Military Personnel: DOD Needs to Establish a Strategy and Improve
Transparency over Reserve and National Guard Compensation to
Manage Significant Growth in Cost (20-JUN-07, GAO-07-828).
The Department of Defense (DOD) has increasingly relied on
reserve personnel to carry out its military operations. Congress
and DOD have taken steps to enhance reserve compensation, such as
improving health care benefits. Concerns exist, however, that
rising compensation costs may not be sustainable in the future,
especially given the nation's large and growing long-range fiscal
imbalance. Under the statutory authority of the Comptroller
General to conduct work on his own initiative, GAO (1) reviewed
how much it has cost the federal government to compensate reserve
personnel since fiscal year 2000; (2) assessed the extent to
which DOD's mix of cash, noncash, and deferred compensation has
helped DOD meet its human capital goals; and (3) evaluated the
extent to which DOD's approach to reserve compensation provides
transparency over total cost to the federal government. To
address these objectives, GAO analyzed budget data and relevant
legislation and also interviewed appropriate officials. GAO
focused this review on part-time reservists and full-time, active
guard and reserve.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-828
ACCNO: A71046
TITLE: Military Personnel: DOD Needs to Establish a Strategy and
Improve Transparency over Reserve and National Guard Compensation
to Manage Significant Growth in Cost
DATE: 06/20/2007
SUBJECT: Armed forces reserves
Cost analysis
Financial analysis
Health care costs
Military compensation
Military pay
Military personnel
Military reserve personnel
Performance measures
Salary increases
Strategic planning
Transparency
DOD Selected Reserve Program
Global War on Terrorism
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GAO-07-828
* [1]
* [2]Results in Brief
* [3]Background
* [4]Cost to Compensate Guard and Reserve Personnel Has Increased
* [5]DOD Does Not Know the Extent to Which Its Mix of Compensatio
* [6]Mix of Reserve Compensation Has Shifted to Deferred
Compensa
* [7]DOD Does Not Have an Established Compensation Strategy
and P
* [8]DOD Does Not Have Transparency over Total Costs of Reserve C
* [9]Conclusions
* [10]Recommendations for Executive Action
* [11]Matter for Congressional Consideration
* [12]Agency Comments and Our Evaluation
* [13]Appendix I: Updated Active Duty Compensation Costs
* [14]Appendix II: Scope and Methodology
* [15]Appendix III: Pay and Benefits of the Selected Reserve
* [16]Appendix IV: Comments from the Department of Defense and GAO
* [17]GAO Response to Department of Defense's Technical Comments
* [18]Appendix V: GAO Contact and Staff Acknowledgments
* [19]GAO Contact
* [20]Acknowledgments
* [21]Related GAO Products
* [22]Order by Mail or Phone
Report to Congressional Committees
United States Government Accountability Office
GAO
June 2007
MILITARY PERSONNEL
DOD Needs to Establish a Strategy and Improve Transparency over Reserve
and National Guard Compensation to Manage Significant Growth in Cost
GAO-07-828
Contents
Letter 1
Results in Brief 5
Background 9
Cost to Compensate Guard and Reserve Personnel Has Increased Significantly
Since Fiscal Year 2000 14
DOD Does Not Know the Extent to Which Its Mix of Compensation Is Meeting
Its Human Capital Goals 24
DOD Does Not Have Transparency over Total Costs of Reserve Compensation 30
Conclusions 35
Recommendations for Executive Action 36
Matter for Congressional Consideration 37
Agency Comments and Our Evaluation 37
Appendix I Updated Active Duty Compensation Costs 40
Appendix II Scope and Methodology 43
Appendix III Pay and Benefits of the Selected Reserve 49
Appendix IV Comments from the Department of Defense and GAO's Response 59
GAO Response to Department of Defense's Technical Comments 67
Appendix V GAO Contact and Staff Acknowledgments 72
Related GAO Products 73
Tables
Table 1: Types of Compensation for Servicemembers, as of Fiscal Year 2007
13
Table 2: Summary of Changes in Reserve Compensation Costs for Fiscal Years
2000-2006 20
Table 3: Summary of Changes in Active Duty Compensation Costs for Fiscal
Years 2000 and 2006 41
Figures
Figure 1: Organizational Chart of the National Guard and Reserve 10
Figure 2: Total Compensation Cost of Reserve Components, Fiscal Years
2000-2006 15
Figure 3: Per Capita Costs for Part-Time Reservists by Compensation Type,
Fiscal Years 2000-2006 16
Figure 4: Per Capita Cost for Full-time Reservists by Compensation Type,
Fiscal Years 2000-2006 18
Figure 5: DOD's Estimated Cost to the Government for TRICARE Reserve
Select, Fiscal Years 2005-2013 23
Figure 6: Allocation of Reserve Compensation to Cash, Noncash, and
Deferred Categories in Fiscal Years 2000 and 2006 25
Figure 7: Components of Total Reserve Compensation Costs 32
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United States Government Accountability Office
Washington, DC 20548
June 20, 2007
Congressional Committees
Questions about the adequacy of National Guard and reserve compensation
have been raised as the Department of Defense (DOD) increasingly relies on
reservists to carry out its military operations domestically and abroad.
In 1973, when the U.S. military first transitioned from a draft to an
all-volunteer force, decision makers recognized that military pay needed
to be increased to a level that was generally competitive with the
civilian sector.1 Since then, the amount of military pay and benefits has
progressively increased for both active duty and reserve servicemembers,
although the basic structure of military compensation remains largely
unchanged. DOD provides active duty, guard, and reserve servicemembers
with a compensation package made up of cash, such as pay and allowances;
noncash benefits, such as education assistance and health care; and
deferred compensation, such as retirement pensions and benefits. Guard and
reserve servicemembers are generally eligible for the same pay and
allowance system as their active duty counterparts.2
Since September 2001, the department has called more than 500,000
reservists to active duty in support of the Global War on Terrorism. Given
that there are few indications that the current use of reserve forces will
decline in the near future, DOD and Congress have taken steps to enhance
reserve compensation. For example, Congress expanded health care benefits
to all reservists and their families and authorized regular increases in
basic pay and additional education benefits for mobilized reservists. In
addition, Congress established the Commission on National Guard and
Reserves in the national defense authorization act for fiscal year 20053
to assess various aspects of the reserves, including compensation, and
this commission is expected to address compensation in its final report
due by January 2008.
1The "All-Volunteer pay raise" occurred in 1972, a year before
conscription ended. This pay raise increased enlisted and officer pay. For
example, the pay of an enlisted servicemember at the E-2 pay grade
increased about 87 percent, while pay for an officer at pay grade O-1
increased by about 10 percent.
2There are some differences in compensation between reserve and active
duty servicemembers. For example, reservists and their families do not
always live in close proximity to military bases, which limits their
ability to take advantage of installation-based benefits. In addition,
eligible reservists receive their retirement annuity at age 60, while
eligible active duty servicemembers receive their annuity immediately upon
retirement.
DOD also recently explored the need for changing the military compensation
system when the Secretary of Defense formed an independent advisory
committee to study compensation in 2005.4 Of particular concern to the
department was the growth in entitlement spending for things like health
care and the appropriateness of the mix of in-service and post service
compensation. DOD leaders expressed concern that rising compensation costs
may not be sustainable in the future and could crowd out other important
investments needed to recapitalize equipment and infrastructure.
Similarly, the committee's report stated that the current military
compensation system is inefficient, and made recommendations to modernize
the compensation system and provide greater flexibility for efficient and
effective force management. Specifically, the report made recommendations
to change the retirement system and health benefits.
Similarly, we expressed concerns about whether the country's current
spending trends are both affordable and sustainable in our 2005 report on
the challenges facing the United States in the 21st century.5 Given the
nation's large and growing long-range fiscal imbalance, we believe it is
time for a baseline review of all major federal programs and policies,
including military compensation, to ensure that they are efficiently and
effectively meeting their objectives and are well adapted to 21st century
realities. Many federal programs--such as military compensation--were
designed decades ago to address challenges of prior eras related to labor
markets, security conditions, organizational structures, and compensation
strategies. As a result of the mounting concerns, in 2005 we assessed the
active duty compensation system and made a number of recommendations to
improve the transparency, reasonableness, appropriateness, affordability,
and sustainability of the active duty compensation system.6 We found that
the piecemeal approach to compensation resulted in a lack of transparency
that created an inability to identify total compensation costs and assess
how compensation investments are allocated to cash, noncash, and deferred
compensation. We also reported that the federal government's total cost to
provide active duty compensation was substantial and rising, totaling
about $158 billion, which was about $112,000 per servicemember in fiscal
year 2004. We recently updated these costs and found that in fiscal year
2006 the federal government spent about $173 billion or about $126,000 per
servicemember--an increase of about 32 percent from fiscal year 2000. See
appendix I for more detailed information on active duty compensation costs
and the allocation of those costs to cash, noncash, and deferred
compensation.
3 Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, Pub. L. No. 108-375, S 513 (Oct. 2004).
4Defense Advisory Committee on Military Compensation, The Military
Compensation System: Completing the Transition to an All-Volunteer Force
(Arlington, Va.: Apr. 28, 2006).
5 GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, [23]GAO-05-352T (Washington, D.C.: February 2005).
We recognize that compensation is an important recruiting and retention
tool, particularly during a time of increased military operations, and any
proposed changes must be given careful consideration. In light of the
evolving 21st century realities, under the statutory authority of the
Comptroller General to conduct evaluations on his own initiative, we (1)
identified how much it has cost the federal government to provide cash,
noncash, and deferred benefits to compensate reserve personnel since
fiscal year 2000; (2) assessed the extent to which DOD's mix of cash,
noncash, and deferred compensation has helped DOD meet its human capital
goals; and (3) assessed the extent to which DOD's approach to reserve
compensation provides transparency over total cost to the federal
government.
In conducting this review, we focused our scope on part-time, drilling
reservists, and full-time reservists serving in the Active Guard and
Reserve program of the Selected Reserve.7 We excluded guard and reserve
members who were mobilized8 from our cost estimates, because, once
reservists are mobilized, their compensation costs are paid out of the
active components' budgets. Our review included the years from fiscal year
2000 through fiscal year 2006 to capture costs prior to the increased use
of reservists and changes to compensation policy. To identify how
reservists are compensated and how much it has cost the federal government
to provide cash, noncash, and deferred compensation, we analyzed relevant
regulations, legislation, and budget justification books, and also
interviewed appropriate officials at DOD and the Department of Veterans
Affairs about costs not presented in budgets, such as the accrued costs
for non-Medicare-eligible retirees' health care. In addition, we
calculated the costs of some types of compensation, such as the federal
income tax advantage. To determine per capita costs, we divided the total
cost of the part-time population by an adjusted average strength of the
part-time reservists--which we calculated by subtracting the average
number of mobilized reservists from the average strength for each fiscal
year. For the full-time reservists, we divided their total cost by their
average strength. To assess the extent to which DOD's mix of cash,
noncash, and deferred compensation helped DOD meet its human capital
goals, we reviewed applicable directives, policy, and guidance and
interviewed DOD officials to determine whether the current reserve
compensation system follows those directives, policy, and guidance. We
also reviewed DOD directives and guidance as well as federal government
standards such as the Government Performance and Results Act of 1993. To
assess the extent to which DOD's approach provided transparency over total
costs to the federal government, we reviewed applicable directives,
policy, and guidance and interviewed DOD officials to determine whether
the current reserve compensation system follows those directives, policy,
and guidance. We reviewed how compensation costs are presented to decision
makers. To update our previous work on the cost to the federal government
of compensating active duty servicemembers, we (1) interviewed appropriate
officials, (2) analyzed and compiled data for fiscal years 2000 through
2006 from military personnel and operations and maintenance budget
justification books, (3) estimated the total federal tax expenditure for
military compensation and the costs of future veterans' benefits for
current active duty servicemembers, and (4) requested estimates of accrual
health care costs for retirees and their dependents from DOD's Office of
the Actuary and health care costs for active duty servicemembers and their
dependents from DOD's Office of Health Affairs. We conducted our review
from October 2006 through May 2007 in accordance with generally accepted
government auditing standards. More detailed information on our scope and
methodology is provided in appendix II.
6 GAO, Military Personnel: DOD Needs to Improve the Transparency and
Reassess the Reasonableness, Appropriateness, Affordability, and
Sustainability of Its Military Compensation System, [24]GAO-05-798
(Washington, D.C.: July 19, 2005).
7 DOD's Selected Reserve is made up of members from the Army Reserve, Army
National Guard, Air Force Reserve, Air National Guard, Marine Corps
Reserve, and Navy Reserve. We did not include the Coast Guard Reserve. The
Selected Reserve is the first category of the reserves that is subject to
recall to active duty to augment the active component in time of war or
national emergency. For this reason, the Selected Reserve has priority for
training, equipment, and personnel over all other categories of
reservists. The Selected Reserve consists of units and individuals that
serve on an "active reserve" status. Unlike other categories of the
reserves, part-time Selected Reservists are required to maintain readiness
through scheduled drilling and training, usually 1 weekend a month and 2
weeks a year. Full-time Selected Reservists serve as full-time
administration and support staff to the various reserve components.
8 Mobilization is the process by which the armed forces are brought into a
state of readiness for war or national emergency or to support some other
operational mission. In this report, we use the term mobilization to refer
to the process of calling up reserve components for active-duty service.
We use the term mobilized reservist to refer to a reservist who has
received orders to active duty.
Results in Brief
The total cost to the federal government to provide compensation for
part-time and full-time reservists has risen about 47 percent, from about
$13.9 billion in fiscal year 2000 to about $20.5 billion in fiscal year
2006 in constant fiscal year 2006 dollars. 9 Most reservists are part
time, and their per capita total cost, including cash, noncash, and
deferred compensation, almost doubled, from about $10,100 in fiscal year
2000 to about $19,100 in fiscal year 2006. In addition to part-time
reservists, the reserve workforce includes a small percentage of
reservists who work full time, and their per capita total compensation
cost increased 28 percent, from about $90,100 in fiscal year 2000 to about
$115,200 in fiscal year 2006.10 Much of this growth can be attributed to
the cost to provide reservists with deferred compensation. From fiscal
year 2000 to fiscal year 2006, deferred compensation costs more than
tripled, increasing from $1.7 billion to $5.8 billion. This growth is
largely attributed to additional health care benefits that have been
provided for future reserve retirees and their families. For example,
Congress enhanced retirees' health care benefits in fiscal year 2001 by
adding health care benefits for life. These increases in cost are mainly
driven by entitlements that are unlikely to subside at the end of the
ongoing military operations in Iraq and Afghanistan. For example, DOD
officials anticipate significant future growth in the cost of noncash
compensation as a result of the recent expansion of health care benefits
for reservists and their families, which will provide continuation of
health coverage as reservists transition on and off of active duty.
9 Unless noted, all costs have been adjusted for inflation and are
presented in fiscal year 2006 constant dollars. To calculate the costs in
constant dollars, we used an official DOD source, the National Defense
Budget Estimates for fiscal year 2007, published by the Office of the
Under Secretary of Defense (Comptroller), for military pay deflators or
price indices. There are several other potential price indices or
deflators that could be used to adjust for inflation. Using the other
indices would have shown a similar or larger increase in real spending for
compensation.
10 The per capita costs of full-time reservists are slightly lower than
the per capita costs for active duty servicemembers, as shown in appendix
I. This is because some costs are not associated with full-time
reservists, such as accrual costs for veterans' benefits or costs for
installation-based benefits, such as exchanges and family support
programs.
