Military Personnel: DOD Needs to Establish a Strategy and Improve Transparency over Reserve and National Guard Compensation to Manage Significant Growth in Cost
Published: 2007-06-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) has increasingly relied on reserve personnel to carry out its military operations. Congress and DOD have taken steps to enhance reserve compensation, such as improving health care benefits. Concerns exist, however, that rising compensation costs may not be sustainable in the future, especially given the nation's large and growing long-range fiscal imbalance. Under the statutory authority of the Comptroller General to conduct work on his own initiative, GAO (1) reviewed how much it has cost the federal government to compensate reserve personnel since fiscal year 2000; (2) assessed the extent to which DOD's mix of cash, noncash, and deferred compensation has helped DOD meet its human capital goals; and (3) evaluated the extent to which DOD's approach to reserve compensation provides transparency over total cost to the federal government. To address these objectives, GAO analyzed budget data and relevant legislation and also interviewed appropriate officials. GAO focused this review on part-time reservists and full-time, active guard and reserve.
section_title: What GAO Found
paragraphs: Using fiscal year (FY) 2006 constant dollars, the federal government's total cost to compensate part-time and full-time reserve personnel has increased 47 percent since FY 2000, rising from about $13.9 billion in FY 2000 to about $20.5 billion in FY 2006. Most reservists are part-time, and their per capita compensation costs nearly doubled from about $10,100 in FY 2000 to about $19,100 in FY 2006. Additionally, a small percentage of reservists work full-time, and their per capita costs increased about 28 percent from FY 2000 to FY 2006. Cash compensation, which servicemembers see in their "paycheck," has increased about 19 percent. However, much of the total growth in compensation is driven by the costs for deferred compensation. These costs tripled over this period, primarily attributed to enhanced health care benefits. Moreover, DOD officials anticipate significant continued growth in health care costs because of the expansion of health care coverage to reserve personnel in FY 2007. DOD does not know the extent to which its mix of pay and benefits meets its human capital goals in part because it lacks an established compensation strategy to identify the appropriate mix of reserve compensation to maintain its force. DOD and Congress have added pay and benefits using a piecemeal approach that has not been based on an established strategy and that has not adequately considered the appropriateness, affordability, and sustainability of the related costs. These additions have contributed to a shift in the mix of compensation toward more deferred benefits--that is, future compensation such as retirement pay and health care for life. Deferred benefits increased from 12 percent of total reserve compensation in FY 2000 to 28 percent of total compensation in FY 2006. This increase in deferred compensation may not be the most efficient allocation given that fewer than one in four of those who join the reserve will ultimately earn nondisability retirement pay and health care for life. Moreover, DOD does not know the efficiency and effectiveness of these changes in meeting its recruiting and retention goals because it does not have performance measures. Without performance measures, DOD cannot determine the return on its compensation investment or make fact-based choices on how its compensation resources should be allocated. DOD's approach to reserve compensation does not provide decision makers in Congress and DOD with adequate transparency over total cost for reservists--including the allocation of costs to cash, noncash, and deferred compensation, as well as the cost for mobilized reservists. Despite the fact that sound business practices require adequate transparency over investments of resources, currently costs are found in multiple budgets within three federal departments. Until total reserve compensation costs are compiled in a transparent manner--and decisions are based on established compensation strategies--decision makers will be unable to determine the affordability, cost effectiveness, and ultimately the sustainability of the reserve compensation system. Increased transparency is especially important given the growing fiscal challenges the country faces.

section_title: Letter
paragraphs: Questions about the adequacy of National Guard and reserve  compensation have been raised as the Department of Defense (DOD)  increasingly relies on reservists to carry out its military operations  domestically and abroad.  In 1973, when the U.S. military first transitioned  from a draft to an all-volunteer force, decision makers recognized that  military pay needed to be increased to a level that was generally  competitive with the civilian sector.  Since then, the amount of military  pay and benefits has progressively increased for both active duty and  reserve servicemembers, although the basic structure of military  compensation remains largely unchanged.  DOD provides active duty,  guard, and reserve servicemembers with a compensation package made up  of cash, such as pay and allowances; noncash benefits, such as education  assistance and health care; and deferred compensation, such as retirement  pensions and benefits.  Guard and reserve servicemembers are generally  eligible for the same pay and allowance system as their active duty  counterparts.
Since September 2001, the department has called more than 500,000  reservists to active duty in support of the Global War on Terrorism. Given  that there are few indications that the current use of reserve forces will  decline in the near future, DOD and Congress have taken steps to enhance  reserve compensation.  For example, Congress expanded health care  benefits to all reservists and their families and authorized regular  increases in basic pay and additional education benefits for mobilized  reservists.  In addition, Congress established the Commission on National  Guard and Reserves in the national defense authorization act for fiscal  year 2005 to assess various aspects of the reserves, including  compensation, and this commission is expected to address compensation  in its final report due by January 2008.
DOD also recently explored the need for changing the military  compensation system when the Secretary of Defense formed an  independent advisory committee to study compensation in 2005. Of  particular concern to the department was the growth in entitlement  spending for things like health care and the appropriateness of the mix of  in-service and post service compensation.  DOD leaders expressed  concern that rising compensation costs may not be sustainable in the  future and could crowd out other important investments needed to  recapitalize equipment and infrastructure.  Similarly, the committee’s  report stated that the current military compensation system is inefficient,  and made recommendations to modernize the compensation system and  provide greater flexibility for efficient and effective force management.   Specifically, the report made recommendations to change the retirement  system and health benefits.
