The American Interest
Analysis by Walter Russell Mead & Staff
Pension Tidal Wave Looms over Defense Budget

The Pentagon may have an even larger problem than sequestration: trillions of dollars in unfunded pension liabilities. Over the past few decades, military pension costs have inflated rapidly with no signs of slowing down: The liability currently stands at $1.2 trillion and is expected to rise to nearly $3 trillion over the next quarter-century. Along with similar increases in military compensation and health care spending, these ballooning costs have led the Center for Strategic and Budgetary Assessments to warn that “military personel costs will consume the entire defense budget by 2039.”

The FT reports:

Service members are entitled to half salary after 20 years, which was reduced to 40 per cent in the Reagan administration, but returned to 50 per cent under President Bill Clinton. As well as the overall financial burden, the system is controversial because only 17 per cent of personnel actually serve the required 20 years needed to qualify. Most of the people who fought in Iraq and Afghanistan will end up with no pension at all. The system is “unfair, unaffordable and inflexible”, the Defense Business Board, which advises the secretary of defence, said last year.

There is growing frustration among retired veterans that the Pentagon top brass has not done more to defend them. “My pension was well-earned,” says retired rear admiral Gerald Thompson, another Fleet Landing resident. “When I look at other people I know who went into different fields, I do not think that it is overly-generous.” 

Just like in state pension crises, the biggest villains here are sleazy politicians who make promises they don’t take steps to fulfill. Voters—and workers relying on promised pensions—need to wake up and smell the coffee.

We need a national consensus that every change to a pension program needs to be actuarially sound, and all money promised to pensioners needs to be set aside on a continuing basis, based on reasonable assumptions about investment returns. This needs to be true at every level and in every branch of government.

In the meantime, we have to put pensions on a sustainable path, which unfortunately means making compromises that nobody will like. But beyond that, we need to move military pensions out of the defense budget and into the budget of the federal government as a whole. We will have enough trouble thinking clearly about the defense budget in future years without having it inflated by pension numbers.

Published on January 24, 2013 1:43 pm