DOD does not know the extent to which its mix of cash, noncash, and
deferred compensation is meeting its human capital goals of recruiting and
retaining a high-quality force, in part, because it lacks an established
compensation strategy and performance measures to identify the appropriate
mix of reserve compensation needed to maintain its force. The mix of
reserve compensation has shifted toward more deferred benefits, increasing
from 12 percent of total reserve compensation in fiscal year 2000 to 28
percent in fiscal year 2006. This increase in deferred compensation may
not provide the most efficient allocation or the best return on the
compensation investment. Studies indicate cash is not only preferred to
noncash and deferred compensation, but it is also a more efficient
recruiting and retention tool for active duty servicemembers. 11
Furthermore, fewer than one in four part-time reservists will receive
these costly deferred benefits, given that about 24 percent of those who
join the guard and reserve will ultimately earn nondisability retirement
pay and health care for life. We have previously found that programs, such
as compensation systems, need performance measures and goals to guide
decision makers and program policy.12 In addition, DOD's personnel and
readiness strategic plan states the importance of identifying requirements
and tailoring compensation and other programs to achieve objectives and of
continuously reviewing personnel management.13 In 1979 and again in 2005,
we identified DOD's lack of a compensation strategy as a problem in
establishing a basis for evaluating changes to the total compensation
system.14 Moreover, the situation today is further complicated by the
frequency of mobilizations in support of the ongoing operations and the
components' recent recruiting challenges. Congress and DOD have taken a
piecemeal approach to military compensation by adding various
benefits--such as health care--and cash--such as bonuses and increases to
basic pay--to address current recruiting problems and to take care of
servicemembers over their lifetime. Furthermore, they have not adequately
considered the appropriateness, affordability, and sustainability of the
related cost of these additions. Determining the return on investment for
compensation and the impact of compensation on recruiting and retention is
not an easy task. However, given that reserve compensation is becoming
increasingly costly, DOD does not know if the additions to the
compensation system are appropriate to ensure that the reserve components
recruit and retain a high-quality workforce in sufficient numbers and the
federal government has the best return on investment. DOD officials have
stated during testimony before Congress that adding deferred compensation,
such as TRICARE for life, is not their preference. However, until DOD
establishes a strategy for its compensation system and develops
performance measures to evaluate the efficiency of compensation tools, DOD
and Congress will be unable to make informed decisions about which
compensation tools and mix will provide the best return on investment, be
sustainable in the long-term, and be effective in recruiting and retaining
the future reserve force.
11 John T. Warner and Saul Pleeter, "The Personal Discount Rate: Evidence
from Military Downsizing Programs," The American Economic Review (Mar.
2001); Defense Advisory Committee on Military Compensation, The Military
Compensation System: Completing the Transition to an All-Volunteer Force,
(Arlington, Va.: Apr. 28, 2006); DOD, 9th Quadrennial Review of Military
Compensation vol I (Washington, D.C.: May 17, 2002); and Commission on the
National Guard and Reserves, Strengthening America's Defenses in the New
Security Environment (Mar. 1, 2007).
12 GAO, A Model of Strategic Human Capital Management, [25]GAO-02-373SP
(Washington, D.C.: Mar. 15, 2002).
DOD's approach to reserve compensation does not provide decision makers in
Congress and DOD with adequate transparency over total cost for providing
reserve compensation--including the allocation of costs to cash, noncash,
and deferred compensation and the total cost of mobilized reservists.
Despite the fact that sound business practices require adequate
transparency over investments of resources, there is no single source that
provides the total cost for reserve compensation. We have also previously
reported there is not a single source for active duty compensation costs.
In fact, reserve compensation costs are found in three different federal
departments--DOD, the Department of Veterans Affairs, and the Department
of Treasury. Furthermore, within DOD, compensation costs are found in
three different budgets--the reserve components' military personnel,
active components' military personnel, and active components' operation
and maintenance. For example, specific types of compensation, such as
basic pay and health care, are located in different budgets, making it
difficult for decision makers to see the full cost of all the sources of
compensation provided to reservists. In addition, reservists who were
mobilized to support the war on terrorism have been paid out of the active
components' budgets through supplemental funding during the mobilization,
which further dilutes decision makers' ability to see the full picture of
the cost of reserve compensation to the federal government. DOD is taking
measures to address some of these problems. For example, DOD and the
services are in the process of implementing a system, known as the Defense
Integrated Military Human Resources System, to consolidate their personnel
and pay systems. This consolidation may improve transparency by
integrating all human resource information for active, guard, and reserve
personnel of all the services; however, we have recently reported that
this task is proving to be difficult to complete because each service has
unique requirements. 15 Nevertheless, DOD has no plans to compile into one
place, that is readily accessible, the total cost for reserve personnel
compensation, including mobilized reservists, and the allocation of these
costs among cash, noncash, and deferred compensation. Such a compilation
could enable decision makers to accurately assess these costs and to
manage the total force as well as efficiently and effectively make
fact-based human capital adjustments. Until total cost for reserve
compensation is compiled in a transparent and easily accessible manner,
decision makers will be unable to determine the affordability and
efficiency of the reserve compensation system. This is especially
important given the growing fiscal challenges the country faces.
13 Under Secretary of Defense for Personnel and Readiness (OUSD--P&R),
Strategic Plan, FY2006-2011.
14 GAO, Military Personnel: DOD Needs to Improve the Transparency and
Reassess the Reasonableness, Appropriateness, Affordability, and
Sustainability of Its Military Compensation System, [26]GAO-05-798
(Washington, D.C.: July 19, 2005); The Congress Should Act to Establish
Military Compensation Principles, [27]GAO/FPCD-79-11 (Washington, D.C.:
May 9, 1979).
We are recommending that DOD take steps to assess the appropriateness of
the reserve compensation system and to improve transparency over total
reserve compensation costs. In commenting on a draft of this report, DOD
partially concurred with our recommendations. In response to our specific
recommendation to develop a compensation strategy and performance
measures, the department partially concurred and described several steps
that it had taken including chartering an independent commission to review
military compensation. In addition, the department noted that it has
primarily sought cash compensation in recent years, and that the increases
in deferred compensation were not sought by DOD. In response to our
recommendation to improve transparency, DOD felt that the Office of
Management and Budget could more appropriately address this recommendation
because it has visibility over all parts of the budget. We continue to
believe that DOD needs an explicit compensation strategy and performance
measures to better position the department to make business case arguments
for or against changes to the compensation system, and provide fact-based
evidence regarding the efficiency of the allocation of cash, noncash, and
deferred compensation. We also continue to believe that DOD is in the best
position to exercise ownership over total compensation costs and,
accordingly, should compile and present total compensation costs as part
of its budget submission. In addition, the department provided several
technical comments which we have incorporated where appropriate. DOD asked
that we include these technical comments in our report, and our response
to them is shown in appendix IV.
15 GAO, Defense Business Transformation: A Comprehensive Plan, Integrated
Efforts, and Sustained Leadership are Needed to Assure Success,
[28]GAO-07-229T (Washington, D.C.: Nov. 16, 2006); and DOD Systems
Modernization: Management of Integrated Military Human Capital Program
Needs Additional Improvements, [29]GAO-05-189 (Washington, D.C.: Feb. 11,
2005).
Background
DOD's National Guard and reserve personnel are assigned to the Ready
Reserve, Standby Reserve, or Retired Reserve.16 At the end of fiscal year
2006, DOD had approximately 1.1 million guard and reserve members in the
Ready Reserve. The Ready Reserve is comprised of military members of the
National Guard and reserve, organized in units, or as individuals, who are
subject to recall for active duty to augment the active component in time
of war or national emergency. Figure 1 shows the three subcategories that
exist within the Ready Reserve: the Selected Reserve, the Individual Ready
Reserve, and the Inactive National Guard.
16 We did not include the Standby or Retired Reserve in our study. The
Standby Reserve are not required to perform training, and are not part of
units, but make up a pool of trained individuals who could be mobilized if
necessary to fill needs in specific skills. These reservists are either on
active or inactive status. Active status refers to those temporarily
assigned for hardship or other cogent reasons, those not having fulfilled
their military service obligation or those retained in active status when
provided for by law, or those members of Congress and others identified by
their employers as "key personnel" and who have been removed from the
Ready Reserve because they are critical to the national security in their
civilian employment. The Inactive Status List is comprised of those
reservists who are not required by law or regulation to remain in an
active program and who retain their reserve affiliation in a
nonparticipating status, and those who have skills which may be of
possible future use. The Retired Reserve consists of all reserve officers
and enlisted personnel who receive or are eligible for retired pay on the
basis of active duty or reserve service.
Figure 1: Organizational Chart of the National Guard and Reserve
As of fiscal year 2006, the Selected Reserve had a total of about 826,000
members. The Selected Reserve largely consists of units and individuals
designated by their respective services that serve in an "active drilling"
status. These units and individuals are required to maintain readiness
through scheduled drilling and active duty for training, usually 1 weekend
a month and 2 weeks a year. They also have priority for training,
equipment, and personnel over all other categories of reservists. From
fiscal years 2000 through 2006, about 9 percent of the Selected Reserve
average strength served in the Active Guard and Reserve program as
full-time reservists. These full-time reservists perform duties associated
with organizing, administering, recruiting, instructing, or training the
various reserve components. The Individual Ready Reserve and the Inactive
National Guard do not currently have these drilling and training
requirements according to DOD policy and are comprised principally of
individuals who have had training, previously served in the active
component or in the Selected Reserve, or have some period of their
military service obligation remaining.17 These members may voluntarily
participate in training for retirement points and promotion with or
without pay.
17 Within the Inactive National Guard, Army National Guard personnel in an
inactive status not in the Selected Reserve will mobilize with their units
if they are attached to a specific National Guard unit but do not
participate in training activities. In order for these personnel to remain
members of the Inactive National Guard they must muster once a year with
their assigned unit.
DOD's selected reservists serve in one of six reserve components: the Army
National Guard, the Army Reserve, the Navy Reserve, the Air National
Guard, the Air Force Reserve, and the Marine Corps Reserve. The Army
National Guard and the Air National Guard comprise what is known as the
National Guard. The National Guard is unique in that it has dual missions,
both federal and state; when not in federal service, it is available for
use by the governor as provided by the U.S. Constitution and laws of the
state. The National Guard is the only military force immediately available
to a governor in times of emergency, including civil unrest and natural or
manmade disasters. Under state law, the National Guard provides protection
of life and property and preserves peace, order, and public safety.
Since the end of the Cold War, the roles and contributions of the reserve
force have changed. In the post-World War II era, DOD's reserve operated
primarily as a strategic force--a force management tool that was rarely
activated. For example, from 1945 to 1989, reservists were called to
active duty as part of a mobilization by the federal government only four
times, an average of less than once per decade. Since 1990, reservists
have been mobilized by the federal government six times, an average of
nearly once every 3 years. Additionally, since September 11, 2001, reserve
forces have been used extensively to support the Global War on Terrorism.
In fact, about 500,000 reservists have been mobilized, primarily for
contingency operations in Afghanistan and Iraq. As a result of the change
in use, reserve units are becoming more integrated into military
operations, calling for a new relational model between the active and
reserve components, which changes the nature of reserve service to an
operational role for the reserve components and requires more frequent
mobilizations as well as incorporation into the total force.
To attract and retain sufficient numbers and quality of guard and reserve
personnel, DOD provides reserve personnel with a mix of cash, noncash, and
deferred compensation based on duty status. When in part-time drilling
status, reservists receive cash compensation or basic pay on a prorated
basis as well as other cash incentives, such as retention bonuses or
special pays for proficiency in an area.18 Part-time reservists are also
entitled to noncash benefits, such as unlimited access to commissaries, a
premium-based health care benefit for reservists and their dependents, and
educational benefits. Lastly, part-time reservists who become retirement
eligible qualify for retirement benefits including a pension, health care
for life, and access to installation-based benefits such as exchanges. The
key difference in deferred benefits between active duty servicemembers and
part-time reservists is when they become eligible to receive these
benefits. For example, a part-time reservist becomes eligible for a
retirement annuity at age 60; in contrast, active duty servicemembers
become eligible for retirement benefits at any age after completing a
minimum of 20 years of service.
Reservists activated for contingency operations are eligible to receive
the same compensation and benefits as active duty personnel including
regular military compensation--basic pay, housing and subsistence
allowances, and the federal tax advantage19--depending on their pay grade
and years of service--and special and incentive pays. In addition,
mobilized reservists are eligible for full health care benefits for
themselves and their dependents. Table 1 illustrates this mix and compares
it to the compensation provided to active duty servicemembers. In
addition, appendix III contains more details about the compensation
available for reserve personnel.
18 Part-time reservists' cash compensation--basic pay and special pays--is
based on the 1/30th rule. That is, the member is entitled to 1/30th of the
monthly pay for each day of duty or period of inactive duty.
19 Allowances for housing and subsistence are not taxed. In addition,
servicemembers who serve 1 day in a combat zone are eligible to exclude,
for tax purposes, all of their pay and allowances earned for the month.
Officers' tax exclusion is limited to the highest amount earned by
enlisted personnel plus hostile fire and imminent danger pay.
Table 1: Types of Compensation for Servicemembers, as of Fiscal Year 2007
Reserve
full-time
Reserve part-time in support
drill/annual Active
training (AGR) component
Basic pay X X X
Housing allowance a X X
Subsistence allowance b X X
Subsistence in kind X X X
Special and incentive pays X X X
Bonuses X X X
Clothing allowance X X X
Permanent change of station X X
travel
Tax advantage (housing and c X X
subsistence allowances are
nontaxable)
TRICARE (health care) X X
TRICARE Reserve Select Xd
TRICARE Dental X d X X
Veterans Affairs life insurance X X X
Montgomery GI Bill (education X X X
benefit)e
Tuition assistance X X X
Student loan repayment X X X
Veterans Affairs home loan Xf X X
Commissaries and exchanges X X X
Morale, welfare, and recreation Space availableg X X
services
Family support centers Space available X X
Child care centers Space available X X
Legal assistance Space available X X
Retirement X X X
Veterans Affairs health careh X X X
Disability retirement or X X X
separationi
Source: GAO analysis.
a The member is entitled to a housing allowance for annual training, but
the rate is provided under Basic Allowance for Housing/Reserve Component.
In addition, if the annual training period is 31 days or more, then the
member would receive a housing allowance.
b Part-time enlisted personnel may receive rations-in-kind while drilling.
During annual training, reservists receive a subsistence allowance.
c Reservists receive the tax advantage while on annual or active duty
training.
d Reservists are eligible to enroll for TRICARE Reserve Select and TRICARE
Dental Plan for a monthly premium; see appendix III for more details.
eThe Department of Veterans Affairs administers this educational benefit;
however, the services are responsible for the cost of the benefit.
f Eligibility determined by 2 years of active duty service, not less than
90 days mobilized, or 6 years of reserve service.
g Although eligible, the commander can set priority for active duty
servicemembers if the facilities or services can not handle the demand.
h Member qualifies based on service in active military or mobilization.
i Servicemembers may qualify for both DOD and Veterans Affairs disability
retirement.
Cost to Compensate Guard and Reserve Personnel Has Increased Significantly Since
Fiscal Year 2000
The total cost to the federal government to compensate both part-time and
full-time National Guard and reserve personnel increased significantly,
about 47 percent, from fiscal year 2000 to fiscal year 2006. The cost
increased from about $13.9 billion in fiscal year 2000 to about $20.5
billion in fiscal year 2006, as shown in figure 2. This cost includes (1)
cash compensation, such as basic pay and other allowances; (2) noncash
compensation, such as education assistance and health care; and (3)
deferred compensation, that is, benefits that promise future compensation
like retirement pay and health care. However, this cost does not include
all compensation, such as accrual costs for veterans' benefits.20
20 Veterans' benefits include health care, compensation and pension,
education and training, vocational rehabilitation, home loans, life
insurance, burial benefits, and dependents' and survivors' benefits.
Reservists who have served honorably on active duty establish veteran
status and may therefore be eligible for veterans' benefits including
health care and monthly compensation, depending on the length of active
military service and other eligibility factors. In addition, reservists
who are never called to active duty may qualify for some veterans'
benefits such as education, home loan guaranty, vocational rehabilitation,
disability pension, and life insurance. In the absence of a formal
actuarial model, we were unable to determine the deferred or accrual costs
for reservists' benefits provided by the Department of Veterans Affairs.
Furthermore, the Veterans Affairs budget does not distinguish between
active and reserve cost, which prevented us from associating current
noncash costs for programs such as vocational rehabilitation and
disability pension with reserve compensation. In addition, we decided to
associate all installation-based noncash benefits (such as commissaries
and morale, welfare, and recreation centers) with the active components'
compensation costs although reservists are eligible to take advantage of
those benefits. As a result, our compensation cost for reserve and guard
personnel is likely understated.
