The Accrual Method for Funding Military Retirement

Assessment and Recommended Changes

by Richard Eisenman, David W. Grissmer, James Hosek, William W. Taylor


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Prior to 1984, military personnel force managers had little incentive to control retirement budgets and payments, which equaled $16 billion in 1984,since any decisions made would not be reflected in budgets for 20 or more years. Congress directed the Department of Defense in 1984 to switch to an accrual method for accounting for military retirement in the budget process that would replace the current outlays for retirement in the DoD budget with an amount that reflected the present value of the estimated cost of future retirement benefits earned by each incoming cohort of personnel. The accrual method has helped improve management of retirement benefits and liabilities, but has failed so far to produce either better estimates of retirement costs or effective incentives for better management of the force structure. The authors provide recommendations that would improve cost estimation and increase accountability for force-management decisions.

Table of Contents

  • Chapter 1


  • Chapter 2

    The Objectives and Design of the Military Retirement Accrual Method

  • Chapter 3

    Management Incentives in the Current System

  • Chapter 4

    Strengthening Management Incentives: Recommendations for Change

  • Chapter 5

    Fiscal Impact of Rand Recommendations

  • Chapter 6


  • Appendix

    Sample Calculation of Normal Cost Percentage

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