Similarly, we expressed concerns about whether the country’s current  spending trends are both affordable and sustainable in our 2005 report on  the challenges facing the United States in the 21st century.  Given the  nation’s large and growing long-range fiscal imbalance, we believe it is  time for a baseline review of all major federal programs and policies,  including military compensation, to ensure that they are efficiently and  effectively meeting their objectives and are well adapted to 21st century  realities. Many federal programs—such as military compensation—were  designed decades ago to address challenges of prior eras related to labor  markets, security conditions, organizational structures, and compensation  strategies.  As a result of the mounting concerns, in 2005 we assessed the  active duty compensation system and made a number of recommendations  to improve the transparency, reasonableness, appropriateness,  affordability, and sustainability of the active duty compensation system.   We found that the piecemeal approach to compensation resulted in a lack  of transparency that created an inability to identify total compensation  costs and assess how compensation investments are allocated to cash,  noncash, and deferred compensation.  We also reported that the federal  government’s total cost to provide active duty compensation was  substantial and rising, totaling about $158 billion, which was about  $112,000 per servicemember in fiscal year 2004.  We recently updated  these costs and found that in fiscal year 2006 the federal government spent  about $173 billion or about $126,000 per servicemember—an increase of  about 32 percent from fiscal year 2000.  See appendix I for more detailed  information on active duty compensation costs and the allocation of those  costs to cash, noncash, and deferred compensation.
We recognize that compensation is an important recruiting and retention  tool, particularly during a time of increased military operations, and any  proposed changes must be given careful consideration.  In light of the  evolving 21st century realities, under the statutory authority of the  Comptroller General to conduct evaluations on his own initiative, we       (1) identified how much it has cost the federal government to provide  cash, noncash, and deferred benefits to compensate reserve personnel  since fiscal year 2000; (2) assessed the extent to which DOD’s mix of cash,  noncash, and deferred compensation has helped DOD meet its human  capital goals; and (3) assessed the extent to which DOD’s approach to  reserve compensation provides transparency over total cost to the federal  government.
In conducting this review, we focused our scope on part-time, drilling  reservists, and full-time reservists serving in the Active Guard and Reserve  program of the Selected Reserve.  We excluded guard and reserve  members who were mobilized from our cost estimates, because, once  reservists are mobilized, their compensation costs are paid out of the  active components’ budgets.  Our review included the years from fiscal  year 2000 through fiscal year 2006 to capture costs prior to the increased  use of reservists and changes to compensation policy.  To identify how  reservists are compensated and how much it has cost the federal  government to provide cash, noncash, and deferred compensation, we  analyzed relevant regulations, legislation, and budget justification books,  and also interviewed appropriate officials at DOD and the Department of  Veterans Affairs about costs not presented in budgets, such as the accrued  costs for non-Medicare-eligible retirees’ health care.   In addition, we  calculated the costs of some types of compensation, such as the federal  income tax advantage.  To determine per capita costs, we divided the total  cost of the part-time population by an adjusted average strength of the  part-time reservists—which we calculated by subtracting the average  number of mobilized reservists from the average strength for each fiscal  year.  For the full-time reservists, we divided their total cost by their  average strength.  To assess the extent to which DOD’s mix of cash,  noncash, and deferred compensation helped DOD meet its human capital  goals, we reviewed applicable directives, policy, and guidance and  interviewed DOD officials to determine whether the current reserve  compensation system follows those directives, policy, and guidance.  We  also reviewed DOD directives and guidance as well as federal government  standards such as the Government Performance and Results Act of 1993.   To assess the extent to which DOD’s approach provided transparency over  total costs to the federal government, we reviewed applicable directives,  policy, and guidance and interviewed DOD officials to determine whether  the current reserve compensation system follows those directives, policy,  and guidance.  We reviewed how compensation costs are presented to  decision makers.  To update our previous work on the cost to the federal  government of compensating active duty servicemembers, we   (1) interviewed appropriate officials, (2) analyzed and compiled data for  fiscal years 2000 through 2006 from military personnel and operations and  maintenance budget justification books, (3) estimated the total federal tax  expenditure for military compensation and the costs of future veterans’  benefits for current active duty servicemembers, and (4) requested  estimates of accrual health care costs for retirees and their dependents  from DOD’s Office of the Actuary and health care costs for active duty  servicemembers and their dependents from DOD’s Office of Health Affairs.   We conducted our review from October 2006 through May 2007 in  accordance with generally accepted government auditing standards.  More  detailed information on our scope and methodology is provided in  appendix II.
subsections: section_title: Background
paragraphs: DOD’s National Guard and reserve personnel are assigned to the Ready  Reserve, Standby Reserve, or Retired Reserve. At the end of fiscal year  2006, DOD had approximately 1.1 million guard and reserve members in  the Ready Reserve.  The Ready Reserve is comprised of military members  of the National Guard and reserve, organized in units, or as individuals,  who are subject to recall for active duty to augment the active component  in time of war or national emergency. Figure 1 shows the three  subcategories that exist within the Ready Reserve: the Selected Reserve,  the Individual Ready Reserve, and the Inactive National Guard.