Figure 2: Total Compensation Cost of Reserve Components, Fiscal Years
2000-2006
Over this same time period, the per capita cost to the federal government
for part-time drilling reservists21 almost doubled, from about $10,100 in
fiscal year 2000 to about $19,100 in fiscal year 2006, as shown in figure
3. This per capita cost is an average of what it cost the government to
compensate servicemembers; it is not what the servicemembers "receive in
their paycheck." Servicemembers' individual cash compensation will vary
significantly depending on individual pay grade and other factors such as
years of service or if the servicemember has dependents. The compensation
cost does not include all of the cost needed to support additional
servicemembers, because it does not include those costs associated with
recruiting and training personnel.
21 Part-time, drilling, reservists refer to reserve and National Guard
personnel who drill 1 weekend a month and participate in active duty
training for 2 weeks a year. These personnel are referred to as pay groups
A and B in the services budget justification books, and they also may
participate in special and school training, such as operational,
refresher, and proficiency training. In addition, we included pay groups F
and P in our calculations.
Figure 3: Per Capita Costs for Part-Time Reservists by Compensation Type,
Fiscal Years 2000-2006
This increase in per capita cost occurred during a time when the average
strength of part-time drilling reservists declined by about 6 percent,
from about 746,400 reservists in fiscal year 2000 to 699,800 reservists in
fiscal year 2006. This decline in the average number of part-time
personnel may be attributed to many factors, such as the Navy's
restructuring of its force, as part of its Active-Reserve Integration
process, which reduced the number of part-time reservists. Moreover, Army
National Guard and Army Reserve officials attributed the decline in
average strength to their recruiting difficulties.
In addition to part-time reservists, about 9 percent of reservists work
full-time, and their per capita cost to the federal government also
increased, as shown in figure 4, from about $90,100 in fiscal year 2000 to
about $115,200 in fiscal year 2006, about 28 percent.22 Although full-time
reservists are eligible to receive the same compensation as active duty
servicemembers, the per capita cost for compensation presented here is
less than the per capita cost for an active duty servicemember. This is
because some costs were not associated with the full-time reservists, such
as accrual costs for veterans' benefits or costs for installation-based
benefits, such as exchanges and family support programs. This increase is
similar to the trends in active duty per capita compensation cost (see
app. I for similar data on active duty servicemembers' compensation cost).
Unlike their part-time counterparts, the full-time reservists' average
strength increased by about 9 percent during this time period, increasing
from about 64,500 in fiscal year 2000 to 70,300 in fiscal year 2006.23
22 Full-time reserve and National Guard personnel are referred to as
"Administration and Support" in the budget justification books, but are
referred to as active guard and reserve (AGR) or full-time support (FTS)
by some services. These Selected Reservists are on active duty or
full-time National Guard duty to organize, administer, recruit, instruct,
and train reserve component members.
23 The percentage of full-time reservists varies by component. For
example, in fiscal year 2006 the Navy Reserve and the Air National Guard
had the highest percentage of full-time reservists, about 12 and 18
percent, respectively; while the Air Force Reserve and Marine Corps
Reserve had the lowest percentage, about 3 and 6 percent, respectively.
Figure 4: Per Capita Cost for Full-time Reservists by Compensation Type,
Fiscal Years 2000-2006
The growth in reserve compensation overall is primarily attributed to
increases in deferred compensation, although cash and noncash compensation
also increased.
o Deferred compensation represents more of overall reserve
compensation costs in fiscal year 2006--increasing from 12 percent
in fiscal year 2000 to 28 percent in fiscal year 2006.
Specifically, deferred compensation more than tripled, increasing
from 1.7 billion in fiscal year 2000 to 5.8 billion in fiscal year
2006. This increase was largely due to the increase in new health
care benefits for the Medicare-eligible population, known as
TRICARE for Life.24 Further, DOD estimates that TRICARE for Life
represented 48 percent of the increase in DOD's spending on health
care from fiscal years 2000 through 2005.25 Retirement pay
accrual26 also contributed to the growth in deferred compensation,
and its increase was a result of across-the-board increases in the
basic pay rate. Additionally, in fiscal year 2004 Congress
enhanced disability retirement benefits to allow concurrent
receipt--simultaneous payment--of DOD retirement pay and
Department of Veterans Affairs disability benefits. Prior to this
enhancement, retirees had to decide whether to receive DOD's full,
but generally taxable, retirement pay or receive the nontaxable
veteran's disability pay, which would reduce or offset
dollar-for-dollar DOD's retirement pay. As a result of this
expansion of benefits, the Treasury Department, through general
revenues, was required to cover the additional military retirement
cost of providing concurrent receipt, which was about $251 million
in fiscal year 2006.
o Noncash benefits also increased--about 29 percent--primarily due
to increased costs for full-time reservists' health care benefits
and expanded health care benefits for part-time reservists and
their families.27 Since fiscal year 2000, noncash benefits have
represented about 11 percent of overall compensation costs.
o Cash compensation, including basic pay and enlistment and
reenlistment bonuses, increased about 19 percent between fiscal
years 2000 and 2006. This increase is largely a result of
across-the-board increases in basic pay. In addition, the reserve
components also experienced significant growth in the reserve
incentive program. Specifically, the costs of reenlistment bonuses
increased over 1000 percent, rising from about $36 million in
fiscal year 2000 to almost half a billion dollars in fiscal year
2006. Cash compensation decreased from 76 percent of overall
compensation costs in fiscal year 2000 to 61 percent of cost in
fiscal year 2006.
24 In fiscal year 2001, Congress expanded retiree health care coverage to
supplement Medicare.
25GAO, DOD's 21st Century Health Care Spending Challenges,
[30]GAO-07-766CG (Washington, D.C.: Apr. 18, 2007).
26An accrual cost is an estimated future cost for current servicemembers
to receive an entitled benefit. Accrual accounting methods are used to
calculate retirement and disability pay and retirement health care
benefits.
27Costs for the Reserve Officers' Training Corps and Junior Reserve
Officers' Training Corps were included in the reserve components budget in
fiscal year 2000. In fiscal year 2006, these costs were moved to the
active components budget and slightly offset the growth of noncash and
cash benefits.
Table 2 provides a detailed list of the components of reserve compensation
and how they have changed from fiscal year 2000 to fiscal year 2006.
Table 2: Summary of Changes in Reserve Compensation Costs for Fiscal Years
2000-2006
Fiscal year 2006
constant dollars
Percentage of total
Components of Fiscal Fiscal Percentage compensation (Fiscal
compensation year 2000 year 2006 change year 2006)
Cash Compensation (in
billions)
Part-Time
Annual & inactive duty $4.7 $4.2
training pay
School and special 1.5 2.0
training pay
Other special program .2 .1
paya
Reserve incentive .1 .9
programs
Full-Time
Pay & allowance 4.5 5.7
Subsistence allowance .04 .04
Tax expenditure .3 .4
Reserve incentive .002 .02
programs
Otherb .04 .02
Total cash 10.5 12.5 18.8 61
Noncash benefits (in
billions)
Part-Time
Education .2 .5
Subsistence-in-kind .1 .08
Clothing & uniforms .3 .2
Health care -- .03
Travel .5 .4
Full-Time
Subsistence-in-kind .003 .0002
Clothing & uniforms .009 .005
Health care .5 .7
Otherc .1 .2
Total noncash 1.7 2.2 29.1 11
Deferred benefits (in
billions)
Part-Time
Retired pay accrual .5 .9
Department of the -- .07
Treasury
Retired health care .09 2.7
accrual
Full-Time
Retired pay accrual .8 1.0
Department of the -- .2
Treasury
Retired health care .3 .8
accrual
Total deferred 1.7 5.8 245.6 28
Total compensation (in $13.9 $20.5 47.0
billions)
Total part-time per $10,100 $19,100 88.5
capita
Total full-time per $90,100 $115,200 27.8
capita
Source: GAO analysis of DOD data.
Note: Numbers may not total due to rounding.
aIncludes Reserve Officers' Training Corps, Health Professions Scholarship
program, Medical Financial Assistance program, Platoon Leaders Class,
Branch Officers Basic Course, Nurse Candidate Bonus Program, and Chaplain
Candidate program.
bIncludes $30,000 lump sum bonus and transition benefits.
cIncludes travel, death gratuities, disability and hospitalization
benefits, adoption expenses, and federal workplace transportation subsidy.
In addition to calculating reserve compensation cost, we also updated our
previous work on active duty compensation costs and found those costs have
also increased, rising from about $131.7 billion to $173.2 billion (32
percent) from fiscal year 2000 to fiscal year 2006. Cash compensation
accounted for 48 percent of total active duty compensation costs, while
noncash and deferred compensation accounted for 21 and 31 percent,
respectively. In fiscal year 2006, it cost the federal government more
than $126,000, on average, to provide annual compensation to active duty
servicemembers.28 See appendix I for more information on active duty
compensation cost. When taken together, active and reserve compensation
costs have grown markedly since 2000, and these costs may not be
sustainable within the context of DOD's total budgetary needs and the
nation's increasing fiscal imbalance. Total military compensation for the
active and reserve components increased from about $147 billion in fiscal
year 2000 to $195 billion in fiscal year 2006--about 33 percent.
Much of these increases in compensation costs are not directly driven by
ongoing operations in Iraq and Afghanistan and, as a result, it is not
anticipated that the costs will significantly recede after the operations
in Iraq and Afghanistan subside. While some of the costs are directly
related to the ongoing operations--such as the pay for mobilized
reservists and enlistment and reenlistment bonuses--most of the
significant increases were made to basic pay and deferred compensation,
such as retirement pay and health care for retirees, which will not recede
after ongoing operations are ended. An example of a recently expanded
noncash compensation benefit that will not recede after the ongoing
military operations are completed is the premium-based health care benefit
for reservists and their dependents known as TRICARE Reserve Select. This
benefit will provide a continuation of health coverage as National Guard
and reserve personnel transition on and off of active duty. DOD officials
anticipate that TRICARE Reserve Select will result in significant future
growth in the cost of noncash compensation.29 According to DOD estimates,
the cost for this new health care benefit will increase dramatically in
fiscal year 2008 to about $381 million, and will continue to increase to
about $874 million, about $1,100 per capita, by fiscal year 2013, as shown
in figure 5. DOD estimates that it may be a few years before a significant
number of reservists enroll in the program. However, if enrollment numbers
prove higher than DOD estimated, the cost for TRICARE Reserve Select may
be higher than currently projected. In addition, DOD predicts that the
cost for health care will consume more than 12 percent of its total budget
by fiscal year 2015, compared to 7.5 percent in fiscal year 2005. As a
result, service officials have commented that the only way to control
personnel costs may be to reduce the number of personnel.
28According to DOD, about 95,000 mobilized reservists were paid out of
active duty cash compensation costs in fiscal year 2006. Our active duty
per capita cost estimates do not take these mobilized reservists into
account, because our per capita costs are based on active duty end
strength. If you considered these reservists, the average costs to provide
compensation would be lower.
29In the National Defense Authorization Act for Fiscal Year 2004, Congress
established TRICARE health care coverage for unemployed reservists or
those ineligible for health care coverage from their civilian employer.
However, this provision was not implemented by DOD. The Ronald W. Reagan
National Defense Authorization Act for Fiscal Year 2005 included
provisions for reservists to receive 1 year of TRICARE standard for each
period of 90 consecutive days served in a contingency operation given that
the reservists signed a commitment to serve continuously in the Selected
Reserve during the covered period. When implemented by DOD, the program
was called TRICARE Reserve Select. The National Defense Authorization Act
for Fiscal Year 2006 enhanced this coverage by creating a three-tier
system of eligibility, based on the percentage of co-pay. See appendix III
for further details. The John Warner National Defense Authorization Act
for Fiscal Year 2007 further expanded the program to give access to the
benefit to all Selected Reservists and eliminated the tiered eligibility
system. TRICARE Reserve Select is scheduled to be implemented in October
2007.
Figure 5: DOD's Estimated Cost to the Government for TRICARE Reserve
Select, Fiscal Years 2005-2013
Moreover, total compensation costs for reservists will likely increase
after contingency operations subside. According to DOD officials, after
contingency operations end, the number of drills executed is expected to
increase. Since fiscal year 2001, the number of executed drills and
training decreased for part-time reservists. This decrease is, in part,
due to the increased number of reservists called to active duty, which has
left fewer reservists and units available to do their required drills.
Although this may not have an impact on the per capita costs of reserve
compensation, it would drive up overall costs to compensate more part-time
reservists.
DOD Does Not Know the Extent to Which Its Mix of Compensation Is Meeting Its
Human Capital Goals
DOD does not know the extent to which its mix of cash, noncash, and
deferred compensation is meeting its human capital goals of recruiting and
retaining personnel. DOD's and Congress' piecemeal approach to reserve
compensation has created a mix of compensation that has shifted toward
more deferred compensation, even though this may not be an efficient use
of resources. In addition, DOD is unable to gauge the efficiency and
effectiveness of the mix of reserve compensation and its compensation
tools because it lacks a compensation strategy and performance measures to
assess its mix of compensation.
Mix of Reserve Compensation Has Shifted to Deferred Compensation, Which May Not
Enable DOD to Meet Key Human Capital Goals of Recruiting and Retention
DOD and Congress have reacted to the current environment to address
recruiting and retention problems by adding compensation. However, these
efforts have been done in a piecemeal fashion that has shifted the mix of
reserve compensation toward more deferred benefits, even though this may
not be the most efficient allocation of compensation to enable DOD to meet
its recruiting and retention human capital goals. Significant increases in
the frequency and length of mobilizations to Iraq and Afghanistan have led
to reservists being separated from their families for longer periods and
potentially experiencing interruptions in their civilian careers. In fact,
a recent memorandum from the Secretary of Defense indicates that
reservists should expect to be mobilized on a regular cycle--with a goal
of 1 year mobilized followed by 5 years nonmobilized. This change in
utilization of reservists and the components' recent recruiting and
retention challenges have corresponded with Congress and DOD adding
various benefits and types of pay to address recruiting problems in some
reserve components and to take care of servicemembers over their lifetime.
For example, the cost of the reserve incentive program, which primarily
provides discretionary cash bonuses for enlistment and reenlistment,
increased more than 1,000 percent from fiscal year 2000 to fiscal year
2006. According to service officials, this increase was to address
potential recruiting shortfalls.
The resulting complex accumulation of pays and benefits has shifted the
mix of reserve compensation toward deferred compensation--that is, the
promise of future compensation like retirement pay and health care. Figure
6 shows an increase in deferred compensation from 12 percent of total
reserve compensation in fiscal year 2000 to 28 percent in fiscal year
2006. This shift to deferred compensation has also been observed for
active duty compensation costs. See appendix I for more information on the
active component's compensation costs. Deferred compensation affects the
current cost of compensation because funds must be set aside today to
provide these benefits in the future, over the reservist's lifetime.
