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Since 1985, military retirement has been funded prospectively on an accrual basis. Until that time, it was funded on a pay-as-you-go basis, leaving an unfunded liability of more than $500 billion. That unfunded liability was assigned to the Treasury Department, which is amortizing the debt over a 60-year period. Treasury amortization is annually offset by recomputations of the liability that result from changes in assumptions or experience. Those recomputations result in actuarial gains or losses, which result in adjustments to the Treasury payments. The report argues that the Department of Defense (DoD) should share in gains or losses. DoD now funds accrual payments though aggregate estimates of normal cost, undifferentiated by the experience of the various military services. A recommended change to service-specific imputations of normal cost would result in lower funding by the Army, Navy, and Marine Corps, and increased funding by the Air Force.

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