Retention and retirement: The case of the U.S. military

Abstract

The military retirement system provides an immediate, lifetime, inflation-protected annuity to personnel who co mplete 20 or more years of service. The cost of this system has risen substantially in the past 15 years, and the system's actuarial costs now comprise almost one-third of total military manpower costs. Because of its importance in the total military compensation system, the military retirement system exerts a significant influence on the age structure of the force and on personnel turnover patterns. This article evaluates the relative efficiency of the current retirement system by comparing it with two recently proposed alternatives, one by a presidential commission and one by the Department of Defense. It estimates the impact of these proposed alternatives on the military personnel force structure and on manpower costs. It is concluded that these alternatives would provide a force as capable as today's force at significantly lower cost.

Military Compensation Reform in the Department of the Navy

“…Finally, there is evidence that EBs reduce retention at the expiration of the member's initial service obligation [23]. This is consistent with the theoretical model and the observed relationship between the SRB and retention: since higher bonuses encourage some who would have entered the civilian labor to enlist, ceteris paribus, these people have a relatively low preference for military service.…”

“…22 The 9th QRMC estimated that DoD as a whole paid about 70 percent of military compensation in cash pay (RMC, accession and retention bonuses, special and incentive pays, and other allowances), while the remaining 30 percent consisted of in-kind compensation and benefits [3]. 23 By definition, in-kind benefits restrict the consumption choices made by recipients; the value of the benefit depends on what the recipient prefers to consume. Onbase recreational facilities may be valued highly by a junior enlisted member living nearby but are literally worthless to someone electing BAH and working at an outlying facility.…”

“…These theoretical models assume that personnel combine all elements of military compensation into a single measure of remuneration and compare it to civilian earnings opportunities when deciding to remain in the military. For a seminal paper demonstrating the usefulness of this approach, see [23]. Also see [24].…”

Feasibility study to update annualized cost of leaving (ACOL) procedures at the Navy Personnel Research and Development Center (NPRDC)

“…This is an important factor not captured by ACOL. Both Gotz and McC__II(1984) and Ar_,,uden(1986) point out the internally inconsistent treatment of taste for the service in the ACOL model as described by Enns, Nelson, and Warner (1984). On the one hand, taste for the service is assumed constant in the calculation of the annualized cost of leaving.…”