As of fiscal year 2006, the Selected Reserve had a total of about 826,000  members.  The Selected Reserve largely consists of units and individuals  designated by their respective services that serve in an “active drilling”  status.  These units and individuals are required to maintain readiness  through scheduled drilling and active duty for training, usually 1 weekend  a month and 2 weeks a year.  They also have priority for training,  equipment, and personnel over all other categories of reservists. From  fiscal years 2000 through 2006, about 9 percent of the Selected Reserve  average strength served in the Active Guard and Reserve program as full- time reservists.  These full-time reservists perform duties associated with  organizing, administering, recruiting, instructing, or training the various  reserve components.  The Individual Ready Reserve and the Inactive  National Guard do not currently have these drilling and training  requirements according to DOD policy and are comprised principally of  individuals who have had training, previously served in the active  component or in the Selected Reserve, or have some period of their  military service obligation remaining.  These members may voluntarily  participate in training for retirement points and promotion with or without  pay.
DOD’s selected reservists serve in one of six reserve components: the  Army National Guard, the Army Reserve, the Navy Reserve, the Air  National Guard, the Air Force Reserve, and the Marine Corps Reserve.   The Army National Guard and the Air National Guard comprise what is  known as the National Guard.  The National Guard is unique in that it has  dual missions, both federal and state; when not in federal service, it is  available for use by the governor as provided by the U.S. Constitution and  laws of the state.  The National Guard is the only military force  immediately available to a governor in times of emergency, including civil  unrest and natural or manmade disasters.  Under state law, the National  Guard provides protection of life and property and preserves peace, order,  and public safety.
Since the end of the Cold War, the roles and contributions of the reserve  force have changed. In the post-World War II era, DOD’s reserve operated  primarily as a strategic force—a force management tool that was rarely  activated.  For example, from 1945 to 1989, reservists were called to active  duty as part of a mobilization by the federal government only four times,  an average of less than once per decade.  Since 1990, reservists have been  mobilized by the federal government six times, an average of nearly once  every 3 years.  Additionally, since September 11, 2001, reserve forces have  been used extensively to support the Global War on Terrorism.  In fact,  about 500,000 reservists have been mobilized, primarily for contingency  operations in Afghanistan and Iraq.  As a result of the change in use,  reserve units are becoming more integrated into military operations,  calling for a new relational model between the active and reserve  components, which changes the nature of reserve service to an  operational role for the reserve components and requires more frequent  mobilizations as well as incorporation into the total force.
To attract and retain sufficient numbers and quality of guard and reserve  personnel, DOD provides reserve personnel with a mix of cash, noncash,  and deferred compensation based on duty status.  When in part-time  drilling status, reservists receive cash compensation or basic pay on a  prorated basis as well as other cash incentives, such as retention bonuses  or special pays for proficiency in an area. Part-time reservists are also  entitled to noncash benefits, such as unlimited access to commissaries, a  premium-based health care benefit for reservists and their dependents,  and educational benefits.  Lastly, part-time reservists who become  retirement eligible qualify for retirement benefits including a pension,  health care for life, and access to installation-based benefits such as  exchanges.  The key difference in deferred benefits between active duty  servicemembers and part-time reservists is when they become eligible to  receive these benefits.  For example, a part-time reservist becomes eligible  for a retirement annuity at age 60; in contrast, active duty servicemembers  become eligible for retirement benefits at any age after completing a  minimum of 20 years of service.
Reservists activated for contingency operations are eligible to receive the  same compensation and benefits as active duty personnel including  regular military compensation—basic pay, housing and subsistence  allowances, and the federal tax advantage—depending on their pay grade  and years of service—and special and incentive pays.  In addition,  mobilized reservists are eligible for full health care benefits for themselves  and their dependents.  Table 1 illustrates this mix and compares it to the  compensation provided to active duty servicemembers.  In addition,  appendix III contains more details about the compensation available for  reserve personnel.
section_title: Cost to Compensate Guard and Reserve Personnel Has Increased Significantly Since Fiscal Year 2000
paragraphs: The total cost to the federal government to compensate both part-time and  full-time National Guard and reserve personnel increased significantly,  about 47 percent, from fiscal year 2000 to fiscal year 2006. The cost  increased from about $13.9 billion in fiscal year 2000 to about $20.5 billion  in fiscal year 2006, as shown in figure 2.  This cost includes (1) cash  compensation, such as basic pay and other allowances; (2) noncash  compensation, such as education assistance and health care; and (3)  deferred compensation, that is, benefits that promise future compensation  like retirement pay and health care.  However, this cost does not include  all compensation, such as accrual costs for veterans’ benefits.
Over this same time period, the per capita cost to the federal government  for part-time drilling reservistsalmost doubled, from about $10,100 in  fiscal year 2000 to about $19,100 in fiscal year 2006, as shown in figure 3.   This per capita cost is an average of what it cost the government to  compensate servicemembers; it is not what the servicemembers “receive  in their paycheck.” Servicemembers’ individual cash compensation will  vary significantly depending on individual pay grade and other factors  such as years of service or if the servicemember has dependents.  The  compensation cost does not include all of the cost needed to support  additional servicemembers, because it does not include those costs  associated with recruiting and training personnel.
This increase in per capita cost occurred during a time when the average  strength of part-time drilling reservists declined by about 6 percent, from  about 746,400 reservists in fiscal year 2000 to 699,800 reservists in fiscal  year 2006.  This decline in the average number of part-time personnel may  be attributed to many factors, such as the Navy’s restructuring of its force,  as part of its Active-Reserve Integration process, which reduced the  number of part-time reservists.  Moreover, Army National Guard and Army  Reserve officials attributed the decline in average strength to their  recruiting difficulties.
