Basic pay increases 5% per year, and the CPI increases
1.5% per year.

Basic pay increases 6.5% per year, and the CPI increases
3% per year.

Under the present management system, losses from active duty were assumed to occur according to the 1963, 1964, and 1965 Multiple Decrement Table. Under the proposed management system, losses from active duty were based on the loss rates predicted under the proposed Defense Officer Management System (DOMS) in the case of officers and on the loss rates predicted under the Air Force TOPCAP in the case of enlisted men (Air Force is the only Service having a DOD-approved enlisted force management plan). A period of 10 years was assumed to transit from the present loss rates to the proposed loss rates. Members in retirement were assumed to die according to the 1937 Standard Mortality Table.

Figure 17 presents the cost impact in terms of cumulative savings by FY 2000 assuming:

o A change only to the retirement system using the DOD Study
Group alternative.

A change only to the personnel management system using DOMS and
TOPCAP as representative objective plans.

o A change to both the retirement and personnel management system.

Conclusions

Considerable savings over the next 30 years can be achieved by changing either the retirement or the management system or by changing both systems. The DOD Study Group believes that changes in both will make the systems more effective management tools. This increase in effectiveness, in conjunction with the decrease in cost, will result in a more efficient system overall.

Recommendations

The DOD Study Group recommends that the Department of Defense:

o Adopt the DOD Study Group Alternative as the modification to
the nondisability retirement system.

Pursue policy and legislative changes necessary to implement
modifications to existing personnel systems.

83-066 0-72-No. 78- -21

Chairman, Joint Chiefs of Staff

Assistant Secretary of Defense (Comptroller)

Assistant Secretary of Defense (Manpower & Reserve Affairs)
Assistant Secretary of Defense (Systems Analysis)

I have reviewed the report prepared by the Interagency Committee on Military Retirement and the comments on the report by the Military Departments and the Joint Chiefs of Staff. The Military Departments and the JCS have made valuable comments on the dialogue started by the Interagency Committee. Before I submit any conclusions or recommendations to the President on the military retirement system, I would like to have additional information and perspectives made available. The added information should cover the prospective benefits, costs, and risks involved in the Interagency Committee's proposals. The additional perspectives should include (a) a searching look at the fundamental premises included in the Interagency Committee report on the military retirement cost burden, e.g., is it necessarily true that the current system's financial burden is becoming too large and/or unmanageable; (b) a delineation of the retirement system reforms that may be desirable apart from the overall financial cost; and (c) the principal options available, in addition to the Interagency Committee recommendations, in modifying the retirement system.

To provide the additional information and perspectives, I would like for the Assistant Secretary of Defense (M&RA) to chair a DoD study group which will include representatives from each of the addressees. This group is specifically tasked to provide supplementary information in the following areas:

a. Analysis of the funds flows involved in the military
retirement system as outlined by the Interagency Com-
mittee. The study group should identify the magnitude
of the total cost under the existing system and that
proposal; the differential between the systems; the
resources available within the national economy and
the federal sector for retirement pay purposes; and
an assessment of the relationship between the pros-
pective resource availability and outlay requirements.

2

b. An assessment of management impact of the Inter-
agency group recommendations relative to existing
policies in terms of ability to attract personnel,
to retain personnel including those with critical
skills, and to assure a young and vigorous force.
The group will identify changes in Department of
Defense personnel policies, if any, required to
implement the recommendations of the Interagency
group. To the maximum extent possible, the group's
conclusions should be drawn from empirical data on
the existing policies and survey data to express
the effect of the proposed changes. Equity considera-
tions should, of course, be included.

c. An assessment of balance between the cost and manage-
ment impact of the present system and that proposed.

d. An articulation of the principal options available,
to include those articulated by the Interagency
Committee.

-

The group will submit its findings in the above areas and their conclusions and recommendations at least in interim form 31 March 1972.

-

not later than

Mr. STRATTON. Then we will have them available to use.

Thank you very much, Mr. Secretary. You may proceed, General.

STATEMENT OF LT. GEN. LEO E. BENADE, U.S. ARMY, DEPUTY ASSISTANT SECRETARY OF DEFENSE FOR MILITARY PERSONNEL POLICY

General BENADE. Thank you, Mr. Chairman.

Mr. Chairman, members of the committee, the DOD study group throughout its study was very much aware of the relationship between the compensation system

Mr. STRATTON. I think we may need a little mike help here. Do you have that lavaliere there? Why don't you use that one, General? General BENADE. I will just try to talk louder, Mr. Chairman.

The Department of Defense study group throughout its work had very much in mind the close relationship, in fact the interdependence, of our personnel-management system and the compensation system. The compensation system has as its primary objective to attract and retain the numbers and quality of personnel required.

The compensation system consists of a variety of elements, of which the retirement system is only one part, but a very significant part. At the same time, the framework of the compensation system ideally should be tailored to best meet the needs of the individual on the one hand, and the needs of the employer on the other.

There is an almost endless combination of benefits which can meet the needs of the individual and of the employer, and the key is to tailor the compensation package to meet that need most effectively. For example, in the case of an employer of two categories of personnel,