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

Hearing

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Senator FISCHER. Thank you, Mr. Chairman.

Thank you both for being here today. You've presented us with a lot of interesting information. In discussing the conclusions on the strategic choices and management review, Secretary Hagel said that Chairman Dempsey would lead an effort to find $50 billion in savings through changes to compensation. Now, today you've said that retirement changes won't be part of the coming budget request. But can you tell me what the status is of General Dempsey's review on the compensation part?

Admiral WINNEFELD. We were challenged as a sort of a stretch goal to try to find--I don't think it was 50; I thought it was less than that, something like 40--but a decent sized number for compensation savings. Other areas of the Department, by the way, were equally challenged in other ways to find savings.

We worked very hard to do that. We actually came up with the set of proposals that would be required to make that mark, and we found them too severe. So we have been working on a set of less severe proposals that we will consider submitting as part of the
President's budget request. We're not ready to talk about those because they're not final, but we're not going to make the 40 or 50 or whatever it was. But it was a very good exercise us and a stretch goal to try to see where we could find savings.

Senator FISCHER. Thank you.

Senator Kaine raised an issue earlier and I'd like to follow up on it if I could for a minute. Is the Department including outside groups in its review of the compensation? Have you reached out to veterans groups?

Admiral WINNEFELD. We are still in the process of deliberating over these things and we're not ready to show whatever proposals might be submitted. But we do look forward to consulting with the veterans groups, because it's important that they understand them.

We'd like to have their support. We know that will be difficult. Any time you're talking about slowing a growth rate of compensation-- we're not taking anybody's pay away--and we understand that. That's what veterans groups are for. We love them. They do a very important service for our people. But I think in due course we will definitely consult with them.

Senator FISCHER. So am I understanding you correctly in that you're coming up with proposals inside the Department, then you're presenting it to stakeholder groups looking for input? Or are you including the stakeholders, veterans groups for example, in providing you with suggestions and input?

Admiral WINNEFELD. We've listened to, certainly listened to the veterans support organizations. They're very vocal, understandably, and we appreciate that. We understand what they're telling us. I think that at various levels there have been discussions with members of the veterans groups, round tables and things. But we have not presented any specific proposals to them because we can't get out in front of the Secretary or the President in submitting a budget.

Senator FISCHER. I go back to this. You're presenting your proposals to these groups. You're not asking them to present proposals to you with ideas for changes?

Admiral WINNEFELD. No, we have not brought them in and asked for their proposals on how to change compensation. We're certainly open to that. We listen to what they say. We read what they write and we take that into account as we deliberate over these things. I don't know whether they would come in with a proposal at all to change the glide slope of compensation, but I would be interested in that if they did.

Ms. FOX. May I just add that Secretary Hagel does meet with the veterans. So certainly there is a dialogue. As Admiral Winnefeld has said, we have not concluded anything about specifics of our compensation proposals. But he meets with them and listens and
they have a general dialogue about far-ranging issues. I have not been privy to them, but if you would like I'd be happy to take for the record some report back on the kinds of topics that they discuss.

Senator FISCHER. That would be helpful, not just with veterans groups, but any stakeholders that are out there that could offer maybe valuable information as the Department moves forward in looking at compensation. I would think you would want to seek that.

Ms. FOX. May I also add, on the commission there has been a lot of back and forth with the commission sharing data, sharing analysis, and so forth. So there's been those kinds of discussions, again not our specific proposals because they're not done. But there's been a lot of engagement.

Senator FISCHER. Thank you, Dr. Fox. I appreciate that. Secretary Hagel has also stated that the Department would begin implementing the package in the fiscal year 2015 budget. Is that still the plan, and are you going to include any of those changes in the budget?

Ms. FOX. We are still looking at our budget deliberations, but we do--we are seriously considering proposing additional changes to compensation, not retirement. Again, let me be clear. Retirement is the commission and we need all the help because it's so hard. But some modest proposals on other parts of compensation, following onto the very large effort that the Joint Staff and Admiral Winnefeld has been leading over the past six to nine months.

Senator FISCHER. I would appreciate it, and I know that other members of this committee would too, if we could get that information. I would think the earlier we could get that information the better, so that we can make decisions that hopefully will be helpful to the Department as well.

If you could tell me, have either of you seen any impact that these recent COLA changes have had with regards to recruiting and retention? Has there been any impact to date on that?

Admiral WINNEFELD. It's a little soon for us to directly measure impact. Generally, we find that retirement benefits play a less than one percent accounting in a potential recruit's deliberation as to whether he or she's going to enlist in the U.S. military. But it does, of course, impact our retention. In particular, it doesn't really, we find, affect the retention for our first and second termers, but it very much affects the retention for our third and career termers.

So we haven't seen any behavior changes yet, but we do know that they're very nervous about this. They don't like it. If you were now if the CPI Minus One provision is memorialized you may consider having to stay longer in the military in order to accrue more of the benefit so that your retirement would not be impacted as much. So I think that's the calculus that they're doing. I don't think anybody's going to quit the military because of it, but they are nervous about it and they're, again, doing the calculation on how long they have to wait until they can retire.

Senator FISCHER. You had mentioned that earlier, that it may not have that big an effect on recruitment. But I can certainly see that it would with retention. So I would imagine that the sooner that we can provide certainty to the members of our military the better. Would you agree with that?

Ms. FOX. Certainly I think this is an issue. One thing I would just throw in here is one of the retention concerns we are starting to feel is the concern about the quality of service: Will they have the training, will they have the equipment, will they have the opportunity to serve in a way that is as rewarding as they expected when they joined?

Senator FISCHER. Thank you so much. Thank you, Mr. Chair.

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