Figure 6: Allocation of Reserve Compensation to Cash, Noncash, and
Deferred Categories in Fiscal Years 2000 and 2006
While DOD and Congress have added pays and benefits over the past 6 years,
it is questionable whether there was consideration of the appropriateness
of the changes, including how the changes compared to compensation in the
civilian sector, what the efficiency and return of these changes would be
in terms of meeting the department's human capital goals of recruiting and
retention, or whether the compensation changes were affordable and
sustainable over the long term. DOD defines efficiency of its compensation
system as paying no higher or lower than necessary to fulfill the basic
objective of attracting, retaining, and motivating the kinds and numbers
of servicemembers needed.30 However, this increase in deferred
compensation is not necessarily the most efficient allocation, nor does it
provide the best return on the compensation investment. In fact, DOD does
not know the most efficient allocation of compensation needed to meet its
recruiting and retention goals because it has not evaluated reserve
compensation to determine the appropriate mix of compensation to attract
and retain sufficient numbers of qualified personnel. Although the
efficiency of noncash and deferred compensation is difficult to assess
because the value servicemembers place on them is highly individualized,
studies indicate cash compensation is not only preferred to noncash and
deferred compensation, but it is also a more efficient recruiting and
retention tool for active duty servicemembers. In our 2005 report on
active duty compensation, we stated that it is generally accepted that
some deferred benefits, such as retirement, are not valued as highly by
servicemembers as current cash compensation.31 Cash pay today is a far
more efficient tool than future cash or benefits for the recruiting and
retention of active duty personnel. For example, a study assessing the
military draw down in the early 1990s found that when active duty
servicemembers were offered a choice of lump-sum cash payments or
annuities, a vast majority selected the lump-sum payment, even though it
had considerably less net present value.32 This preference for cash
compensation has a profound impact on the efficiency of DOD's compensation
system, especially considering that fewer than one in four part-time
reservists will receive these costly deferred benefits. 33 More
specifically, about 24 percent of those who join the guard and reserve
will ultimately earn nondisability retirement pay and health care for
life. Typically, deferred and noncash compensation is offered across the
board, which limits the department's flexibility to offer incentives,
target personnel, or turn on and off compensation as it is needed to
recruit and retain. Moreover, these changes may not be sustainable over
the long term. Some of the noncash and deferred compensation that have
been added in response to the department's recruiting and retention
problems are inflexible benefits and long-term costs that the department
will find difficult to stop providing, such as health care for reservists.
30Department of Defense, Office of the Secretary of Defense, Military
Compensation Background Papers: Compensation Elements and Related Manpower
Cost Items, Their Purpose and Legislative Backgrounds, 6th ed.
(Washington, D.C.: April 2005).
31 GAO, Military Personnel: DOD Needs to Improve the Transparency and
Reassess the Reasonableness, Appropriateness, Affordability, and
Sustainability of Its Military Compensation System, [31]GAO-05-798
(Washington, D.C.: July 19, 2005).
32John T. Warner and Saul Pleeter, "The Personal Discount Rate: Evidence
from Military Downsizing Programs," The American Economic Review (March
2001).
33GAO, Military Personnel: DOD Needs More Data Before It Can Determine if
Costly Changes to the Reserve Retirement System Are Warranted,
[32]GAO-04-1005 (Washington, D.C.: Sept. 15, 2004).
Concerns about the most efficient and effective allocation of compensation
to meet recruiting and retention goals are increasingly important given
the recent recruiting and retention challenges the services have faced. In
November 2005, we reported that the reserve components were having
recruiting and retention challenges, specifically filling certain
occupation specialties such as military police.34 The Congressional
Research Service also reported that the reserve components missed
recruiting goals by 12 to 20 percent in fiscal year 2005.35 Although the
Marine Corps Reserve and Air Force Reserve met their 2006 recruiting
goals, the other reserve components missed their goals. In addition,
officials expressed concern that the services will have difficulty meeting
future recruiting goals. The Commission on the National Guard and Reserves
reported that polling data of young people suggest that the future for
recruitment remains problematic as the propensity of youth to join the
military declined from 15 percent in 2005 to 10 percent in 2006.36 In
addition to a decline in propensity to join the military, according to
DOD, fewer soldiers leaving active duty are transitioning to the reserves.
Moreover, the quality of recruits is declining.37 At a time when the
nation faces an increasing fiscal imbalance, until DOD assesses what the
appropriate compensation mix should be so that it uses its compensation
resources in the most efficient manner possible, DOD may be unable to
sustain these costs and effectively balance the department's needs for new
equipment and personnel while recruiting and retaining the future reserve
force.
34GAO, Military Personnel: DOD Needs Action Plan to Address Enlisted
Personnel Recruitment and Retention Challenges, [33]GAO-06-134
(Washington, D.C.: Nov. 17, 2005); Military Personnel: Preliminary
Observations on Recruiting and Retention Issues within the U.S. Armed
Forces, [34]GAO-05-419T (Washington, D.C.: Mar. 16, 2005).
35CRS, Recruiting and Retention: An Overview for FY2005 and FY2006 Results
for Active and Reserve Component Enlisted Personnel (Washington, D.C.:
Jan. 26, 2007).
36Commission on the National Guard and Reserves, Strengthening America's
Defense in the New Security Environment (Washington, D.C.: March 1, 2007).
37DOD measures enlisted recruits quality based on two criteria--graduation
from high school and score on the Armed Forces Qualification Test (AFQT).
Since fiscal year 1993, DOD's goals for recruit quality have been that at
least 90 percent of new recruits must be high school graduates and at
least 60 percent must score above average on the AFQT. CRS reported that
three of the six reserve components--Army National Guard, Army Reserve,
and Navy Reserve--each missed one of their quality goals in 2006. An
increase in waivers for past offenses also raises concerns about the
quality of new recruits.
DOD Does Not Have an Established Compensation Strategy and Performance Measures
to Gauge the Efficiency of Reserve Compensation
DOD is unable to gauge the efficiency of the mix of reserve compensation
and its compensation tools because it has not established a compensation
strategy or performance measures. We have previously found that programs,
such as compensation systems, need performance measures and goals to guide
decision makers and program policy.38 Moreover, DOD's Personnel and
Readiness strategic plan states the importance of DOD identifying
requirements and tailoring compensation and other programs to achieve
objectives and continuously reviewing personnel management.39 In addition,
we have also reported that it is necessary for an agency to monitor and
evaluate its progress toward its human capital goals and the contribution
that human capital outcomes have made toward achieving program results.40
The lack of a compensation strategy to guide compensation policy is a
long-standing problem faced by DOD. We identified the lack of explicit
compensation principles in 1979 and again in 2005 in our reports on active
duty compensation.41 Our past reports pointed out that DOD lacks explicit
compensation principles, which creates challenges in making major changes
to compensation. The Military Compensation Background Papers describe six
principles that the compensation system is designed to achieve; those
principles are: managing manpower, compatibility with the level of
technology servicemembers employ, equity, effectiveness in war and peace,
flexibility, and motivation. These principles, however, do not provide a
clear strategy to guide military compensation policy, as stated in this
excerpt:
"the relationships between the individual components of compensation and
their systemic interrelationships as a coherent structure remain largely
implicit rather than explicit. Virtually every aspect of military activity
has explicit doctrines, principles, and practices embodied in field
manuals, technical manuals, and various joint publications. Military
compensation is noteworthy in its lack of such an explicit intellectual
foundation." 42
38GAO, A Model of Strategic Human Capital Management, [35]GAO-02-373SP
(Washington, D.C.: Mar. 15, 2002).
39Under Secretary of Defense for Personnel and Readiness (OUSD--P&R),
Strategic Plan, FY2006-2011.
40GAO, Human Capital: Key Principles for Effective Strategic Workforce
Planning, [36]GAO-04-39 (Washington, D.C.: Dec. 11, 2003).
41GAO, Military Personnel: DOD Needs to Improve the Transparency and
Reassess the Reasonableness, Appropriateness, Affordability, and
Sustainability of Its Military Compensation System, [37]GAO-05-798
(Washington, D.C.: July 19, 2005); The Congress Should Act to Establish
Military Compensation Principles, [38]GAO/FPCD-79-11 (Washington, D.C.:
May 9, 1979).
42Department of Defense, Office of the Secretary of Defense, Military
Compensation Background Papers: Compensation Elements and Related Manpower
Cost Items, Their Purpose and Legislative Backgrounds, 6th ed.
(Washington, D.C.: April 2005).
Moreover, DOD does not have performance measures to gauge the efficiency
of its compensation system or the various compensation tools. Performance
measures are used to evaluate how closely a program's achievements are
aligned with program objectives, and to assess whether a program is
achieving its intended outcome. DOD and Congress have generally increased
all types of compensation--adding more benefits while increasing
bonuses--making it impossible to determine the relative value of each of
these initiatives. Without these measures DOD does not know which of its
compensation tools--cash, noncash, or deferred--works best for recruiting
and retaining personnel, and it does not know the most effective,
efficient mix of compensation.
Determining the return on investment for compensation and the impact of
compensation on recruiting and retention is not an easy task and should be
approached with caution. DOD and service officials often point to meeting
end strength or recruiting and retention goals as evidence that
compensation is appropriate or working. Although end strength is an
important indicator, we do not believe it is sufficient alone. Meeting
recruiting and retention goals does not indicate if the compensation
system is efficient or yielding the best return on the department's
investment. There are numerous other factors, such as the economy, ongoing
contingency operations, and DOD's own recruiting and advertising program,
that also influence the department's ability to recruit and retain
servicemembers.43 As a result, DOD does not know if the additions to the
compensation system--which are becoming increasingly costly, rising 47
percent from fiscal year 2000 to 2006--are appropriate to ensure the
reserve components recruit and retain a high-quality workforce in
sufficient numbers and that the federal government has the best return on
investment.
43DOD, 9th Quadrennial Review of Military Compensation vol I (May 17,
2002); Commission on the National Guard and Reserves, Strengthening
America's Defenses in the New Security Environment (Mar. 1, 2007); GAO,
Military Recruiting: DOD Needs to Establish Objectives and Measures to
Better Evaluate Advertising's Effectiveness, [39]GAO-03-1005 (Washington,
D.C.: Sept. 19, 2003).
In DOD's response to this report, the department emphasized that it has
not sought some of the increases in deferred and noncash compensation that
Congress has recently given to servicemembers. Also, in our discussions
with DOD officials, they told us that the department has focused on cash
compensation in recent years and, in some cases, has opposed increases in
deferred compensation. For example, the Secretary of Defense stated, in
May 12, 2004, testimony before the Senate Appropriations Defense
Subcommittee that, in recent years, Congress has often added
entitlement-like changes, beyond DOD's recommendations, which concentrated
on those who have already served. The Secretary of Defense's statement
pointed out the fiscal effects of these decisions by stating that
entitlements such as TRICARE for life are increasing substantially the
permanent costs of running the department with only modest effect on
recruiting and retaining personnel. Nevertheless, DOD has not formally
assessed the appropriate mix of compensation and has not developed a
written policy or document that specifies the department's overarching
strategy for compensation. Until DOD establishes a strategy for
determining the best mix of cash, noncash, and deferred compensation and
develops performance measures to evaluate the efficiency of compensation
tools, DOD and Congress will be unable to make informed decisions about
which compensation tools will provide the best return on investment, be
sustainable in the long-term, and be effective in recruiting and retaining
the future reserve force.
DOD Does Not Have Transparency over Total Costs of Reserve Compensation
Decision makers in Congress and DOD do not have adequate transparency over
total costs for providing reserve compensation--including the allocation
of costs to cash, noncash, and deferred compensation--and the cost of
mobilized reservists. Good business practices require adequate
transparency over investments of resources, especially in times of fiscal
constraint. However, today there is no single source where decision makers
can go to see all the costs of reserve compensation. In addition, the cost
of mobilized reservists is also not transparent.
Part of the lack of transparency is due to the fact that about a quarter
of the costs of reserve compensation fall outside the military personnel
appropriation for DOD. In fact, costs are located within three federal
agencies--DOD, Department of Veterans Affairs, and Department of the
Treasury--depending on the type of compensation and the duty status of the
reservists--active reserve or mobilized, as shown in figure 7.
Furthermore, within DOD, compensation costs are found in four different
budgets--the reserve components' military personnel, active components'
military personnel, active components' operation and maintenance, and the
Defense Health Program. Most of the cash costs--such as basic pay,
allowances, and special pays and incentives--are located in either the
reserve or active military personnel budgets, depending on whether the
reservist is mobilized.44 In addition, the reserve military personnel
budgets combine some cash costs. For example, pays and allowances include
such costs as retired pay accrual, basic allowance for subsistence, basic
allowance for housing, and special and incentive pay as authorized.
Furthermore, some noncash costs are located in the active operation and
maintenance budget and active and reserve military personnel budgets.45
Some of these noncash costs, such as those for commissary and morale,
welfare, and recreation facility use, are not broken out by active and
reserve costs because use of these facilities is open to both components.
Moreover, deferred costs for health care for the Medicare-eligible
retirees and their dependents are found in the Defense Health Program
budget, while some of the costs for concurrent receipt of disability
retirement from DOD and Veterans Affairs are found in the Treasury
budget.46
44The military personnel budgets include such things as basic pay,
allowances for housing and subsistence, special and incentive pays, other
allowances, and retired pay accrual. The pay and benefits for mobilized
reservists are located in the active military personnel budget.
45The operation and maintenance budget includes costs for morale, welfare,
and recreation programs and commissaries. The Veterans Affairs budget
includes costs for the Home Loan Guaranty program and disability
compensation. The military personnel budgets include costs for noncash
items such as death gratuities and clothing and travel allowances.
46The Health Affairs budget includes costs for all health care benefits
except for health care for retirees younger than age 65. The Treasury
budget includes contributions to retirement pay accrual to offset
concurrent receipts.
Figure 7: Components of Total Reserve Compensation Costs
Furthermore, we had to calculate some costs for reserve compensation
because they were not captured in any budget documents. To do this, DOD
provided, at our request, the accrual costs for future retirees and their
dependents. Similarly, we estimated the tax expenditure for the federal
government from the nontaxable compensation provided to servicemembers.47
We estimated that the cost for tax expenditures for full-time reservists
alone was $436 million in fiscal year 2006. In addition, the Department of
Veterans Affairs does not calculate the accrual cost for veterans'
benefits for reservists and we did not attempt to calculate these costs
either because reservists are likely to be eligible for the majority of
these benefits based upon active duty service. In appendix I, we present
the accrual costs for active duty veterans' benefits that we calculated
using data from the 1999 President's Budget. Comparable information for
the reserve components was not available. As a result, these costs are
unknown. This lack of information makes it difficult for decision makers
to see the full costs of all the compensation pays and benefits provided
to reservists.
Transparency over compensation costs is further limited when reservists
are mobilized because mobilized reservists are paid from active duty
budgets. Moreover, compensation costs for mobilized reservists are
difficult to determine within the active components' budgets, in part,
because they have been paid out of the supplemental funding the active
components receive for the global war on terrorism. The absence of
information about the compensation costs of mobilized reservists further
dilutes decision makers' ability to see the full picture of the costs of
reserve compensation to the federal government. In addition, as
mobilizations are expected to become a regular part of reservists'
careers, these costs will become a part of doing business for the
reserves, which increases the importance of being able to identify them.48
DOD is taking measures to address some of these problems. For example, DOD
required the services to include detailed cost estimates of reserves
called to active duty in the fiscal year 2007 and 2008 supplemental
submissions. In addition, DOD is working on a system to consolidate
personnel and pay systems for all active and reserve components, known as
the Defense Integrated Military Human Resources System. This consolidation
may improve transparency of DOD costs by integrating all human resource
information for active, guard, and reserve personnel of all the services.
However, as we reported in 2005 and 2006, this task is proving to be
difficult to complete.49 We found that the services have unique
requirements that are limiting the flexibility to consolidate to a single
solution. Furthermore, service officials told us that this system is
unlikely to improve transparency over budgeted costs.
47Retired reservists who are age 60 or older are eligible for the same
health care benefits as their active duty counterparts. Nontaxable
compensation refers to the Basic Allowance for Subsistence and Basic
Allowance for Housing that full-time reservists are eligible to receive.
48Secretary of Defense, Memorandum for Secretaries of the Military
Departments, Chairman of the Joint Chiefs of Staff, Under Secretaries of
Defense, "Utilization of the Total Force" (Jan. 19, 2007). This memorandum
states that the planning objective for involuntary mobilization for the
Guard and reserves will remain a 1-year mobilized to 5-year demobilized
ratio. However, today's global demands will require a number of selected
National Guard and reserve units to be remobilized sooner than this
standard.
In 2005, we recommended that DOD compile the total costs to provide
military compensation and communicate these costs to decision makers
within the administration and Congress. Despite our recommendation, DOD
has not compiled in one place, that is readily accessible, the total costs
for active or reserve personnel compensation, including mobilized
reservists, and the allocation of these costs among cash, noncash, and
deferred compensation. Such a compilation could enable decision makers to
accurately assess these costs and to manage the total force as well as
efficiently and effectively make fact-based human capital adjustments.