In addition to part-time reservists, about 9 percent of reservists work full- time, and their per capita cost to the federal government also increased, as  shown in figure 4, from about $90,100 in fiscal year 2000 to about $115,200  in fiscal year 2006, about 28 percent. Although full-time reservists are  eligible to receive the same compensation as active duty servicemembers,  the per capita cost for compensation presented here is less than the per  capita cost for an active duty servicemember.  This is because some costs  were not associated with the full-time reservists, such as accrual costs for  veterans’ benefits or costs for installation-based benefits, such as  exchanges and family support programs.  This increase is similar to the  trends in active duty per capita compensation cost (see app. I for similar  data on active duty servicemembers’ compensation cost).  Unlike their  part-time counterparts, the full-time reservists’ average strength increased  by about 9 percent during this time period, increasing from about 64,500 in  fiscal year 2000 to 70,300 in fiscal year 2006.
The growth in reserve compensation overall is primarily attributed to  increases in deferred compensation, although cash and noncash  compensation also increased.
Deferred compensation represents more of overall reserve  compensation costs in fiscal year 2006—increasing from 12 percent in  fiscal year 2000 to 28 percent in fiscal year 2006.  Specifically, deferred  compensation more than tripled, increasing from 1.7 billion in fiscal  year 2000 to 5.8 billion in fiscal year 2006.  This increase was largely  due to the increase in new health care benefits for the Medicare-eligible  population, known as TRICARE for Life.  Further, DOD estimates that  TRICARE for Life represented 48 percent of the increase in DOD’s  spending on health care from fiscal years 2000 through 2005.  Retirement pay accrual also contributed to the growth in deferred  compensation, and its increase was a result of across-the-board  increases in the basic pay rate.  Additionally, in fiscal year 2004  Congress enhanced disability retirement benefits to allow concurrent  receipt—simultaneous payment—of DOD retirement pay and  Department of Veterans Affairs disability benefits.  Prior to this  enhancement, retirees had to decide whether to receive DOD’s full, but  generally taxable, retirement pay or receive the nontaxable veteran’s  disability pay, which would reduce or offset dollar-for-dollar DOD’s  retirement pay.  As a result of this expansion of benefits, the Treasury  Department, through general revenues, was required to cover the  additional military retirement cost of providing concurrent receipt,  which was about $251 million in fiscal year 2006.
Noncash benefits also increased—about 29 percent—primarily due to  increased costs for full-time reservists’ health care benefits and  expanded health care benefits for part-time reservists and their  families.  Since fiscal year 2000, noncash benefits have represented  about 11 percent of overall compensation costs.
Cash compensation, including basic pay and enlistment and  reenlistment bonuses, increased about 19 percent between fiscal years  2000 and 2006.  This increase is largely a result of across-the-board  increases in basic pay.  In addition, the reserve components also  experienced significant growth in the reserve incentive program.   Specifically, the costs of reenlistment bonuses increased over 1000  percent, rising from about $36 million in fiscal year 2000 to almost half  a billion dollars in fiscal year 2006.  Cash compensation decreased from  76 percent of overall compensation costs in fiscal year 2000 to 61  percent of cost in fiscal year 2006.
Table 2 provides a detailed list of the components of reserve  compensation and how they have changed from fiscal year 2000 to fiscal  year 2006.
In addition to calculating reserve compensation cost, we also updated our  previous work on active duty compensation costs and found those costs  have also increased, rising from about $131.7 billion to $173.2 billion (32  percent) from fiscal year 2000 to fiscal year 2006.  Cash compensation  accounted for 48 percent of total active duty compensation costs, while  noncash and deferred compensation accounted for 21 and 31 percent,  respectively.  In fiscal year 2006, it cost the federal government more than  $126,000, on average, to provide annual compensation to active duty  servicemembers.  See appendix I for more information on active duty  compensation cost.  When taken together, active and reserve  compensation costs have grown markedly since 2000, and these costs may  not be sustainable within the context of DOD’s total budgetary needs and  the nation’s increasing fiscal imbalance.  Total military compensation for  the active and reserve components increased from about $147 billion in  fiscal year 2000 to $195 billion in fiscal year 2006—about 33 percent.
Much of these increases in compensation costs are not directly driven by  ongoing operations in Iraq and Afghanistan and, as a result, it is not  anticipated that the costs will significantly recede after the operations in  Iraq and Afghanistan subside.  While some of the costs are directly related  to the ongoing operations—such as the pay for mobilized reservists and  enlistment and reenlistment bonuses—most of the significant increases  were made to basic pay and deferred compensation, such as retirement  pay and health care for retirees, which will not recede after ongoing  operations are ended.  An example of a recently expanded noncash  compensation benefit that will not recede after the ongoing military  operations are completed is the premium-based health care benefit for  reservists and their dependents known as TRICARE Reserve Select.  This  benefit will provide a continuation of health coverage as National Guard  and reserve personnel transition on and off of active duty.  DOD officials  anticipate that TRICARE Reserve Select will result in significant future  growth in the cost of noncash compensation.   According to DOD  estimates, the cost for this new health care benefit will increase  dramatically in fiscal year 2008 to about $381 million, and will continue to  increase to about $874 million, about $1,100 per capita, by fiscal year 2013,  as shown in figure 5.  DOD estimates that it may be a few years before a  significant number of reservists enroll in the program.  However, if  enrollment numbers prove higher than DOD estimated, the cost for  TRICARE Reserve Select may be higher than currently projected.  In  addition, DOD predicts that the cost for health care will consume more  than 12 percent of its total budget by fiscal year 2015, compared to 7.5  percent in fiscal year 2005.  As a result, service officials have commented  that the only way to control personnel costs may be to reduce the number  of personnel.
