Mainstreaming military compensation: problems and prospects

Abstract

Changes to the military retirement system in the 1980's and attention by law makers, military leadership, and service members to pay comparability between the private sector and the military indicate that current military compensation policies may be inadequate to recruit and retain the necessary personnel. This thesis examines the military retirement system in light of developments in private sector retirement policy. It also examines the pay structure used in the military and addresses current pay gap issues. Defined contribution plans in the private sector have been increasingly successful in public and government organizations. Examples include the Federal Employees Thrift Savings Plan and Section 403 (b), Section 457, and Section 414(h)(2) tax- deferred retirement plans. These plans benefit employees in retirement by providing them with tax incentives to encourage saving during their working years. The recent introduction of the Roth IRA provides individuals a new opportunity to save for retirement years. The success of the U.S. stock market since the 1970's indicates that saving through a defined contribution plan or IRA may provide income security for retirement years. It is concluded that the current military retirement system may have to be modified to reflect these developments in the private sector. Prospects for reform include some form of defined contribution plan for military members, eliminating or reducing the perceived pay gap, restructuring the military pay system, and improving DoD's financial management programs