Some steps have been taken to improve transparency and recognition appears
to be growing about the effect of rising compensation costs. For example,
the Office of Management and Budget appears to have recognized the need
for greater transparency over compensation costs. For the first time, in
its Analytical Perspectives for fiscal year 2008, the Office of Management
and Budget described the total cost of DOD active duty compensation and
its allocation to cash, noncash, and deferred compensation.50 The
Analytical Perspectives document also describes significant growth in per
capita compensation in recent years. However, this analysis is submitted
separately, and is part of a more than 400-page document that accompanies
the budget but is not part of the military budget submission. In addition,
in its February 2007 report on federal budget options, the Congressional
Budget Office discussed the option of consolidating military personnel
costs in a single appropriation.51 The report stated that the
consolidation of compensation costs would not only provide more complete
information about how much money is being allocated in support of military
personnel, but it would also give DOD managers a greater incentive to use
resources wisely. Until total costs for reserve compensation are compiled
in a transparent and easily accessible manner, decision makers will be
unable to determine the affordability and efficiency of the reserve
compensation system. Knowing these costs is especially important given the
growing fiscal challenges the country faces.
49GAO, Defense Business Transformation: A Comprehensive Plan, Integrated
Efforts, and Sustained Leadership are Needed to Assure Success,
[40]GAO-07-229T (Washington, D.C.: Nov. 16, 2006); DOD Systems
Modernization: Management of Integrated Military Human Capital Program
Needs Additional Improvements, [41]GAO-05-189 (Washington, D.C.: Feb. 11,
2005).
50The Office of Management and Budget, Analytical Perspectives: Budget of
the United States Government, Fiscal Year 2008 (Washington, D.C.: 2007).
Conclusions
DOD and Congress have reacted to the dramatic shift from a strategic to an
operational reserve by adding compensation without adequate consideration
of how the additions compare with civilian sector compensation; whether
they are appropriate, affordable, and sustainable over the long term; or
their return on investment in terms of recruiting and retention. Looking
forward, DOD officials are concerned about their ability to manage
personnel costs, because so much of the costs are in entitlements--items
that managers have little to no control over, such as retirement pay and
health care. As a result, it is highly questionable whether the
increasingly costly compensation system is affordable, sustainable, and
fiscally sound over the long term. This challenge is especially acute
given the nation's increasingly constrained fiscal environment and DOD's
need to balance its personnel costs with its desire for new equipment and
infrastructure. Without assessing what the appropriate compensation mix
should be, DOD will be unable to ensure that it uses its compensation
resources most efficiently. Moreover, until DOD establishes a compensation
strategy on which to base changes in compensation and performance measures
to gauge the efficiency of changes to the compensation system, DOD will be
unable to use its compensation resources in the most effective and
efficient manner, which ultimately could negatively affect DOD's ability
to recruit and retain a highly qualified force in sufficient numbers.
In addition to the lack of an underpinning compensation strategy, the lack
of transparency over compensation costs makes it difficult to make
fact-based decisions about the efficiency and effectiveness of adjustments
to the compensation system, and in broader terms adjustments to the total
force. A complete picture of total compensation cost for reserve personnel
includes the costs for those reservists who are mobilized as well as the
costs for cash, noncash, and deferred compensation. Without an inclusive
display of all the reserve compensation costs, DOD will not be able to
determine the magnitude of funding and potential for current investments
and operations to turn into long-term financial commitments, thus
prompting real questions about the affordability and sustainability of the
rate of growth in defense spending. Understanding the total cost of
military compensation can provide DOD and Congress with important
information as they make assessments on compensation matters, and it also
allows decision makers to make informed trade-offs among competing demands
for such things as force structure, equipment acquisition, and
infrastructure decisions. Moreover, as DOD embraces the change in the use
of reservists to an operational force mobilized more regularly, the
traditional use of reservists as "weekend warriors" becomes less
realistic. In today's environment reservists will likely be activated
regularly during their career--and those associated compensation costs are
likely significant. Taken together, the lack of a compensation strategy,
performance measures, and transparency limits decision makers' ability to
make fact-based decisions about the appropriateness of the mix and level
of compensation provided to reservists.
51Congressional Budget Office, Budget Options (Washington, D.C.: February
2007).
Recommendations for Executive Action
To improve the appropriateness of the reserve compensation system and to
gain transparency over total reserve compensation costs, we recommend that
the Secretary of Defense take the following actions:
o Establish a clear compensation strategy that includes
performance measures to evaluate the efficiency of compensation in
meeting recruiting and retention goals, and use the performance
measures to monitor the performance of compensation and assess
what mix of compensation will be most efficient in the future.
o Compile the total costs to provide reserve compensation for
part-time, full-time, and mobilized reservists and communicate
these costs as well as the allocation of these costs among cash,
noncash, and deferred compensation to decision makers within the
administration and Congress--perhaps as an annual exhibit as part
of the President's budget submission to Congress.
Matter for Congressional Consideration
As future changes are considered to pay and benefits for National Guard
and reserve personnel as well as veterans, Congress should consider the
long-term affordability and sustainability of these changes, including the
long-term implications for the deficit and military readiness.
Agency Comments and Our Evaluation
We provided the Department of Veterans Affairs and DOD a draft of this
report for review and comment. The Department of Veterans Affairs agreed
with the statements in the report as they pertain to the department and
had no formal comments on the report. DOD's comments are reprinted in this
report as appendix IV. DOD partially concurred with our recommendations,
but had several technical comments, which we have incorporated where
appropriate.
DOD partially concurred with our first recommendation to establish a clear
compensation strategy and use performance measures to monitor and assess
the mix of compensation. DOD noted that the department has consistently
communicated its approach to Congress in Congressional testimony and that
DOD has sponsored efforts, such as the Defense Advisory Committee on
Military Compensation, to assess its overarching compensation strategy.
DOD also pointed out that it has generally not sought increases in
deferred and noncash compensation, and stated during congressional
testimony the department's preference for cash compensation. We believe
that DOD's argument that Congress has mandated changes to compensation
that it did not seek further illustrates why the department needs to
develop an explicit compensation strategy and performance measures. As we
point out in this report, a compensation strategy could be used to
underpin the department's compensation decisions and performance measures
to track their effectiveness. Furthermore, the department would be in a
better position to make business case arguments for or against changes to
its compensation system, and provide fact-based evidence regarding the
efficiency of the allocation of cash, noncash, or deferred compensation.
DOD also partially concurred with our second recommendation to compile
total costs to provide reserve compensation for both drilling and
mobilized reservists and communicate those costs to decision makers within
the administration and Congress. In its response to this report, DOD
stated that this recommendation may be more appropriate for the Office of
Management and Budget since the costs extended to multiple federal
departments. We made a similar recommendation to the department in our
July 2005 report on active duty compensation. Since our 2005 report, the
Office of Management and Budget published a compilation of active duty
compensation costs and the allocation of cost to cash, noncash, and
deferred compensation in its fiscal year 2008 Analytical Perspectives. In
addition, the department noted that it has discussed with the Office of
Management and Budget the possibility of expanding the information to
include Guard and reserve compensation costs. Such actions represent steps
in the right direction. However, placing the information in the 400-plus
page Analytical Perspectives document that accompanies the budget may not
be as effective as an annual budget exhibit included as part of the
military budget request. While we believe OMB has taken a step in the
right direction, we continue to believe that DOD is in the best position
to exercise ownership over total compensation costs and, accordingly,
should compile and present total compensation costs as part of its budget
submission. As we stated in our report, lack of transparency over
compensation costs is, in part, due to the fact that DOD lacks a single
source to illustrate total compensation costs for drilling, full-time, and
mobilized reservists. We continue to believe that compilation of costs in
a single source is an important first step in gaining transparency over
total reserve compensation costs. This type of compilation would provide
decision makers with a resource to make fact-based decisions about future
changes to compensation.
We are sending copies of this report to the appropriate congressional
committees, the Secretary of Defense, and other interested parties. In
addition, the report will be available at no charge on GAO's Web site at
[42]http://www.gao.gov . If you or your staff have any questions regarding
this report, please contact me at (404)679-1900 or [43][email protected]
. Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. Other staff members
who made key contributions to this report are listed in appendix V.
John H. Pendleton
Acting Director, Defense Capabilities and Management
List of Congressional Committees
The Honorable Carl Levin
Chairman
The Honorable John McCain
Ranking Member
Committee on Armed Services
United States Senate
The Honorable Daniel Inouye
Chairman
The Honorable Ted Stevens
Ranking Member
Subcommittee on Defense
Committee on Appropriations
United States Senate
The Honorable Ike Skelton
Chairman
The Honorable Duncan Hunter
Ranking Member
Committee on Armed Services
House of Representatives
The Honorable John P. Murtha
Chairman
The Honorable C.W. Bill Young
Ranking Member
Subcommittee on Defense
Committee on Appropriations House
of Representatives
Appendix I: Updated Active Duty Compensation Costs
We originally reported total active duty compensation costs to the federal
government in July 2005.1 This appendix updates the total compensation
costs in that report. As shown in table 1, adjusted for inflation, the
total cost for providing active duty compensation increased from about
$131.7 billion to $173.2 billion (32 percent) from fiscal year 2000 to
fiscal year 2006. Cash benefits accounted for 48 percent of total
compensation costs, while noncash and deferred benefits accounted for 21
and 31 percent, respectively. In fiscal year 2006, it cost the federal
government more than $126,000, on average, to provide annual compensation
to active duty servicemembers. Three things are important to remember
about our estimate. First, it is an average of what it cost the government
to compensate servicemembers, not what the servicemembers "receive in
their paycheck." Second, agencies other than Department of Defense (DOD),
such as the Department of Veterans Affairs, Department of Education, and
Department of Labor, provide compensation to servicemembers, so our
estimate includes their appropriated costs. Third, the estimate does not
include the cost of adding servicemembers, because it does not include
costs for acquiring and training personnel.
1GAO, Military Personnel: DOD Needs to Improve the Transparency and
Reassess the Reasonableness, Appropriateness, Affordability, and
Sustainability of Its Military Compensation System, [44]GAO-05-798
(Washington, D.C.: July 19, 2005).
Table 3: Summary of Changes in Active Duty Compensation Costs for Fiscal
Years 2000 and 2006
Fiscal year 2006
constant dollars
Percentage of total
Components of Fiscal Fiscal year Percentage compensation (fiscal
compensation year 2000 2006 change year 2006)
Cash (in billions)
Basic pay $40.8 $48.2 18
Housing allowance 7.7 14.8 92
Subsistence 3.3 3.5 6
allowance
Special and 3.5 5.2 48
incentive pays
Allowance 2.0 3.2 60
Tax expenditure 6.6 8.5 30
Total cash (in $63.9 83.4 30 48
billions)
Total per capita 46,559 60,713 30
cash
Noncash benefits
(in billions)
Subsistence in 1.3 2.7 111
kind
Othera 15.6 17.4 19
Educationb 0.4 0.6 63
Health care 9.9 13.6 38
Family housing and 2.4 2.3 (5)
barracks
Total noncash (in 29.6 36.6 24 21
billions)
Total per capita 21,581 26,721 24
noncash
Deferred benefits
(in billions)
Retired pay 13.0 12.7 (2)
accrual
Veterans Affairs - 8.9 10.5 18
health care
Veterans Affairs- 9.5 11.3 18
compensation and
pension
Veterans Affairs - 0.9 1.1 18
other
Department of the 0.0 2.4
Treasury
Health care 5.8 15.3 162
accrual
Total deferred (in 38.1 53.3 39 31
billions)
Total per capita 27,831 38,806 39
deferred
Total compensation $131.7 $173.2 32
(in billions)
Total per capita $95,971 $126,239 32
Source: GAO analysis.
Note: The numbers may not total due to rounding. According to DOD, about
95,000 mobilized reservists were paid out of active duty cash compensation
costs in fiscal year 2006. Our active duty per capita cost estimates do
not take these mobilized reservists into account because our per capita
costs are based on active duty end strength. The per capita costs to
provide compensation would be lower if these reservists are taken into
consideration.
aIncludes separation pay, partial dislocation allowance, transportation
subsidy, permanent change of station, DOD dependents' education, adoption
expenses, savings deposit program, death gratuities, survivor benefits,
Servicemember Group Life Insurance hazard payments, Veterans Affairs home
loan guaranty program, other personnel support, special support, Morale
Welfare and Recreation, commissaries, Social Security tax, unemployment
benefits, special compensation, impact aid, and veterans employment and
training.
bIncludes education, off-duty voluntary education, and servicemember GI
bill and certification.
To calculate the cost to the federal government of compensating active
duty servicemembers, we interviewed officials from DOD, Department of
Veterans Affairs, Department of Labor, Department of Education, Office of
Management and Budget, and the Congressional Budget Office. We analyzed
and compiled data for fiscal years 2000-2006 from the Army, Air Force,
Marine Corps, and Navy's military personnel and operations and maintenance
budget justification books. We also reviewed and compiled data from the
Department of Veterans Affairs benefits and health care budget
justification books. To estimate the total federal tax expenditure that
results from the tax-exempt housing and subsistence allowances military
personnel receive, we used the National Bureau of Economic Research's
TAXSIM Model to simulate tax liabilities under different scenarios.2 To
estimate health care accrual costs, we used official DOD estimates of
accrual health care costs for all retirees and their dependents. In
addition, DOD's Office of Health Affairs provided us the estimated cost of
health care for active duty servicemembers and their dependents for fiscal
years 2004-2006. To calculate the costs of future veterans' benefits for
current active duty servicemembers, including the costs for health care,
compensation, pension, and other types of benefits, we used notional costs
as a percentage of basic pay for accruing and actuarially funding
Department of Veterans Affairs benefits in the DOD budget. Lastly, we used
deflators to adjust the budget appropriations into current fiscal year
2006 dollars. For more detailed information on our methodology, see
appendix II.
2National Bureau of Economic Research's TAXSIM Model simulates the U.S.
federal income tax rules. See Daniel Feenberg and Elisabeth Coutts "An
Introduction to the TAXSIM Model," Journal of Policy Analysis and
Management, vol. 12, no. 1, 1993, pp. 189-194.
Appendix II: Scope and Methodology Appendix II: Scope and Methodology
To determine how Guard and reserve servicemembers have been compensated,
we analyzed relevant regulations and legislation since 2000, identified
changes in compensation policy, and compiled a list of pays and benefits
for which reservists are currently eligible. We then used budgetary data
to assign costs to the various pays and benefits of the reserve
compensation system. This included compiling data for fiscal years
2000-2006 from the Army National Guard, Army Reserve, Air National Guard,
Air Force Reserve, Marine Corps Reserve, and Navy Reserve's military
personnel and operation and maintenance budget justification books. Within
the operation and maintenance justification books, we reviewed the budgets
of the defense health program; the defense commissary agency; the morale,
welfare, and recreation activities (OP-34 exhibit); and DOD dependent
education activity. We also reviewed data from the Department of Veterans
Affairs benefits and health care budget justification books. In addition,
we interviewed DOD officials in Washington, D.C., from the offices of (1)
the Assistant Secretary of Defense for Reserve Affairs; (2) the
Comptroller within the Office of Secretary of Defense; (3) each of the
national guard and reserve components, excluding the Coast Guard; (4) the
Actuary; (5) Health Affairs; and (6) the Office of Program Analysis and
Evaluation. We also interviewed officials from the Department of Veterans
Affairs in Washington, D.C., the Office of Management and Budget in
Washington, D.C., and the Congressional Budget Office in Washington D.C.
All of the associated costs for the reserves could not be found in the
budgetary exhibits. In some instances, we requested data from the
appropriate federal agency. For example, the Office of Health Affairs
provided (1) per capita TRICARE cost estimates for full-time
administration and support personnel for fiscal years 2004 through 2006;
(2) cost estimates for TRICARE Reserve Select (TRS) for fiscal year 2005
and fiscal year 2006; and (3) projected cost estimates for TRS for fiscal
year 2008 to fiscal year 2013. To calculate the health care cost for
full-time reservists for fiscal years 2000 through 2003, we relied on our
previous health care cost estimates for active duty personnel.1 The Office
of the Actuary provided the costs for the retired health care accrual.
Although the Department of Veterans Affairs provided assistance, we
determined that the portion of reserve deferred or acrual cost associated
with most veterans' programs could not be identified without creating an
accrual model.
