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Research Questions

  1. Do the current retirement systems create desirable incentives and effects?
  2. How would proposed changes affect retention and personnel force structure, how much they cost, and do they improve the personnel force structure?
  3. What is the best way to effect reform without facing potential opposition from interested parties?

As the burden of defense borne by reserve forces has increased, more attention has been paid to differences between the compensation systems for the reserve and active components. One particular emphasis is on the retirement systems, a key difference being that reserve members who complete 20 years must wait until age 60 to draw benefits whereas active members can draw benefits immediately upon discharge. This monograph compares the reserve and active retirement systems, discusses the importance of structuring compensation to enable flexibility in managing active and reserve manpower, describes how the debate over reserve retirement reform has differed from active component retirement reform debate, and considers obstacles to reform and how they might be overcome. It also provides a quantitative assessment of several past congressional proposals to change the reserve retirement system in terms of their effects on reserve participation and personnel costs, concluding that proposals to reduce the age at which eligible members may begin receiving retirement benefits are not cost-effective means of sustaining or increasing reserve component retention. It also concludes that a menu of member options can be a powerful tool to maintain morale and overcome obstacles to reform. Current members could be given the choice of staying in the current retirement system or joining the new one, and the choice might be offered over a period of time, say five years. New entrants and reentrants with few years of service might be placed under the new system.

Key Findings

Previous Proposals Took the Wrong Approach

  • On net, previous congressional proposals, including an immediate annuity for RC members, were not cost-effective methods of sustaining the overall size of the RC prior-service force. Our finding that the cost per member increases under each proposal indicates that these proposals are more expensive ways of maintaining the same RC force size.

Retirement Reform Might Not Be the Best Approach to Compensating Reserve Members

  • Reserve deployments increased during the 1990s and rose further during the operations in Iraq and Afghanistan. However, increasing the generosity of reserve retirement benefits appears to be an inefficient, poorly targeted, and unfair way of compensating for the higher burden of deployment.

Reform Efforts Face Several Obstacles

  • Achieving a compensation system that supports the seamless integration of reservists called to active duty will require that reserve retirement reform be coordinated with active reform, although the resulting systems will not necessarily be identical. Another key obstacle to reform is a lack of consensus for change among the services, the U.S. Department of Defense, service members, and retirees.

Recommendations

  • Other methods of compensation might be more effective means of benefit reform.
  • Retirement reform could be better implemented by using a menu of scalable options to choose from, including new options as well as the status quo system, rather than only grandfathering existing members in the status quo system.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Model, Data, and Estimates

  • Chapter Three

    Analysis of Congressional Proposals

  • Chapter Four

    Reserve Retirement Reform: Discussion of Broader Issues

  • Chapter Five

    Reserve Retirement in the Context of Active-Duty Retirement Reform

  • Chapter Six

    Implementation and Obstacles to Reform

  • Chapter Seven

    Policy Implications and Conclusions

  • Appendix A

    The Reserve and Active-Duty Retirement Systems

  • Appendix B

    The Active/Reserve Dynamic Retention Model

  • Appendix C

    Cholesky Decomposition and the Parameter Estimates

  • Appendix D

    Theory of Successful Reform

The research described in this report was prepared for the Office of the Secretary of Defense (OSD). The research was conducted within the RAND National Defense Research Institute, a federally funded research and development center sponsored by OSD, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

This report is part of the RAND Corporation monograph series. RAND monographs present major research findings that address the challenges facing the public and private sectors. All RAND monographs undergo rigorous peer review to ensure high standards for research quality and objectivity.

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