Moreover, total compensation costs for reservists will likely increase after  contingency operations subside.  According to DOD officials, after  contingency operations end, the number of drills executed is expected to  increase.  Since fiscal year 2001, the number of executed drills and training  decreased for part-time reservists.  This decrease is, in part, due to the  increased number of reservists called to active duty, which has left fewer  reservists and units available to do their required drills.  Although this may  not have an impact on the per capita costs of reserve compensation, it  would drive up overall costs to compensate more part-time reservists.
section_title: DOD Does Not Know the Extent to Which Its Mix of Compensation Is Meeting Its Human Capital Goals
paragraphs: DOD does not know the extent to which its mix of cash, noncash, and  deferred compensation is meeting its human capital goals of recruiting and  retaining personnel.  DOD’s and Congress’ piecemeal approach to reserve  compensation has created a mix of compensation that has shifted toward  more deferred compensation, even though this may not be an efficient use  of resources.  In addition, DOD is unable to gauge the efficiency and  effectiveness of the mix of reserve compensation and its compensation  tools because it lacks a compensation strategy and performance measures  to assess its mix of compensation.
subsections: section_title: Mix of Reserve Compensation Has Shifted to Deferred Compensation, Which May Not Enable DOD to Meet Key Human Capital Goals of Recruiting and Retention
paragraphs: DOD and Congress have reacted to the current environment to address  recruiting and retention problems by adding compensation.  However,  these efforts have been done in a piecemeal fashion that has shifted the  mix of reserve compensation toward more deferred benefits, even though  this may not be the most efficient allocation of compensation to enable  DOD to meet its recruiting and retention human capital goals. Significant  increases in the frequency and length of mobilizations to Iraq and  Afghanistan have led to reservists being separated from their families for  longer periods and potentially experiencing interruptions in their civilian  careers.  In fact, a recent memorandum from the Secretary of Defense  indicates that reservists should expect to be mobilized on a regular  cycle—with a goal of 1 year mobilized followed by 5 years nonmobilized.  This change in utilization of reservists and the components’ recent  recruiting and retention challenges have corresponded with Congress and  DOD adding various benefits and types of pay to address recruiting  problems in some reserve components and to take care of servicemembers  over their lifetime. For example, the cost of the reserve incentive program,  which primarily provides discretionary cash bonuses for enlistment and  reenlistment, increased more than 1,000 percent from fiscal year 2000 to  fiscal year 2006.  According to service officials, this increase was to  address potential recruiting shortfalls.
The resulting complex accumulation of pays and benefits has shifted the  mix of reserve compensation toward deferred compensation—that is, the  promise of future compensation like retirement pay and health care.  Figure 6 shows an increase in deferred compensation from 12 percent of  total reserve compensation in fiscal year 2000 to 28 percent in fiscal year  2006.  This shift to deferred compensation has also been observed for  active duty compensation costs.  See appendix I for more information on  the active component’s compensation costs.  Deferred compensation  affects the current cost of compensation because funds must be set aside  today to provide these benefits in the future, over the reservist’s lifetime.
While DOD and Congress have added pays and benefits over the past 6  years, it is questionable whether there was consideration of the  appropriateness of the changes, including how the changes compared to  compensation in the civilian sector, what the efficiency and return of these  changes would be in terms of meeting the department’s human capital  goals of recruiting and retention, or whether the compensation changes  were affordable and sustainable over the long term. DOD defines  efficiency of its compensation system as paying no higher or lower than  necessary to fulfill the basic objective of attracting, retaining, and  motivating the kinds and numbers of servicemembers needed.  However,  this increase in deferred compensation is not necessarily the most efficient  allocation, nor does it provide the best return on the compensation  investment.  In fact, DOD does not know the most efficient allocation of  compensation needed to meet its recruiting and retention goals because it  has not evaluated reserve compensation to determine the appropriate mix  of compensation to attract and retain sufficient numbers of qualified  personnel. Although the efficiency of noncash and deferred compensation  is difficult to assess because the value servicemembers place on them is  highly individualized, studies indicate cash compensation is not only  preferred to noncash and deferred compensation, but it is also a more  efficient recruiting and retention tool for active duty servicemembers. In  our 2005 report on active duty compensation, we stated that it is generally  accepted that some deferred benefits, such as retirement, are not valued  as highly by servicemembers as current cash compensation.  Cash pay  today is a far more efficient tool than future cash or benefits for the  recruiting and retention of active duty personnel.   For example, a study  assessing the military draw down in the early 1990s found that when active  duty servicemembers were offered a choice of lump-sum cash payments or  annuities, a vast majority selected the lump-sum payment, even though it  had considerably less net present value.  This preference for cash  compensation has a profound impact on the efficiency of DOD’s  compensation system, especially considering that fewer than one in four  part-time reservists will receive these costly deferred benefits.  More  specifically, about 24 percent of those who join the guard and reserve will  ultimately earn nondisability retirement pay and health care for life.   Typically, deferred and noncash compensation is offered across the board,  which limits the department’s flexibility to offer incentives, target  personnel, or turn on and off compensation as it is needed to recruit and  retain.  Moreover, these changes may not be sustainable over the long  term. Some of the noncash and deferred compensation that have been  added in response to the department’s recruiting and retention problems  are inflexible benefits and long-term costs that the department will find  difficult to stop providing, such as health care for reservists.