1GAO, Military Personnel: DOD Needs to Improve the Transparency and
Reassess the Reasonableness, Appropriateness, Affordability, and
Sustainability of Its Military Compensation System, [45]GAO-05-798
(Washington, D.C.: July 19, 2005).
In other instances, we found it necessary to estimate the cost to the
federal government. For example, we used the data from the Office of the
Actuary's Valuation Report to calculate the Department of Treasury's
contribution to disability compensation accrual. We also estimated total
federal tax expenditures that resulted from tax-exempt housing and
subsistence allowances received by military personnel in 2005 and 2006. To
do this we estimated the taxes owed by an active duty servicemember for
every combination of years of service, rank, and family size,2 with and
without the tax exemption for housing and subsistence. The number and pays
of servicemembers were provided by DOD's Selected Military Compensation
Tables. Only military income was used to calculate the taxes owed.3 We
calculated taxes owed for each group using the National Bureau of Economic
Research's TAXSIM model, which simulates tax liabilities under different
scenarios.4 We calculated the tax expenditure as the difference between
the taxes owed without the tax exemptions and with the tax exemptions. We
determined the average tax expenditure for active duty servicemembers by
computing an average based on the number of servicemembers in each
category. We applied these results to the active duty compensation cost.
Next, to estimate the percentage difference in tax expenditure between
active duty and full-time reservists, we computed the ratio of average tax
expenditure in 2006 based on the distribution of years of service and
ranks for full-time reservists and active duty servicemembers. When
computing the taxes owed by reservists, we assumed that the family size of
full-time reservists was the same as active duty servicemembers of
identical rank and years of service. Data for reservists were taken from
the Official Guard and Reserve Manpower Strength and Statistics5. We
applied these results to the compensation cost of full-time reservists.
2The first dependent is assumed to be a spouse. Other dependents are
assumed to be children.
3In most cases, including additional income, such as from a spouse, would
increase the marginal tax rate and increase our estimate of the tax
expenditure. However, an exception might be servicemembers eligible for
the Earned Income Tax Credit, where more income could increase the credit,
lower the marginal tax rate, and decrease the size of the tax expenditure.
4The National Bureau of Economic Research's TAXSIM Model simulates the
U.S. federal tax income tax rules. See Daniel Feenberg and Elizabeth
Coutts, "An Introduction to the TAXSIM Model," Journal of Policy Analysis
and Management, vol. 12, no. 1 (1993), pp. 189-194.
Additionally, to estimate future health care costs for the current reserve
population when they retire, we used official estimates of health care
accrual costs for servicemembers older than 65 (Medicare eligible) and
younger than 65 (non-Medicare eligible). DOD's Office of the Actuary
provided the per capita normal costs for postretirement medical benefits,
that is, the present value of the current year's attributed portion of
future benefits for active personnel and their eligible dependents. The
2000-2002 per capita normal costs were provided by DOD's Office of the
Actuary based on data from a report prepared by Milliman USA Consultants
and Actuaries.6 Per capita normal costs for 2003 and 2004 were based on
data from Milliman's spreadsheets.7 The 2005 and 2006 per capita normal
costs come from the DOD Office of the Actuaries' valuations as of
September 30, 2004, and September 30, 2005, respectively.
Finally, when calculating aggregate costs for the various types of
compensation, we used military personnel deflators from the National
Defense Budget Estimates for fiscal year 2007 published by the Office of
the Under Secretary of Defense (Comptroller) to adjust the budget
appropriations into current fiscal year 2006 dollars. To aid our analysis,
we classified the types of compensation into three categories: cash,
noncash, and deferred. In addition, we classified the reserve service
population into two categories: full-time and part-time. Our analysis
produced per capita costs for each category of the population. For the
full-time per capita cost, we used the average strength identified in the
military personnel budget justification books for the administration and
support population as the denominator. The average strength, of Pay Groups
A (reservists assigned to units), B (reservists designated as Individual
Mobilization Augmentees), F (reservists completing initial entry
training), and P, located in the military personnel budget justification
books was adjusted by subtracting the average number of mobilized Select
Reservists from each fiscal year to approximate the actual number of
part-time drilling or "active" reservists. This "normalized" strength was
used as the denominator for the part-time per capita cost. The office of
the Assistant Secretary of Defense for Reserve Affairs provided assistance
with querying the Contingency Tracking System managed by DOD's Defense
Manpower Data Center to identify the monthly number of reservists serving
on active duty orders for named contingencies by reserve component. To
assess the reliability of Contingency Tracking System data, we interviewed
knowledgeable officials about the system and related internal controls,
and we reviewed our prior work on the reliability of Contingency Tracking
System data. To assess the reliability of the analysis (monthly deployment
totals) produced by the Defense Manpower Data Center from the Contingency
Tracking System, we reviewed the SAS program that generated the results.
We determined the data we received were reliable for there intended
purpose in this engagement.
5 Office of the Assistant Secretary of Defense (Reserve Affairs), Official
Guard and Reserve Manpower Strengths and Statistics: FY 2006 Summary.
6Milliman USA Consultants and Actuaries, Analysis of the U.S. Military's
Projected Retiree Medical Liabilities as of September 30, 1999 (Vienna,
VA); Analysis of the U.S. Military's Projected Retiree Medical Liabilities
as of September 30, 2000 (Vienna, VA); Analysis of the U.S. Military's
Projected Retiree Medical Liabilities as of September 30, 2001 (Vienna,
VA).
7 Milliman USA Consultants and Actuaries, Analysis of the U.S. Military's
Projected Retiree Medical Liabilities as of September 30, 2000 (Vienna,
VA; March 21, 2002); Analysis of the U.S. Military's Projected Retiree
Medical Liabilities as of September 30, 2001 (Vienna, VA; January 21,
2003).
To assess the extent to which DOD's mix of cash, noncash, and deferred
compensation helped DOD meet its human capital goals, we reviewed the
requirements for establishing program objectives and outcome measures in
federal government standards such as the Government Performance and
Results Act of 1993 as well as in GAO guidance and strategies for human
capital management. We reviewed applicable DOD directives, policy, and
guidance and interviewed DOD officials from each of the reserve
components, as well as representatives from the Office of the Secretary of
Defense and Reserve Affairs in Washington, D.C., to assess whether DOD had
established any strategies for compensation or outcome measures to
determine the efficiency of its compensation tools. We interviewed DOD
recruiting and retention officials to determine the extent to which
compensation is used to attract and retain reserve personnel. These
interviews were conducted with officials in the U.S. Army Accessions
Command at Ft. Knox, Kentucky; U.S. Army Retention Command at Ft.
McPherson, Georgia; and Air National Guard Office of Recruiting and
Retention in Arlington, Virginia. We also reviewed reports done by DOD,
the Congressional Research Service, the Commission on the National Guard
and Reserves, the private sector, and others on recruiting and retention
of reserve forces as well as commonly accepted economic theory.
To assess the extent to which DOD's approach provided transparency over
total costs to the federal government and determine whether DOD followed
those directives, policy, and guidance, we reviewed how compensation costs
are presented to decision makers by analyzing the budget justification
books and comparing them to applicable directives, policy, and guidance,
such as the DOD Financial Management Regulation. We also interviewed
knowledgeable officials at the National Guard Bureau (for the Army and Air
National Guard), the Air Force Reserve Budget Division, the Army Reserves
(Office of the Comptroller), Marine Corps Reserves, and Navy Reserve
Budget offices in Washington, D.C. to learn more about transparency
issues. We compared DOD directives and guidance to standards such as the
Government Performance and Results Act and commonly accepted economic
theory.
To calculate the cost to the federal government of compensating active
duty servicemembers, we interviewed officials from DOD including the
Office of the Secretary of Defense, Under Secretary for Personnel and
Readiness' office of compensation, the Office of the Comptroller within
the Office of the Secretary of Defense and the Services, the Office of the
Actuary, and Health Affairs all in Arlington, Virginia. In addition, we
interviewed officials from Department of Veterans Affairs, Department of
Labor, Department of Education, Office of Management and Budget, and the
Congressional Budget Office, all in Washington, D.C.
We examined and compiled data for fiscal years 2000-2006 from the Army,
Air Force, Marine Corps, and Navy's military personnel and operations and
maintenance budget justification books. Within the operations and
maintenance justification books, we reviewed the Defense Health Program,
the Defense Commissary Agency, the morale, welfare and recreation (OP-34
exhibit), and DOD dependent education activity budgets. We also reviewed
and compiled data from the Department of Veterans Affairs benefits and
health care budget justification books. We used deflators to adjust the
budget appropriations into current fiscal year 2006 dollars.
To calculate the costs of future veterans' benefits for current active
duty servicemembers, including the costs for health care, compensation,
pension, and other types of benefits, we used notional costs as a
percentage of basic pay of accruing and actuarially funding Veterans
Affairs benefits in the DOD budget. The notional cost percentages we used
were unofficial Office of Management and Budget estimates. These estimates
were based on the most recent official percentages shown in table 12-2 of
the 1999 President's Budget.
Lastly, all active duty compensation costs are not presented in budgets.
As a result, we estimated the total federal tax expenditure and our
methods are described as part of the reserve compensation costs on page
39. We requested DOD's Office of the Actuary provide health care accrual
costs as described in appendix I. We also requested that DOD's Office of
Health Affairs provide health care cost estimates for active duty
servicemembers and their dependents for fiscal years 2004-2006. We relied
on our previously calculated active duty health care costs for fiscal
years 2000 through 2003.8 We conducted our review from October 2006
through May 2007 in accordance with generally accepted government auditing
standards.
8GAO, Military Personnel: DOD Needs to Improve the Transparency and
Reassess the Reasonableness, Appropriateness, Affordability, and
Sustainability of Its Military Compensation System, [46]GAO-05-798
(Washington, D.C.: July 19, 2005).
Appendix III: Pay and Benefits of the Selected Reserve
Part-time Guard and reserve servicemembers
Active duty Active duty
(other than (other than
training) for training) for
Inactive duty Active duty for 30 days or 31 days or Full-time
Compensation training (IDT) training (ADT) less more support
Cash compensation
Pay and allowances
Basic pay 1/30 of the Amount is Amount is Amount is Amount is
monthly basic determined by the determined by determined by determined by
pay rate for member's years of the member's the member's the member's
each IDT period service and pay years of years of years of
grade. service and service and service and
pay grade. pay grade. pay grade.
Basic Allowance Not eligible If ADT is 31 days Not eligible Amount is Amount is
for Housing or more, the determined by determined by
servicemember is member's pay member's pay
eligible. The grade, grade,
amount is location of location of
determined by the permanent duty permanent
member's pay station, and duty station,
grade, location of dependent and dependent
permanent duty status. status.
station, and
dependent status.
Basic Allowance Not eligible Eligible Eligible Not eligible Not eligible
for
Housing/Reserve
Component
Basic Allowance Not eligible Eligible, amount Eligibile, Eligible, Eligible,
Subsistence depends on if the amount amount depends amount
(Enlisted servicemember is depends on if on if the depends on if
servicemembers an officer or the servicemember the
may receive enlisted. servicemember is an officer servicemember
rations-in-kind) is an officer or enlisted. is an officer
or enlisted. or enlisted.
Family Separation Not eligible Eligible, limited Not eligible Eligible, Eligible, for
Allowance to members with limited to members with
dependents during members with dependents,
permanent change dependents if member
station when during meets
family cannot permanent statutory and
accompany member change of regulatory
or temporary duty station when requirements.
status family cannot
(unaccompanied for accompany
31 days or more). member or
temporary duty
status
(unaccompanied
for 31 days or
more).
Tax Benefit Not eligible Housing and Housing and Housing and Housing and
subsistence subsistence subsistence subsistence
allowances are allowances allowances are allowances
nontaxable are nontaxable are
benefits. In nontaxable benefits. In nontaxable
addition, all pay, benefits. In addition, all benefits. In
allowances, and addition, all pay, addition, all
bonuses earned pay, allowances, pay,
during a month allowances, and bonuses allowances,
while in a combat and bonuses earned during and bonuses
zone and qualified earned during a month while earned during
hazardous duty a month while in a combat a month while
area for 1day of in a combat zone and in a combat
the month are zone and qualified zone and
nontaxable. qualified hazardous duty qualified
Officers' monthly hazardous area for 1day hazardous
tax exclusion of duty area for of the month duty area for
military pay 1day of the are 1day of the
earned is capped month are nontaxable. month are
at the highest nontaxable. Officers' nontaxable.
enlisted monthly Officers' monthly tax Officers'
basic pay plus monthly tax exclusion of monthly tax
$225 for hazardous exclusion of military pay exclusion of
fire and Imminent military pay earned is military pay
Danger Pay (IDP). earned is capped at the earned is
capped at the highest capped at the
highest enlisted highest
enlisted monthly basic enlisted
monthly basic pay plus $225 monthly basic
pay plus $225 for hazardous pay plus $225
for hazardous fire and for hazardous
fire and Imminent fire and
Imminent Danger Pay. Imminent
Danger Pay. Danger Pay.
Special and incentive paysa
Hostile Eligible; Eligible, if the Eligible, if Eligible, if Eligible, if
Fire/Imminent however, DOD member meets the the member the member the member
Danger Pay policy states statutory and meets the meets the meets the
that a member regulatory statutory and statutory and statutory and
shall not requirements of regulatory regulatory regulatory
perform duty in the pay. requirements requirements requirements
a hostile of the pay. of the pay. of the pay.
fire/imminent
danger area
Hazardous Duty Eligible, at Eligible, if the Eligible, if Eligible, if Eligible, if
Incentive Pay 1/30 of the member meets the the member the member the member
authorized rate statutory and meets the meets the meets the
for each IDT regulatory statutory and statutory and statutory and
period, if the requirements of regulatory regulatory regulatory
member meets the the pay. requirements requirements requirements
statutory and of the pay. of the pay. of the pay.
regulatory
requirements of
the pay, except
for fire
fighters.
Aviation Career Eligible, at Eligible, if the Eligible, if Eligible, if Eligible, if
Incentive Pay 1/30 of the member meets the the member the member the member
authorized rate statutory and meets the meets the meets the
for each IDT regulatory statutory and statutory and statutory and
period, if the requirements of regulatory regulatory regulatory
member meets the the pay. requirements requirements requirements
statutory and of the pay. of the pay. of the pay.
regulatory
requirements of
the pay.
Career Enlisted Eligible, at Eligible, if the Eligible, if Eligible, if Eligible, if
Flyers Incentive 1/30 of the member meets the the member the member the member
Pay authorized rate statutory and meets the meets the meets the
for each IDT regulatory statutory and statutory and statutory and
period. requirements of regulatory regulatory regulatory
the pay. requirements requirements requirements
of the pay. of the pay. of the pay.
Foreign Language Eligible, if the Eligible, if the Eligible, if Eligible, if Eligible, if
Proficiency Pay member meets the member meets the the member the member the member
statutory and statutory and meets the meets the meets the
regulatory regulatory statutory and statutory and statutory and
requirements of requirements of regulatory regulatory regulatory
the pay. the pay. requirements requirements requirements
of the pay. of the pay. of the pay.
Submarine Duty Eligible, at Eligible, if the Eligible, if Eligible, if Eligible, if
Incentive Pay 1/30 of the member meets the the member the member the member
authorized rate statutory and meets the meets the meets the
for each IDT regulatory statutory and statutory and statutory and
period, if the requirements of regulatory regulatory regulatory
member meets the the pay. requirements requirements requirements
statutory and of the pay. of the pay. of the pay.
regulatory
requirements of
the pay.
Diving Duty Eligible, at Eligible, if the Eligible, if Eligible, if Eligible, if
Special Pay 1/30 of the member meets the the member the member the member
authorized rate statutory and meets the meets the meets the
for each IDT regulatory statutory and statutory and statutory and
period, if the requirements of regulatory regulatory regulatory
member meets the the pay. requirements requirements requirements
statutory and of the pay. of the pay. of the pay.
regulatory
requirements of
the pay.
