Summary: GAO testified on the structure of the Department of Defense's (DOD) military retirement system, specifically: (1) the recent change to accrual accounting for retirement annuities; (2) DOD proposals to change the system; and (3) the accuracy of the estimated accrual savings that would result from enacting DOD proposals. GAO noted that: (1) unlike common private-sector practice, the receipt of social security benefits does not reduce the level of military retired pay; (2) beginning in fiscal year 1985, DOD was required to account for its retirement costs using accrual accounting; and (3) while both military and civil service accruals are stated as a percentage of total personnel costs, the number of service members who historically received retired pay was lower. GAO found that: (1) the options for reducing retirement accrual funding involved reducing the multipliers for years of service and incorporating 5 years of basic pay as the basis for determining retired pay; (2) under the current system, retired pay is equal to 2.5 percent of the high 3 years of pay; (3) the effect of the changes on the typical enlisted retiree, with 20 years of service, would be to provide 36 to 40 percent of final basic pay during retirement; and (4) DOD used the methodology approved by the board actuaries to determine that the proposals would produce the required level of savings. GAO also found that: (1) it is not just the amount of retirement pay that encourages retention, but the all-or-nothing aspect of the 20-year retirement system and other retirement benefits; (2) although the proposed changes will reduce retired pay, the positive aspects of military life may outweigh any loss of retirement income; and (3) DOD cannot reduce its monthly accrual charge until Congress enacts legislation changing the current retirement system.