Concerns about the most efficient and effective allocation of  compensation to meet recruiting and retention goals are increasingly  important given the recent recruiting and retention challenges the services  have faced.  In November 2005, we reported that the reserve components  were having recruiting and retention challenges, specifically filling certain  occupation specialties such as military police. The Congressional  Research Service also reported that the reserve components missed  recruiting goals by 12 to 20 percent in fiscal year 2005. Although the  Marine Corps Reserve and Air Force Reserve met their 2006 recruiting  goals, the other reserve components missed their goals.  In addition,  officials expressed concern that the services will have difficulty meeting  future recruiting goals. The Commission on the National Guard and  Reserves reported that polling data of young people suggest that the future  for recruitment remains problematic as the propensity of youth to join the  military declined from 15 percent in 2005 to 10 percent in 2006.  In  addition to a decline in propensity to join the military, according to DOD,  fewer soldiers leaving active duty are transitioning to the reserves.    Moreover, the quality of recruits is declining.  At a time when the nation  faces an increasing fiscal imbalance, until DOD assesses what the  appropriate compensation mix should be so that it uses its compensation  resources in the most efficient manner possible, DOD may be unable to  sustain these costs and effectively balance the department’s needs for new  equipment and personnel while recruiting and retaining the future reserve  force.
section_title: DOD Does Not Have an Established Compensation Strategy and Performance Measures to Gauge the Efficiency of Reserve Compensation
paragraphs: DOD is unable to gauge the efficiency of the mix of reserve compensation  and its compensation tools because it has not established a compensation  strategy or performance measures.  We have previously found that  programs, such as compensation systems, need performance measures  and goals to guide decision makers and program policy.  Moreover,  DOD’s Personnel and Readiness strategic plan states the importance of  DOD identifying requirements and tailoring compensation and other  programs to achieve objectives and continuously reviewing personnel  management.  In addition, we have also reported that it is necessary for  an agency to monitor and evaluate its progress toward its human capital  goals and the contribution that human capital outcomes have made  toward achieving program results. “the relationships between the individual components of compensation and their systemic  interrelationships as a coherent structure remain largely implicit rather than explicit.
Virtually every aspect of military activity has explicit doctrines, principles, and practices  embodied in field manuals, technical manuals, and various joint publications.  Military  compensation is noteworthy in its lack of such an explicit intellectual foundation.”
Moreover, DOD does not have performance measures to gauge the  efficiency of its compensation system or the various compensation tools.   Performance measures are used to evaluate how closely a program’s  achievements are aligned with program objectives, and to assess whether  a program is achieving its intended outcome.  DOD and Congress have  generally increased all types of compensation—adding more benefits  while increasing bonuses—making it impossible to determine the relative  value of each of these initiatives. Without these measures DOD does not  know which of its compensation tools—cash, noncash, or deferred— works best for recruiting and retaining personnel, and it does not know  the most effective, efficient mix of compensation.
Determining the return on investment for compensation and the impact of  compensation on recruiting and retention is not an easy task and should  be approached with caution.  DOD and service officials often point to  meeting end strength or recruiting and retention goals as evidence that  compensation is appropriate or working.  Although end strength is an  important indicator, we do not believe it is sufficient alone. Meeting  recruiting and retention goals does not indicate if the compensation  system is efficient or yielding the best return on the department’s  investment. There are numerous other factors, such as the economy,  ongoing contingency operations, and DOD’s own recruiting and  advertising program, that also influence the department’s ability to recruit  and retain servicemembers.  As a result, DOD does not know if the  additions to the compensation system—which are becoming increasingly  costly, rising 47 percent from fiscal year 2000 to 2006—are appropriate to  ensure the reserve components recruit and retain a high-quality workforce  in sufficient numbers and that the federal government has the best return  on investment.
In DOD’s response to this report, the department emphasized that it has  not sought some of the increases in deferred and noncash compensation  that Congress has recently given to servicemembers.   Also, in our  discussions with DOD officials, they told us that the department has  focused on cash compensation in recent years and, in some cases, has  opposed increases in deferred compensation.  For example, the Secretary  of Defense stated, in May 12, 2004, testimony before the Senate  Appropriations Defense Subcommittee that, in recent years, Congress has  often added entitlement-like changes, beyond DOD’s recommendations,  which concentrated on those who have already served.  The Secretary of  Defense’s statement pointed out the fiscal effects of these decisions by  stating that entitlements such as TRICARE for life are increasing  substantially the permanent costs of running the department with only  modest effect on recruiting and retaining personnel. Nevertheless, DOD  has not formally assessed the appropriate mix of compensation and has  not developed a written policy or document that specifies the  department’s overarching strategy for compensation. Until DOD  establishes a strategy for determining the best mix of cash, noncash, and  deferred compensation and develops performance measures to evaluate  the efficiency of compensation tools, DOD and Congress will be unable to  make informed decisions about which compensation tools will provide the  best return on investment, be sustainable in the long-term, and be effective  in recruiting and retaining the future reserve force.
section_title: DOD Does Not Have Transparency over Total Costs of Reserve Compensation
paragraphs: Decision makers in Congress and DOD do not have adequate transparency  over total costs for providing reserve compensation—including the  allocation of costs to cash, noncash, and deferred compensation—and the  cost of mobilized reservists. Good business practices require adequate  transparency over investments of resources, especially in times of fiscal  constraint.  However, today there is no single source where decision  makers can go to see all the costs of reserve compensation.  In addition,  the cost of mobilized reservists is also not transparent.
