Summary: GAO has recommended conversion to a salary system whereby all service personnel would be paid in cash and distributions based on dependents, marital status, or in-kind benefits would disappear. The present military compensation package consists of basic pay and quarters and subsistence allowances. Since subsistence, quarters, and housing allowances are not subject to Federal income or social security taxes, military personnel enjoy a tax advantage. A salary system is a better way to pay service personnel because: (1) under the current system, members, managers, and Congress have difficulty in accurately quantifying and evaluating military pay; (2) a salary system would eliminate inequities in pay between married and single members of the same grade and length of service; and (3) a salary system would more fully reflect the cost of military manpower, rather than partially concealing it through tax advantages. A salary system program would create a more attractive package for single enlistees. GAO does not know if a salary system would be more costly in time of war. Under the uniformed services retirement system, participants are also covered by social security benefits and are eligible for veterans' benefits. Members can retire with immediate benefits at any age after 20 years of service. Retirement benefit amounts are based on terminal pay rates rather than average pay over a certain number of years. There is no contribution by covered personnel toward the cost of the system. There are no vested rights for members who separate before they are eligible. Too many highly qualified members leave the Services to begin second careers. Annuities should be reduced for younger retirees and increased for older ones, and members should be vested after completing 10 years of service. Changes are needed because the current system is inequitable, inhibits effective and flexible force management, and is inefficient. The Services are permitted wide latitude in developing enlisted personnel management systems. Each of the Services must be more cost conscious in addressing personnel management decisions. A more occupational and years-of-service specific plan could provide the Services with better qualified people in critical areas at less cost.
