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Requirement to Change Based on Cost Considerations
Conclusions on Cost

Requirement to Change Based on Management and Equity
Conclusions.

Alternatives to the Present Nondisability Retirement System.

The Interagency Committee Recommendation

The DOD Study Group Alternative:
Conclusions

Elements and Advantages

Relationship Between the Proposed Compensation and
Proposed Management Systems

Officer Personnel Management
Enlisted Personnel Management
Summary
Conclusions

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FINAL REPORT OF THE DOD RETIREMENT STUDY GROUP

Introduction

Pursuant to Secretary of Defense memorandum (Tab A), dated January 28, 1972, a Department of Defense Retirement Study Group was organized. Its membership was as follows:

Roger T. Kelley, ASD (M&RA) - Chairman

Hadlai A. Hull, ASA (M&RA)

Walter T. Kerwin, LTG, DCSPER/USA

James E. Johnson, ASN (M&RA)

David H. Bagley, VADM, DCNO (M&RA)

Ormond R. Simpson, LTG, DCS (M) USMC
Richard J. Borda, ASAF (M&RA)

Robert J. Dixon, LTG, DCSPER/USAF

Paul C. Watson, BG, USAF, Dir, J-1, OJCS
Leo E. Benade, MG, USA, DASD (MPP)

Carl M. Detwyler, Dir, Mil Pers, OASD (C)
Donald W. Srull, DASD (SA)

The DOD Retirement Study Group has completed its task and this report summarizes its findings and conclusions. The primary requirements addressed by the Study Group are set forth in detail at Tab A. In general, these requirements included:

O Assessment of the economic environment and the economic resources
available to support the military retirement system.

O Review of the cost analysis of the Interagency Committee report.
o Analysis of the problems in the existing retirement system.
Identification of alternatives to the existing retirement system.
o Analysis of cost and management implications of alternatives.
o Assessment of the balance between cost and management practices.

The Study Group's analysis of the requirements in the basic memorand confirmed the members' judgment that a delicate balance exists between the military personnel management and compensation systems. Consequently the Study Group determined that it had to begin its work by identifying and seeking conceptual consensus, at a minimum, with respect to the personnel management goals of the Department of Defense.

From the perspective of personnel management objectives, the Study

that now exist and that must be resolved in order to move to the desired management system. The interrelationship between the personnel management and compensation systems and the resolution of associated problems serves as the foundation and framework of the remainder of this report.

In addition to identifying certain other management and compensation revisions needed to attain management goals, the Study Group, in conjunction with its basic charter, specifically evaluated the nondisability retirement system as it would be revised by the Interagency Committee (IAC). It reached consensus on an alternative system that all Study Group members can support. This alternative and the Interagency Committee proposal are also described in this report. The advantages of the DOD Study Group alternative compared to the Interagency Committee proposal are elaborated.

Personnel Management Proposals

The DOD Study Group investigated the desired conceptual personnel nanagement systems under consideration within Defense in order to evaluate the effect of proposed changes to the military retirement system. This provided insight into the direction Defense was moving and specified an objective that is to be sought with changes to the personnel management and compensation systems. Necessary changes in personnel management legislation and policy and changes to the compensation system could then be identified and be evaluated in terms of their ability to assist in reaching the objective management structure. Both the officer personnel management proposal and the enlisted personnel management proposals were investigated.

Officer Personnel Management

The broken line in Figure 1 depicts the current total DOD officer force inventory in terms of the numbers (horizontal axis) in each year of service from the 4th year through the 30th year (vertical axis). This structure is characterized by less than optimum retention rates of junior officers in the 4th through the 12th years, more officers than required beyond the 12th year, and large irregularities in inventory distribution by years of service. In some individual Services, these irregularities are even more pronounced.

The high uncontrolled losses during the early years contribute to these characteristics. They dilute the overall experience level of the officer force, reduce Service ability to be truly selective in the promotion and retention of officers, and make it difficult to retain the required mixture of skills by grade. In addition, junior officer shortages caused by high loss rates force personnel managers to compensate for these shortages by carrying more officers into the retirement eligibility stream than are needed in that portion of the career structure.

The present structure is also shaped to a large extent by statutory provisions of tenure, resulting in what remains of the WWII "hump" at 29/30 years and in the Korean "hump" between 17 and 21 years.

FIGURE 1

CONCEPTUAL DOD OBJECTIVE OFFICER CAREER STRUCTURE*
Assumed Total Officer Strength 315 to 340 Thousand
VS. ACTUAL OFFICER DISTRIBUTION ON 30 JUNE 71

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CURRENT FORCE

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7,000 - 8,000

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117,000 REGULARS/RESERVES

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The solid line in Figure 1 represents the desired DOD officer force structure. The objective structure would contain more officers in the 4th through the 12th years and fewer beyond the 12th year continuing to retirement eligibility.

The differences between the profiles demonstrate graphically the needed management changes. To increase the number of officers in the 4th through 12th years an incentive is required, such as, the "Special Pay: bonus for officers of armed forces who execute activeduty agreements" now under congressional consideration. To reduce the numbers of officers beyond the 12th year, other changes are required. These include changes in tenure and acceptance of an essentially allregular content after the 12th year, except for reserve officers on active duty for the training and administration of National Guard and Reserve forces. The management changes required to move to the objective force structure will provide a higher degree of quantitative and qualitative control over the officer inventory; however, the individual security presently provided by longer guaranteed terms of tenure will be reduced to some degree. This increases the importance of providing adequate readjustment and post-service compensation to those officers denied full careers.

Enlisted Personnel Management

Unlike the officer force management system, in which a DOD objective force structure has been developed, enlisted force management systems based on DOD guidance and approval are being, or have been, developed by each Service. The solid line in Figure 2 depicts the conceptual distribution of career (over 4 years of service) personnel. The inventory of the 5th through 30th year group population, developed using individual Service estimates of desired career structures, will total 726,000.

The broken line depicts the enlisted career force inventory as of June 30, 1971. The humps and valleys that were noted in the officer profile are also apparent in the enlisted inventory. Again, the aggregate DOD profile minimizes the mal-distribution that exists within some of the Services.

Correction of the existing mal-distribution will only be accomplished through proper management over a period of time. The one Service (Air Force) with a DOD-approved career management plan anticipates achieving the desired profile within 10 years. That goal will require specific compensation tools to attract, to retain, and to acceptably compensate those who must be separated before completing 20 years of service. This present force configuration is, in part, the result of the absence of such management tools. For example, the Air Force now has 2,000 E-4's with over 8 years of service. Given an acceptable severance pay system, it would separate these personnel. The associated cost using the DOD Study Group formula would be $4,084 per man or $8.2 million.

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