Part of the lack of transparency is due to the fact that about a quarter of  the costs of reserve compensation fall outside the military personnel  appropriation for DOD.  In fact, costs are located within three federal  agencies—DOD, Department of Veterans Affairs, and Department of the  Treasury—depending on the type of compensation and the duty status of  the reservists—active reserve or mobilized, as shown in figure 7.
Furthermore, within DOD, compensation costs are found in four different  budgets—the reserve components’ military personnel, active components’  military personnel, active components’ operation and maintenance, and  the Defense Health Program. Most of the cash costs—such as basic pay,  allowances, and special pays and incentives—are located in either the  reserve or active military personnel budgets, depending on whether the  reservist is mobilized.  In addition, the reserve military personnel budgets  combine some cash costs.  For example, pays and allowances include such  costs as retired pay accrual, basic allowance for subsistence, basic  allowance for housing, and special and incentive pay as authorized.   Furthermore, some noncash costs are located in the active operation and  maintenance budget and active and reserve military personnel budgets.  Some of these noncash costs, such as those for commissary and morale,  welfare, and recreation facility use, are not broken out by active and  reserve costs because use of these facilities is open to both components.   Moreover, deferred costs for health care for the Medicare-eligible retirees  and their dependents are found in the Defense Health Program budget,  while some of the costs for concurrent receipt of disability retirement  from DOD and Veterans Affairs are found in the Treasury budget.
Furthermore, we had to calculate some costs for reserve compensation  because they were not captured in any budget documents.  To do this,  DOD provided, at our request, the accrual costs for future retirees and  their dependents.  Similarly, we estimated the tax expenditure for the  federal government from the nontaxable compensation provided to  servicemembers.  We estimated that the cost for tax expenditures for full- time reservists alone was $436 million in fiscal year 2006.  In addition, the  Department of Veterans Affairs does not calculate the accrual cost for  veterans’ benefits for reservists and we did not attempt to calculate these  costs either because reservists are likely to be eligible for the majority of  these benefits based upon active duty service.  In appendix I, we present  the accrual costs for active duty veterans’ benefits that we calculated  using data from the 1999 President’s Budget.  Comparable information for  the reserve components was not available.  As a result, these costs are  unknown.  This lack of information makes it difficult for decision makers  to see the full costs of all the compensation pays and benefits provided to  reservists.
Transparency over compensation costs is further limited when reservists  are mobilized because mobilized reservists are paid from active duty  budgets.  Moreover, compensation costs for mobilized reservists are  difficult to determine within the active components’ budgets, in part,  because they have been paid out of the supplemental funding the active  components receive for the global war on terrorism.  The absence of  information about the compensation costs of mobilized reservists further  dilutes decision makers’ ability to see the full picture of the costs of  reserve compensation to the federal government. In addition, as  mobilizations are expected to become a regular part of reservists’ careers,  these costs will become a part of doing business for the reserves, which  increases the importance of being able to identify them.
DOD is taking measures to address some of these problems. For example,  DOD required the services to include detailed cost estimates of reserves  called to active duty in the fiscal year 2007 and 2008 supplemental  submissions. In addition, DOD is working on a system to consolidate  personnel and pay systems for all active and reserve components, known  as the Defense Integrated Military Human Resources System. This  consolidation may improve transparency of DOD costs by integrating all  human resource information for active, guard, and reserve personnel of all  the services. However, as we reported in 2005 and 2006, this task is  proving to be difficult to complete.  We found that the services have  unique requirements that are limiting the flexibility to consolidate to a  single solution.  Furthermore, service officials told us that this system is  unlikely to improve transparency over budgeted costs.
In 2005, we recommended that DOD compile the total costs to provide  military compensation and communicate these costs to decision makers  within the administration and Congress.  Despite our recommendation,  DOD has not compiled in one place, that is readily accessible, the total  costs for active or reserve personnel compensation, including mobilized  reservists, and the allocation of these costs among cash, noncash, and  deferred compensation. Such a compilation could enable decision makers  to accurately assess these costs and to manage the total force as well as  efficiently and effectively make fact-based human capital adjustments.
