Summary: Overall, GAO sees no clear indication that the proposed change to the military's retirement system, which would cost an estimated $13 billion in higher costs and unfunded liabilities, will address the retention issue. Although the recently reported downturn in retention rates is of concern, the nature of the retention problem is unclear. Is the problem widespread or is it concentrated in certain military occupations or year groups? Is it a transitory problem attributable to such factors as reduced accessions during the drawdown and the strong economy, of is it the beginning of a long-term problem? Understanding the nature of the retention problem is critical in crafting solutions. According to the Defense Department, the 1986 Military Retirement Reform Act has become a symbol of eroding benefits to military members. Although surveys of military personnel show increasing dissatisfaction with the retirement system, it is not clear what that really means. For example, some surveys do not differentiate between retirement pay and other retirement benefits. The link between retirement pay and retention is also unclear. According to an analysis done by the Congressional Budget Office, retention rates under the act have not been markedly different than rates under the earlier system. Even if the retirement system is found to be linked to retention, it may not be the most cost-effective way to address existing retention problems. In addition, DOD's proposed pay and retirement changes does not address other military retirement issues and their impact on the structure of the force.
