is making it to the 20-year retirement mark. Even so, 83-percent who have served will never see a dime of their pay that was “deferred” for their retirement.

    To make the system more “fair,” the Obama administration proposes to “vest” a reduced amount of retired pay at 10 years of service. Guess what many of those with 10 years of service and facing almost certain assignment or reassignment to Afghanistan or Iraq will do? Answer: Take a reduced retirement and leave military service.

    In 1986, Congress reduced military retirement by 20-percent, undermining retention and readiness so badly that by 1990 Congress had to reverse itself. Predictably, the proposed Obama scheme will devastate retention rates while, at the same time, destroying a system that is more than “fair” to the taxpayers.

    Nationally syndicated columnist, William Hamilton, was educated at the University of Oklahoma, the George Washington University, the U.S Naval War College, the University of Nebraska, and Harvard University.

  • http://batman-news.com WWII COMBAT VETERAN

    It seems all data on this site dates back not much farther than 1955.
    Where is data about 1940-1947? WWII was the last war fought to preserve freedom
    of Americans. Any scurmishes since has been for MONEY. SO SAD.
    History is no longer a viable sunbect unless some one makes lotsa money.

    • nick

      yea your right