Special Duty Eligible, at Eligible. However, Eligible. Eligible. Eligible, if
Assignment Pay 1/30 of the the Secretary of However, the However, the the member
authorized rate the military Secretary of Secretary of meets the
for each IDT department may the military the military statutory and
period, if the authorize payment department department may regulatory
member meets the only to those may authorize authorize requirements
statutory and reservists on payment only payment only of the pay.
regulatory active duty in to those to those
requirements of excess of 180 reservists on reservists on
the pay. days. active duty active duty in
in excess of excess of 180
180 days. days.
Officers Holding Eligible for Eligible for Eligible for Eligible for Eligible for
Positions of officers only, officers only, if officers officers only, officers
Unusual for each day of the member meets only, if the if the member only, if the
Responsibility and duty that meets the statutory and member meets meets the member meets
of Critical Nature the statutory regulatory the statutory statutory and the statutory
and regulatory requirements of and regulatory and
requirements of the pay. regulatory requirements regulatory
the pay. requirements of the pay. requirements
of the pay. of the pay.
Hardship Duty Pay Not eligible Eligible when Eligible when Eligible when Eligible, if
(mission) assigned to a assigned to a assigned to a the member
designated designated designated meets the
mission. mission. mission. statutory and
regulatory
requirements
for the pay.
Hardship Duty Pay Not eligible Eligible from the Eligible from Eligible from Eligible if
(location) first day if the first day the first day the member
assigned if assigned if assigned meets the
permanently to a permanently permanently to statutory and
designated to a a designated regulatory
location or if designated location or if requirements
assigned location or assigned for the pay.
temporarily to a if assigned temporarily to
designated temporarily a designated
location for more to a location for
than 30 designated more than 30
consecutive days, location for consecutive
payable from first more than 30 days, payable
day. consecutive from first
days, payable day.
from first
day.
Special Pay for Eligible at 1/30 Eligible at 1/30 Eligible at Eligible at Eligible at
Members of Weapons of the of the authorized 1/30 of the 1/30 of the 1/30 of the
of Mass authorized rate rate for each duty authorized authorized authorized
Destruction Civil for each duty day. rate for each rate for each rate for each
Support Teams day. duty day. duty day. duty day.
Medical and Dental Not eligible Eligible, medical Eligible, Eligible Eligible, if
Special Pay officers are medical the member
authorized officers are meets the
$450/month and authorized statutory and
dental officers $450/month regulatory
$350/month. and dental requirements
officers of the pay.
$350/month.
Other health care Not eligible Not eligible Not eligible Eligible Eligible, if
professions: the member
optometrists; meets the
psychologists and statutory and
non-physician regulatory
health care requirements
providers; nurse of the pay.
anesthetists &
veterinarians
Bonusesb
Selected Reserve Eligible for Eligible for Eligible for Eligible for Eligible for
Officer officers who officers who agree officers who officers who officers who
Affiliation Bonus agree to fill to fill critical agree to fill agree to fill agree to fill
critical shortfalls. critical critical critical
shortfalls. shortfalls. shortfalls. shortfalls;
however, DOD
policy
prohibits.
Selected Reserve Limited to Limited to Limited to Limited to Limited to
Enlistment Bonus Selected Reserve Selected Reserve Selected Selected Selected
who enlist to who enlist to fill Reserve who Reserve who Reserve who
fill critical critical enlist to enlist to fill enlist to
shortfalls. shortfalls. fill critical critical fill critical
shortfalls. shortfalls. shortfalls;
however, DOD
policy
prohibits..
Selected Reserve Limited to Limited to Limited to Limited to Limited to
Reenlistment Bonus Selected Reserve Selected Reserve Selected Selected Selected
who reenlist to who reenlist to Reserve who Reserve who Reserve who
fill critical fill critical reenlist to reenlist to reenlist to
shortfalls. shortfalls. fill critical fill critical fill critical
shortfalls. shortfalls. shortfalls;
however, DOD
policy
prohibits..
$30,000 Lump Sum Not eligible Not eligible Not eligible Not eligible Option
Bonus available to
Active Guard
and Reserves
with 15 years
of service
who first
became a
member after
August 1,
1986 and
elect to
accept the
lump sum
bonus and to
remain under
the Redux
retirement
plan.
Noncash
copensation
Medical and dental
carec
Member Medical and Eligible for Eligible, if 30 Eligible for Eligible for Eligible for
Dental Benefits treatment of days or less, for treatment of treatment treatment
injury, illness treatment of injury, provided at a
or disease injury, illness or illness or provided at a military
incurred or disease incurred disease military treatment
aggravated in or aggravated in incurred or treatment facility.
line of duty. line of duty and aggravated in facility.
if 31 days or more line of duty.
it is the same as
active duty.
TRICARE Dental Eligible Eligible, if ADT Eligible Dental care Dental care
Program for is 30 days or and and
Reserve Component less; however, if
members ADT is 31 days or treatment treatment
more then dental provided at a provided at
care and treatment military military
provided at a treatment treatment
military facility. facility.
treatmentfacility.
Dependent Medical Not eligible Eligible, if the Not eligible Eligible, at Eligible, at
Benefits military military
member is ordered facilities if facilities if
to active duty for space is space is
training for 31 available or available or
days the the
servicemember servicemember
or more. may select may select
from TRICARE from TRICARE
Standard, Standard,
Extra, Prime Extra, Prime
or Prime or Prime
Remote. Remote.
Transitional Not eligible Eligible, for 180 Not eligible Eligible, for Eligible, for
Health Care: days, if 180 days, if 180 days, if
Member and involuntarily involuntarily involuntarily
Dependents separated from separated from separated
active duty. active duty or from active
if released duty.
from active
duty while
serving in a
contingency
operation for
a period of
more than 30
days.
TRICARE Reserve Eligible, if Not eligible Not eligible
Select Tier I: member meets
Member and eligibility
Dependentsd requirements and
enrolls,
TRICARE Reserve Eligible, if Not eligible Not eligible
Select Tier II: member meets
Member and eligbility
Dependents requirements and
enrolls.
TRICARE Reserve Eligible, if Not eligible Not eligible
Select Tier III: member meets
Member and eligibility
Dependents requirements and
enrolls.
TRICARE Dental Eligible Eligible Eligible Eligible Eligible
Program for
Dependents
Installation-based
benefits
(availability
limited by
geographic
location)
Commissary Unlimited Unlimited Unlimited Unlimited Unlimited
Privileges
Post Exchange Unlimited Unlimited Unlimited Unlimited Unlimited
Privileges
Morale, Welfare, Eligible, Eligible, however, Eligible, Eligible, Eligible,
Recreation however, may may have limited however, may however, may however, may
Services have limited availability for have limited have limited have limited
availability for various services. availability availability availability
various for various for various for various
services. services. services. services.
Family Support Eligible for Eligible Eligible Eligible Eligible
Centers some services
but not all.
Child Care Centers Eligible, Eligible, but Eligible, but Eligible, but Eligible, but
however, may availability of availability availability availability
have limited space may be of space may of space may of space may
availability. limited. be limited. be limited. be limited.
Space Required Eligible to Eligible Eligible Eligible Eligible
Travel travel between
the member's
home and place
of training.
Space Available Eligible for the Eligible for the Eligible for Eligible for Eligible for
Travel member only member and the member the member and the member
within the dependents to all and dependents to and
continental locations. dependents to all locations. dependents to
United States of all all
America. locations. locations.
Legal Assistance Usually limited Subject to the Subject to Subject to the Subject to
to services that availability of the availability the
are associated legal staff availability of legal staff availability
with military resources. of legal resources. of legal
requirements. staff staff
resources. resources.
Insurancee
Servicemember Selected Reserve Selected Reserve Coverage Coverage Coverage
Group Life members are members are continues or continues or continues or
Insurance automatically automatically eligible to eligible to eligible to
enrolled and may enrolled and may enroll. enroll. enroll.
decline decline coverage.
coverage.
Servicemember Eligible, if the Eligible, if the Eligible, if Eligible, if Eligible, if
Group Life member is member is enrolled the member is the member is the member is
Insurance Family enrolled in in Servicemember enrolled in enrolled in enrolled in
Coverage Servicemember Group Life Servicemember Servicemember Servicemember
Group Life Insurance. Group Life Group Life Group Life
Insurance. Insurance. Insurance. Insurance.
Traumatic Injury Selected Selected Selected Selected Automatically
Protection Program Reservists are Reservists are Reservists Reservists are enrolled if
automatically automatically are automatically the reservist
enrolled if the enrolled if the automatically enrolled if has
reservist has reservist has enrolled if the reservist Servicemember
Servicemember Servicemember the reservist has Group Life
Group Life Group Life has Servicemember Insurance
Insurance Insurance Servicemember Group Life coverage.
coverage. coverage. Group Life Insurance
Insurance coverage.
coverage.
Leave
Accumulation of Not eligible Eligible, if ADT Not eligible Eligible Eligible
Leave is 31 days or
more.
Payment for Unused Not applicable. Eligible, if ADT Not eligible Eligible, up Eligible, up
Leave is 31 days or to 60 days in to 60 days in
more. Up to 60 career, but if career.
days in career. If on active duty
on ADT for more for more than
than 30 days but 30 days but
less than 365 less than 365
days, may sell days, may sell
unused leave in unused leave
excess of the in excess of
60-day career the 60-day
limit. career limit.
Education
Montgomery GI Bill Requires a Requires a 6-year Requires a Requires a Requires a
- Selected 6-year Selected Selected Reserve 6-year 6-year 6-year
Reservef Reserve service service agreement. Selected Selected Selected
agreement. Reserve Reserve Reserve
service service service
agreement. agreement. agreement.
Montgomery GI Bill Enlisted must be Enlisted must be Enlisted must Enlisted must Enlisted must
Kicker or have been or have been be or have be or have be or have
Montgomery GI Montgomery GI been been been
Bill-Selected Bill-Selected Montgomery GI Montgomery GI Montgomery GI
Reserve eligible Reserve eligible Bill-Selected Bill-Selected Bill-Selected
and serve in a and serve in a Reserve Reserve Reserve
critically critically eligible and eligible and eligible and
undermanned undermanned skill. serve in a serve in a serve in a
skill. Member Member must agree critically critically critically
must agree to a to a 6-year undermanned undermanned undermanned
6-year service service skill. Member skill. Member skill. Member
obligation. obligation. must agree to must agree to must agree to
a 6-year a 6-year a 6-year
service service service
obligation. obligation. obligation.
Reserve Officers Scholarship Scholarship Scholarship Scholarship Not eligible.
Training Corps program for program for program for program for
Scholarship Reserve Officers Reserve Officers Reserve Reserve
Program Training Corps Training Corps Officers Officers
participants. participants. Training Training Corps
Corps participants.
participants.
Armed Forces Restricted to Restricted to Restricted to Restricted to Restricted to
Health Professions officers in officers in officers in officers in officers in
Stipend Program designated designated health designated designated designated
health professions with health health health
professions with obligatory periods professions professions professions
obligatory of military with with with
periods of training. obligatory obligatory obligatory
military periods of periods of periods of
training. military military military
training. training. training.
The Loan Repayment Enlistment Enlistment Enlistment Enlistment Enlistment
Program incentive incentive. incentive incentive. incentive
Tuition Assistance Available to Eligible, but an Eligible , Eligible , but Eligible ,
Selected officer must agree but an an officer but an
Reservist to serve on active officer must must agree to officer must
members of the duty or full-time agree to serve on agree to
Army National National Guard serve on active duty or serve on
Guard and Army duty, unless active duty full-time active duty
Reserve. waived by the or full-time National Guard or full-time
Secretary National duty, unless National
concerned. Guard duty, waived by the Guard duty,
unless waived Secretary unless waived
by the concerned. by the
Secretary Secretary
concerned. concerned.
Reserve Eligible upon Eligible upon Eligible upon Eligible upon Eligible upon
Educational completion of 90 completion of 90 completion of completion of completion of
Assistance Program consecutive days consecutive days 90 90 consecutive 90
of active of active service consecutive days of active consecutive
service in in support of a days of service in days of
support of a contingency active support of a active
contingency operation. service in contingency service in
operation. support of a operation. support of a
contingency contingency
operation. operation.
Other
Clothing Allowance Initial Initial allowance Initial Some enlisted, Eligible
allowance paid paid to some allowance and officers
to enlisted who enlisted and paid to called to
are not issued officers at the enlisted some active duty
clothing and beginning of their and officers for more than
officers at the service. at the 90 days may
beginning of beginning of receive an
their service. their extra clothing
service. allowance.
Transportation Not eligible Not eligible Eligible Eligible Eligible
Incentive Program
Permanent Change Not eligible Not eligible Not eligible Eligible if Eligible
of Station Travel orders are for
20 weeks or
more.
Veterans Affairs- Eligible, if Eligible, if Eligible, if Eligible, if Eligible
Home Loan g completed 6 completed 6 years completed 6 completed 6
years of of honorable years of years of
honorable reserve service. honorable honorable
reserve service. reserve reserve
service. service.
Deferred compensation
Reserve retirement Must earn 50 Must earn 50 Must earn 50 Must earn 50 Must have a
participation participation participation participation minimum of 20
points per year points per year points per points per qualifying
for a minimum of for a minimum of year for a year for a years to be
20 years. 20 years. Eligible minimum of 20 minimum of 20 eligible for
Eligible to to receive pay and years. years. retirement
receive pay and health care at age Eligible to Eligible to pay and
health care at 60. receive pay receive pay benefits.
age 60. and health and health
care at age care at age
60. 60.
Retirement or Eligible, if the Eligible, if the Eligible, if Eligible, if Eligible, if
Separation for disability was disability was the the disability the
Disabilityh incurred or incurred or disability was incurred disability
aggravated in aggravated in the was incurred or aggravated was incurred
the line of duty line of duty. or aggravated in the line of or aggravated
while: in the line duty. in the line
performing of duty. of duty.
inactive duty
training (IDT),
traveling
directly to or
from the IDT
site, remaining
overnight
immediately
before or
between
successive IDT
periods.
Veterans Affairs- Generally not Generally not Generally not Generally not A member
Health care eligible unless eligible unless eligible eligible qualifies
member qualifies member qualifies unless member unless member based on
based on service based on service qualifies qualifies active duty
in active in active military based on based on status.
military or or mobilization service in service in
mobilization for for a contingency active active
a contingency operation. military or military or
operation. mobilization mobilization
for a for a
contingency contingency
operation. operation.
Source: GAO analysis.
Note: Current through fiscal year 2006.
aSpecial and incentive pays are intended to compensate members for more
hazardous conditions than usually experienced in peacetime and provide
incentives for certain career fields that would otherwise experience
manpower shortfalls.
bBonuses are intended to provide services with a flexible tool for
targeting particular skills and address critical manpower shortfalls.
cThere are a variety of programs offering varying levels of coverage
depending on duty status and enrollment.
dThe John Warner National Defense Authorization Act for Fiscal Year 2007
authorized the enhancement of TRICARE Reserve Select by making all
Selected Reserve members and dependents eligible for the program at 28
percent of the premium. The change to the program is scheduled to take
effect by October 2007.
eThe insurance programs listed are supervised by the Department of
Veterans Affairs. Enrollment in the programs requires the payment of a
premium. The insurance may be bought in increments of $50,000 up to a
maximum of $400,000. Children are insured at $10,000 at no additional
cost. Up to $100,000 coverage can be purchased for a spouse. Traumatic
injury insurance provides immediate financial assistance to traumatically
injured servicemembers so their families can travel to be with them during
an often extensive recovery and rehabilitation process. Payments range
from $25,000 to $100,000 depending on the type and severity of injury.
fUnlike Montgomery GI Bill-Active Duty, for reservists meeting the
eligibility requirement, the benefit is automatic and the members are not
required to make a payment. The Montgomery GI Bill-Reserve Component
benefit amount is smaller than the Montgomery GI Bill -Active Duty
benefit.
gThe majority of reservists have prior service in the active component.
Since fees for active duty applications are lower than reserve
applications, reservists with active duty prior service usually apply
based on their prior active duty service.
hBoth DOD and Veterans Affairs provide disability compensation. Since
2005, disabled veterans have been eligible to receive disability
compensation from Veterans Affairs and disability retirement from DOD.
