Hearing of the Senate Armed Services Committee - Recent Changes to the U.S. Military Retirement System

Hearing

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Senator INHOFE. Thank you, Mr. Chairman. Almost everything that you've said was in my statement, too, so I'll just forego that, except for one thing that wasn't mentioned. That is, the NDAA for Fiscal Year 2013 established a commission to undertake a comprehensive review of the military compensation and retirement system and propose reforms to Congress by early 2015. Now, when the commission was created Congress made a promise in law to retirees and those currently serving that they be grandfathered from any changes to the benefits that they were promised when they volunteered in service to our country.

I've often said that people make a career decision, Mr. Chairman, and it's predicated on what they are told at that time would be the situation. To change that I think becomes a moral issue.

That promise of grandfathering was again made by the President through the presidential principles submitted to guide the commission. Section 403 breaks these promises. I think we all agree that there needs to be a serious look back at military pay and compensation. However, the piecemeal approach taken in the Budget Act is the wrong way to do it.

I would add that this is on top of other cuts that aren't classified as cuts, but such changes to the detriment of our retirees in TRICARE.

So I think we're on board here together in trying to come up with a solution to this problem. Thank you, Mr. Chairman.

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Senator INHOFE. Thank you, Mr. Chairman.

Secretary Fox, as a former Director of the Cost Assessment and Program Evaluation, you led the strategic choices and management review. In that effort you spent many hours examining the Department's military personnel compensation and benefits structure, including retirement pay and benefits. In your current role as the interim Deputy Secretary of Defense, you will have been heavily involved in the Department's fiscal year 2015 budget.

I have a chart you can see over there on this side, and it shows-- this is a chart that we have used quite a bit. I've talked to both of you about this chart in my office. I think that you have to review this.

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Senator INHOFE. No, that's fine. Mr. Chairman, I just wanted to point this out to kind of get the big picture here. You're both familiar with this. This is the area of savings prior to the budget that was passed. The black line cuts down in the area of the balance, which is the readiness, for the first 2 years. But just to get an idea, that would be what I would call--the orange up there is really the readiness area. The modernization prior to the budget is the green. You see that's not very much. Force structure is the big thing, but not in the first years; it's in the last.

I think when we talk about the savings from various changes in compensation that you're looking at the blue line, and you're really looking only at about half of the blue line there, because that's entitled ""Efficiencies,'' of which changes in compensation would be a part. So it would be about 50 percent.

Now, Secretary Fox, do you agree with that analysis of that chart?

Ms. FOX. Yes, sir. You briefed my slide extremely well, sir. I would just one point. We did not in the strategy choices management review consider retirement changes, because of the commission and the complexity, as I've said before. So those compensation-- that is about half the blue, as you said correctly, are just changes to pay and fees and things of existing programs.

Senator INHOFE. I understand that and I appreciate it. The reason I wanted to bring this up is that this meeting here today is about compensation. There is this misunderstanding of where that fits in the overall picture. Most people would think it would be about the size of perhaps the green and the blue put together. I think people need to understand that it's a big deal, it's a lot of money, but relative to the rest of it it's not. My concern has always been in the readiness area.

Secretary Fox, we've already seen that this is going to have a devastating effect on long-term financial impact for those who are currently serving. I think that we need to be sure that we're all on the same page on this. The cut squeezes military retirements between TRICARE fee increases that apply at the COLA rate and a compounding decrease in COLA adjustments to retired pay. Now, as a result the military retired pay will not keep up with inflation. I wanted to bring this out because this is over and above those issues that are already in play right now. Do you both agree that, yes, as bad as they are, they're even worse because of the fact that they already have taken what most people will consider to be cuts in TRICARE medical services?

Ms. FOX. Sir, I want to make certain I've got your question. The question is that the CPI Minus One provision not grandfathered compounds on the changes we've made to TRICARE?

Senator INHOFE. That's correct, over and above those changes.

Ms. FOX. Certainly, again we believe that we should grandfather any changes to retirement, and we also believe that for retirement we need to look more holistically. CPI Minus One might be right for the future, it might not. So absolutely the CPI Minus One is important.

The TRICARE increase that we've talked about in 2012 was an increase of $60 a year above, as our chart shows--it's now up to, after being indexed--excuse me--548 a year. That compares for civil servants to $820 a month, a month. So yes, there is an increase, but in my view anyway $60 a year as indexed is not as significant as the CPI Minus One provision that we're talking about. So that was all we're trying to say.

Senator INHOFE. It's just over and above it. That's the point.

Ms. FOX. It is, yes, sir.

Senator INHOFE. And again, my concern has always been--when I was serving in the Army many years ago, probably before you guys were even born, we were talking to people who were going to be reenlisting, people what were making career decisions, and it was always based on what was there promised to them at this time. I think that's the reason I always bring that up.

General Dempsey said the other day, and I'm quoting now: ""If anybody here thinks I want to be the Chairman that goes down in history for having carved up pay and compensation and health care, I assure you I do not. I don't want to be that Chairman. The problem is there's going to be a Chairman that has to do it. So in my view we should get on with it, but we should do it all at once.''

Now, what he's referring to here is the Military Compensation and Retirement Commission which will be coming out next year. I think you already answered the question, Secretary Fox. Admiral Winnefeld, would you agree with that also, that the commission should be allowed to finish its report and then do everything all at once, rather than to do it piecemeal?

Admiral WINNEFELD. We certainly think that on the retirement side it would be a big mistake to make piecemeal changes, which is why the CPI Minus One thing was a surprise and a bit of a disruption. We think, though, that on the generic compensation side that we have all the information we need to make--these are finetune adjustments on the regular compensation. But definitely on the retirement piece we should wait until the commission reports, yes, sir.

Senator INHOFE. Very good. I appreciate it.

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Senator INHOFE. I'm just going to ask one question, a hypothetical question, because I want to offset some of the accusations that you hear from people in service organizations.

My feeling is that those of you heading up service organizations would fall down if you had to choose between an adequately strong national defense and a maintenance of the current military retirement compensation levels. Which would you choose if you had to, real quickly? That's an easy question.

General TILELLI. I would always vote on the side of a strong national defense.

Senator INHOFE. The other two of you would agree with that, I would assume?

General SULLIVAN. Yes. Look, we all took an oath to protect and defend the United States of America.

Senator INHOFE. Very good. You too?

Sergeant DELANEY. That's what we do.

Senator INHOFE. The reason I say that--and I think you hit the nail on the head, General Sullivan, when you said America can afford the defense it needs; it's a matter of priorities. That's my whole position in a nutshell. That's something that we have--a lot of people don't believe that. There are people serving right now who think that we really don't believe in the strong national defense that all of us agree with.

Let me make sure that everyone understands there are 15 members who asked questions and made statements in this hearing, primarily on the first panel. You guys have won. You came here because you want the one percent corrected. We all agree. In fact, I made the statement that it is a moral issue, because during the years when I was in the Army and people would talk about reenlisting or something like that commitments were made to them, and you can't come along later and change those.

Now, yes, we want a comprehensive reform. We want to get into all of these things. But first we want to make sure we correct it. As you said, General Sullivan, we want to correct it now. So do all of us want to correct it now. I just want to make sure that anyone, the three of you or anyone else who might be here from the military or representing or participating in one of the services, understand that we agree with you.

That's it.

General SULLIVAN. I do.

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