The Pentagon’s personnel budget is composed of three major items: pay, retirement, and health care. These costs have nearly doubled in the past 10 years and now consume one-third of the baseline defense budget. If they continue growing, these costs will begin to divert funds from other critical national security initiatives such as training and modernization.
The threat that mounting personnel costs pose to military readiness has not gone unnoticed by the nation’s political and military leaders. In the Pentagon’s fiscal year 2013 budget request, Defense Secretary Leon Panetta and the Joint Chiefs of Staff highlighted the need for significant changes to the Defense Department’s existing pay, health care, and retirement systems.
In light of the pressing need to reform the military’s compensation systems, the Center for American Progress recently released a report titled “Reforming Military Compensation,” which identifies opportunities to reduce personnel costs without breaking faith with the men and women who are serving or have served.
Here are the 10 important facts about military compensation today that demonstrate why our reform program is key to a more efficient and equitably compensated fighting force:
1. The Pentagon’s personnel costs have nearly doubled since 2001 and now consume one-third of the baseline defense budget, or $180 billion per year. That’s unsustainable.
2. If personnel costs are allowed to continue growing at their current rate, they will consume the entire defense budget by fiscal year 2039 unless the overall budget is increased to accommodate them.
3. The pay reforms in Secretary Panetta’s FY 2013 budget request for the year beginning in October would save $16.5 billion over the next five years without cutting any active service member’s pay.
4. Under the Pentagon’s current retirement system, military personnel who serve for at least 20 years earn the right to a generous annual pension for life and the ability to remain on the military’s Tricare health insurance program. Those who leave prior to achieving 20 years of service, however, get nothing. As a result, four out of five veterans leave the force with no retirement benefits.
5. Perhaps most worrisome, the men and women who have borne the brunt of the fighting in Iraq and Afghanistan—enlisted troops in ground-combat units—are among the least likely to achieve retirement benefits.
6. Transitioning to a 401(k)-type retirement system will expand the military retirement program to cover a far larger percentage of veterans by eliminating the current retirement system’s 20-year cliff vesting structure while containing costs to amounts the country can afford.
7. Much of the cost increase in Tricare can be attributed not to active-duty service members but to military retirees, who paid about 27 percent of their health care costs in 1996 but contribute just 11 percent of these costs today.
8. In order to save $13 billion by FY 2017, the Pentagon has proposed responsible increases in the health care fees paid by military retirees. Even with these increases, however, military retirees will continue to pay just 14 percent of their health care costs.
9. The Defense Department can save up to $15 billion per year—enough to hold Tricare costs steady in the near term—by implementing reforms to reduce the overutilization of services and limit double coverage for working-age retirees in addition to the proposed fee increases.
10. None of these recommendations will affect active-duty service members, who will continue to receive health care at no cost. Nor will they impact lower-income or seriously injured veterans, who receive health coverage through the Department of Veterans Affairs rather than through the Defense Department’s Tricare program.
Personnel costs, former Defense Secretary Robert Gates said, are “eating the Pentagon alive.” Something must be done. Secretary Panetta and the Joint Chiefs of Staff are right to pursue compensation reform to ensure that our military’s pay, health care, and retirement programs are the most effective and affordable in the world.
Lawrence J. Korb is a Senior Fellow at the Center for American Progress. Alex Rothman is a Research Associate and Max Hoffman is a Special Assistant with the National Security and International Policy team at the Center for American Progress.
 As noted above, military retirees make up only a small percentage of veterans. Less than 20 percent of veterans will remain in the force long enough to achieve military retirement benefits.