Appendix IV: Comments from the Department of Defense and GAO's Response
See comment 1.
See comment 3.
See comment 2.
See comment 8.
See comment 7.
See comment 6.
See comment 5.
See comment 4.
See comment 15.
See comment 14.
See comment 8.
See comment 8.
See comment 8.
See comment 13
See comment 12.
See comment 11.
See comment 10.
See comment 9.
See comment 8.
See comment 19.
See comment 18.
See comment 17.
See comment 8.
See comment 16.
See comment 8.
See comment 24.
See comment 8.
See comment 24.
See comment 23.
See comment 8.
See comment 22.
See comment 21
See comment 21.
See comment 20.
GAO Response to Department of Defense's Technical Comments
The Department of Defense (DOD) made comments on the presentation of the
data in our report and raised a number of technical concerns. Our response
to DOD's technical comments follows.
1. DOD commented that we did not adequately describe the impact of
the increase in funding related to the Global War on Terrorism. In
its comments, DOD stated that in fiscal year 2006 more than $15.6
billion of the $173.2 billion in compensation costs were
supplemental funding for the Global War on Terrorism. While it is
true that our estimates include supplemental funding, we do not
believe that the inclusion of this funding changes our findings or
conclusions. Costs paid from supplemental funding represents real
costs to the federal government that we believe are appropriate to
include when calculating how much the federal government spends on
compensating military servicemembers. However, we understand DOD's
concern, and footnotes in the report that explain our approach are
sufficient. Furthermore, we believe that DOD's comment illustrates
the importance of providing greater transparency over mobilized
reservists' costs. As we have previously testified, with Global
War on Terrorism costs likely to continue for the foreseeable
future, it is becoming increasingly important that DOD move those
costs into the baseline budget as the level of effort becomes
better known and is more predictable.1 Greater transparency over
costs would provide administration and congressional decision
makers more information to make fact-based decisions and weigh
competing priorities for the nation's resources.
2. DOD did not disagree with our overall finding that active duty
compensation costs to the government have increased since fiscal
year 2000. However, DOD stated that our reliance on end strength
numbers for active duty personnel distorts active duty per capita
costs calculations because that number does not include mobilized
reservists. We did note in the report that mobilized reservists
are paid out of active duty cash compensation costs and that our
active duty per capita cost estimates do not take these mobilized
reservists into account, and acknowledge in the report that the
per capita costs to provide compensation would be lower if these
mobilized reservists were taken into consideration. DOD's concern
further highlights the need for the department to establish
greater transparency over the costs of reservists. As we state in
this report, accounting for mobilized reservists is problematic,
given that they count against reserve end strength numbers but are
paid out of active duty accounts.
3. DOD raised concerns about the adjustments we made in our data
to account for inflation, and felt that the deflators, or price
indices, we chose understated the real growth in compensation
costs between fiscal years 2000 and 2006. We are aware that the
price indices we used make our growth estimates conservative and
that other indices would show similar or greater growth. We
recognize that in examining the growth of military compensation
over time, the division of this growth between real growth and
growth due to inflation depends on the price index or deflator
used to adjust for inflation. For example, when dividing total
growth in compensation between real growth and growth due to
inflation, a higher rate of inflation will produce a lower real
growth rate, and vice versa. We used the deflators for military
pay that are contained in the National Defense Budget Estimates
for fiscal year 2007 that are published by the Office of the Under
Secretary of Defense of the Comptroller because they represent the
official DOD indices for military pay budget matters. This office
produces several different deflators or price indices that DOD
uses officially to adjust dollars amounts for inflation for
different budgetary purposes, such as procurement or operations
and maintenance. We recognize, as DOD suggested in its comments,
that we could have used the Employment Cost Index or the Consumer
Price Index (for Urban Wage Earners and Clerical Workers) to
adjust for inflation. Although DOD suggested the Employment Cost
Index for wages and salaries would have been a more appropriate
price index, we would have used the Employment Cost Index specific
for total compensation for the private sector, because the
military compensation number we calculated included more than
wages and salaries. For example, in addition to wages and salaries
we also included such things as allowances for housing and
subsistence and retirement pay accrual. As we previously stated in
our report, we used the military pay deflator and found that
reserve compensation costs grew at a real rate of 47 percent from
fiscal year 2000 to fiscal year 2006. When we redid our
calculations using the Employment Cost Index, we found that
reserve compensation costs grew 48 percent from fiscal year 2000
to fiscal year 2006. When we redid our calculations using the
Consumer Price Index, we found that reserve compensation costs
grew 55 percent from fiscal year 2000 to fiscal year 2006.
However, we note that DOD does not use this index to prepare its
military personnel budgets.
4. DOD commented that the calculation of the part-time reservists
should have included pay groups for initial entry reservists in
the average strength. We agree and changed our data to include the
pay groups for the initial entry reservists in the average
strength.
5. DOD commented that the department made a conscious decision to
improve the transparency of compensation costs of mobilized
reservists starting in the fiscal year 2007 supplemental
submission. We agree that the services have taken the first step
of displaying these costs as part of the supplemental request;
however, we believe the department would benefit from greater
transparency over these costs, including presenting them as part
of a complete picture of compensation costs in the military
personnel justification books.
6. The sentence in question does not discuss whether or not
reserve retirement pay has changed or whether DOD sought the
TRICARE Reserve Select program; it simply provides examples of
deferred compensation. However, we altered the sentence for
clarity to reflect that we were talking about health care benefits
for retirees.
7. We adjusted the language for clarification to reflect the fact
that not living in close proximity to military bases does not
effect eligibility.
8. We adjusted the language as suggested.
9. We changed the sentence to reflect the fact we are referring to
mobilized personnel only.
10. We specify in the introduction of the report that we limited
our scope to, part-time, drilling reservists, and full-time
support personnel serving in the Active Guard and Reserve program
of the Selected Reserve. We excluded reserve and guard members who
were mobilized from our cost estimates. We defined our scope based
on cost information presented by DOD in the budget justification
books. These books present the cost of part-time and
Administration and Support personnel.
11. Our Results in Brief now show that DOD has testified that
adding deferred compensation is not their preference.
12. We excluded mobilized reservists from our cost estimates
because their costs are not presented in the reserve justification
books. However, we believe that the total costs of the Guard and
reserve should include the cost for mobilized reservists and that
the department should take steps to provide greater transparency
over all compensation costs for decision makers to make fact-based
decisions.
13. We added language to clarify that mobilized reservists are
paid out of supplemental funding.
14. We addressed the comment by adding a footnote to the section.
15. We reordered the presentation of the reserve components as
suggested.
16. Agency officials told us that ongoing operations had been part
of the reason for the increase in full-time reservists during the
course of the review. However, we deleted the sentence as
requested in the department's formal comments.
17. We defined our use of the term full-time reservists to mean
Active Guard and Reserve in the introduction of the report.
18. This statement is referring to reserve compensation costs as
they are currently presented to decision makers in the
justification books. However, we added "reserve" into the sentence
for further clarification.
19. The report did not state that DOD has sought increases in
deferred compensation, so no change was needed.
20. The sentence refers to the cost of the program to the
government and not to bonuses received by individuals.
21. We added a statement to acknowledge that DOD has not sought
some recent additions to deferred compensation, specifically
TRICARE for life. However, DOD has not formally assessed the
appropriate mix of compensation and has not developed a written
policy or document that specifies the departments overarching
strategy for compensation.
22. While it is true that DOD has sponsored a study assessing the
use of compensation under a reserve continuum of service concept,
we continue to believe that DOD has not developed any performance
measures to regularly and systematically assess all types of
compensation. The study points out the effectiveness of targeted
compensation. This is an example of the foundation for the
compensation strategy we are recommending DOD formalize.
23. The focus of our reports in 2005 and 2007 was on the
difficulties with rolling out the Defense Integrated Military
Human Resources System rather than on any particular service
system.
24. DOD provided separate enclosures, in addition to its agency
comments, that provided technical comments on tables in our
report. We made those changes as suggested.
1 GAO, Global War on Terrorism: Observations on Funding, Costs, and Future
Commitments, [47]GAO-06-885T (Washington, D.C.: July 18, 2006).
Appendix V: GAO Contact and Staff Acknowledgments
GAO Contact
John Pendleton, (404) 679-1900 or [48][email protected]
Acknowledgments
In addition to the contact named above, David Moser, Assistant Director;
Lori Atkinson, Ben Bolitzer, Renee Brown, Linda Keefer, Susan Langley,
Julia Matta, Erin Noel, Charles Perdue, Rebecca Shea, Kathryn Smith, and
Sonja Ware made key contributions to this report.
Related GAO Products
Military Personnel: DOD Needs Action Plan to Address Enlisted Personnel
Recruitment and Retention Challenges. [49]GAO-06-134 . Washington, D.C.:
November 17, 2005.
Defense Health Care: Health Insurance Stipend Program Expected to Cost
More Than TRICARE But Could Improve Continuity of Care for Dependents of
Activated Reserve Component Members. [50]GAO-06-128R . Washington, D.C.:
October 19, 2005.
Military Personnel: DOD Needs to Improve the Transparency and Reassess the
Reasonableness, Appropriateness, Affordability, and Sustainability of Its
Military Compensation System. [51]GAO-05-798 . Washington, D.C.: July 19,
2005.
Military Personnel: Preliminary Observations on Recruiting and Retention
Issues within the U.S. Armed Forces. GAO-05-419T. Washington, D.C.: March
16, 2005.
DOD Systems Modernization: Management of Integrated Military Human Capital
Program Needs Additional Improvements. [52]GAO-05-189 . Washington, D.C.:
February 11, 2005.
Military Personnel: A Strategic Approach Is Needed to Address Long-term
Guard and Reserve Force Availability. [53]GAO-05-285T . Washington, D.C.:
February 2, 2005.
21st Century Challenges: Reexamining the Base of the Federal Government.
GAO-05-325SP. Washington, D.C.: February 2005.
Military Personnel: DOD Needs More Data Before It Can Determine if Costly
Changes to the Reserve Retirement System Are Warranted. GAO-04-1005.
Washington, D.C.: September 15, 2004.
Military Personnel: Survivor Benefits for Servicemembers and Federal,
State, and City Government Employees. GAO-04-814. Washington, D.C.: July
15, 2004.
Military Personnel: Active Duty Compensation and Its Tax Treatment.
GAO-04-721R. Washington, D.C.: May 7, 2004.
Military Personnel: Observations Related to Reserve Compensation,
Selective Reenlistment Bonuses, and Mail Delivery to Deployed Troops.
GAO-04-582T. Washington, D.C.: March 24, 2004.
Military Personnel: Information on Selected National Guard Management
Issues. [54]GAO-04-258 . Washington, D.C.: December 2, 2003.
Military Personnel: DOD Needs More Effective Controls to Better Assess the
Progress of the Selective Reenlistment Bonus Program. GAO-04-86.
Washington, D.C.: November 13, 2003.
Military Personnel: DOD Needs to Assess Certain Factors in Determining
Whether Hazardous Duty Pay Is Warranted for Duty in the Polar Regions.
GAO-03-554. Washington, D.C.: April 29, 2003.
Military and Veterans' Benefits: Observations on the Concurrent Receipt of
Military Retirement and VA Disability Compensation. GAO-03-575T.
Washington, D.C.: March 27, 2003.
Military Personnel: Preliminary Observations Related to Income, Benefits,
and Employer Support for Reservists During Mobilizations. [55]GAO-03-573T
. March 19, 2003.
Military Personnel: Management and Oversight of Selective Reenlistment
Bonus Program Needs Improvement. GAO-03-149. Washington, D.C.: November
25, 2002.
Military Personnel: Active Duty Benefits Reflect Changing Demographics,
but Opportunities Exist to Improve. GAO-02-935. Washington, D.C.:
September 18, 2002.
Military Personnel: Higher Allowances Should Increase Use of Civilian
Housing, but Not Retention. GAO-01-684. Washington, D.C.: May 31, 2001.
Defense Health Care: Observations on Proposed Benefit Expansion and
Overcoming TRICARE Obstacles. GAO/T-HEHS/NSIAD-00-129. Washington, D.C.:
March 15, 2000.
Unemployment Insurance: Millions in Benefits Overpaid to Military
Reservists. GAO/ [56]HEHS-96-101 . August 5, 1996.
The Congress Should Act to Establish Military Compensation Principles.
GAO/FPCD-79-11. Washington, D.C.: May 9, 1979.
(350922)
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Highlights of [64]GAO-07-828 , a report to congressional committees
June 2007
MILITARY PERSONNEL
DOD Needs to Establish a Strategy and Improve Transparency over Reserve
and National Guard Compensation to Manage Significant Growth in Cost
The Department of Defense (DOD) has increasingly relied on reserve
personnel to carry out its military operations. Congress and DOD have
taken steps to enhance reserve compensation, such as improving health care
benefits. Concerns exist, however, that rising compensation costs may not
be sustainable in the future, especially given the nation's large and
growing long-range fiscal imbalance. Under the statutory authority of the
Comptroller General to conduct work on his own initiative, GAO (1)
reviewed how much it has cost the federal government to compensate reserve
personnel since fiscal year 2000;
(2) assessed the extent to which DOD's mix of cash, noncash, and deferred
compensation has helped DOD meet its human capital goals; and (3)
evaluated the extent to which DOD's approach to reserve compensation
provides transparency over total cost to the federal government. To
address these objectives, GAO analyzed budget data and relevant
legislation and also interviewed appropriate officials. GAO focused this
review on part-time reservists and full-time, active guard and reserve.
[65]What GAO Recommends
GAO is making recommendations to assess the appropriateness of the reserve
compensation system and to improve transparency over total reserve
compensation costs. DOD partially concurred with GAO's recommendations.
Using fiscal year (FY) 2006 constant dollars, the federal government's
total cost to compensate part-time and full-time reserve personnel has
increased 47 percent since FY 2000, rising from about $13.9 billion in FY
2000 to about $20.5 billion in FY 2006. Most reservists are part-time, and
their per capita compensation costs nearly doubled from about $10,100 in
FY 2000 to about $19,100 in FY 2006. Additionally, a small percentage of
reservists work full-time, and their per capita costs increased about 28
percent from FY 2000 to FY 2006. Cash compensation, which servicemembers
see in their "paycheck," has increased about 19 percent. However, much of
the total growth in compensation is driven by the costs for deferred
compensation. These costs tripled over this period, primarily attributed
to enhanced health care benefits. Moreover, DOD officials anticipate
significant continued growth in health care costs because of the expansion
of health care coverage to reserve personnel in FY 2007.
DOD does not know the extent to which its mix of pay and benefits meets
its human capital goals in part because it lacks an established
compensation strategy to identify the appropriate mix of reserve
compensation to maintain its force. DOD and Congress have added pay and
benefits using a piecemeal approach that has not been based on an
established strategy and that has not adequately considered the
appropriateness, affordability, and sustainability of the related costs.
These additions have contributed to a shift in the mix of compensation
toward more deferred benefits--that is, future compensation such as
retirement pay and health care for life. Deferred benefits increased from
12 percent of total reserve compensation in FY 2000 to 28 percent of total
compensation in FY 2006. This increase in deferred compensation may not be
the most efficient allocation given that fewer than one in four of those
who join the reserve will ultimately earn nondisability retirement pay and
health care for life. Moreover, DOD does not know the efficiency and
effectiveness of these changes in meeting its recruiting and retention
goals because it does not have performance measures. Without performance
measures, DOD cannot determine the return on its compensation investment
or make fact-based choices on how its compensation resources should be
allocated.
DOD's approach to reserve compensation does not provide decision makers in
Congress and DOD with adequate transparency over total cost for
reservists--including the allocation of costs to cash, noncash, and
deferred compensation, as well as the cost for mobilized reservists.
Despite the fact that sound business practices require adequate
transparency over investments of resources, currently costs are found in
multiple budgets within three federal departments. Until total reserve
compensation costs are compiled in a transparent manner--and decisions are
based on established compensation strategies--decision makers will be
unable to determine the affordability, cost effectiveness, and ultimately
the sustainability of the reserve compensation system. Increased
transparency is especially important given the growing fiscal challenges
the country faces.
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