Some steps have been taken to improve transparency and recognition  appears to be growing about the effect of rising compensation costs.  For  example, the Office of Management and Budget appears to have  recognized the need for greater transparency over compensation costs.   For the first time, in its Analytical Perspectives for fiscal year 2008, the  Office of Management and Budget described the total cost of DOD active  duty compensation and its allocation to cash, noncash, and deferred  compensation. The Analytical Perspectives document also describes  significant growth in per capita compensation in recent years.  However,  this analysis is submitted separately, and is part of a more than 400-page  document that accompanies the budget but is not part of the military  budget submission.  In addition, in its February 2007 report on federal  budget options, the Congressional Budget Office discussed the option of  consolidating military personnel costs in a single appropriation. The  report stated that the consolidation of compensation costs would not only  provide more complete information about how much money is being  allocated in support of military personnel, but it would also give DOD  managers a greater incentive to use resources wisely.  Until total costs for  reserve compensation are compiled in a transparent and easily accessible  manner, decision makers will be unable to determine the affordability and  efficiency of the reserve compensation system.  Knowing these costs is  especially important given the growing fiscal challenges the country faces.
section_title: Conclusions
paragraphs: DOD and Congress have reacted to the dramatic shift from a strategic to  an operational reserve by adding compensation without adequate  consideration of how the additions compare with civilian sector  compensation; whether they are appropriate, affordable, and sustainable  over the long term; or their return on investment in terms of recruiting and  retention.  Looking forward, DOD officials are concerned about their  ability to manage personnel costs, because so much of the costs are in  entitlements—items that managers have little to no control over, such as  retirement pay and health care.  As a result, it is highly questionable  whether the increasingly costly compensation system is affordable,  sustainable, and fiscally sound over the long term.  This challenge is  especially acute given the nation’s increasingly constrained fiscal  environment and DOD’s need to balance its personnel costs with its desire  for new equipment and infrastructure. Without assessing what the  appropriate compensation mix should be, DOD will be unable to ensure  that it uses its compensation resources most efficiently.  Moreover, until  DOD establishes a compensation strategy on which to base changes in  compensation and performance measures to gauge the efficiency of  changes to the compensation system, DOD will be unable to use its  compensation resources in the most effective and efficient manner, which  ultimately could negatively affect DOD’s ability to recruit and retain a  highly qualified force in sufficient numbers.
In addition to the lack of an underpinning compensation strategy, the lack  of transparency over compensation costs makes it difficult to make fact- based decisions about the efficiency and effectiveness of adjustments to  the compensation system, and in broader terms adjustments to the total  force.  A complete picture of total compensation cost for reserve  personnel includes the costs for those reservists who are mobilized as well  as the costs for cash, noncash, and deferred compensation.  Without an  inclusive display of all the reserve compensation costs, DOD will not be  able to determine the magnitude of funding and potential for current  investments and operations to turn into long-term financial commitments,  thus prompting real questions about the affordability and sustainability of  the rate of growth in defense spending. Understanding the total cost of  military compensation can provide DOD and Congress with important  information as they make assessments on compensation matters, and it  also allows decision makers to make informed trade-offs among  competing demands for such things as force structure, equipment  acquisition, and infrastructure decisions.  Moreover, as DOD embraces the  change in the use of reservists to an operational force mobilized more  regularly, the traditional use of reservists as “weekend warriors” becomes  less realistic.  In today’s environment reservists will likely be activated  regularly during their career—and those associated compensation costs  are likely significant.  Taken together, the lack of a compensation strategy,  performance measures, and transparency limits decision makers’ ability to  make fact-based decisions about the appropriateness of the mix and level  of compensation provided to reservists.
section_title: Recommendations for Executive Action
paragraphs: To improve the appropriateness of the reserve compensation system and  to gain transparency over total reserve compensation costs, we  recommend that the Secretary of Defense take the following actions:     Establish a clear compensation strategy that includes performance  measures to evaluate the efficiency of compensation in meeting  recruiting and retention goals, and use the performance measures to  monitor the performance of compensation and assess what mix of  compensation will be most efficient in the future.
Compile the total costs to provide reserve compensation for part-time,  full-time, and mobilized reservists and communicate these costs as well  as the allocation of these costs among cash, noncash, and deferred  compensation to decision makers within the administration and  Congress—perhaps as an annual exhibit as part of the President’s  budget submission to Congress.
section_title: Matter for Congressional Consideration
paragraphs: As future changes are considered to pay and benefits for National Guard  and reserve personnel as well as veterans, Congress should consider the  long-term affordability and sustainability of these changes, including the  long-term implications for the deficit and military readiness.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided the Department of Veterans Affairs and DOD a draft of this  report for review and comment.  The Department of Veterans Affairs  agreed with the statements in the report as they pertain to the department  and had no formal comments on the report.  DOD’s comments are  reprinted in this report as appendix IV.  DOD partially concurred with our  recommendations, but had several technical comments, which we have  incorporated where appropriate.
DOD partially concurred with our first recommendation to establish a  clear compensation strategy and use performance measures to monitor  and assess the mix of compensation.  DOD noted that the department has  consistently communicated its approach to Congress in Congressional  testimony and that DOD has sponsored efforts, such as the Defense  Advisory Committee on Military Compensation, to assess its overarching  compensation strategy.  DOD also pointed out that it has generally not  sought increases in deferred and noncash compensation, and stated during  congressional testimony the department’s preference for cash  compensation.  We believe that DOD’s argument that Congress has  mandated changes to compensation that it did not seek further illustrates  why the department needs to develop an explicit compensation strategy  and performance measures.  As we point out in this report, a  compensation strategy could be used to underpin the department’s  compensation decisions and performance measures to track their  effectiveness.  Furthermore, the department would be in a better position  to make business case arguments for or against changes to its  compensation system, and provide fact-based evidence regarding the  efficiency of the allocation of cash, noncash, or deferred compensation.
DOD also partially concurred with our second recommendation to compile  total costs to provide reserve compensation for both drilling and mobilized  reservists and communicate those costs to decision makers within the  administration and Congress.  In its response to this report, DOD stated  that this recommendation may be more appropriate for the Office of  Management and Budget since the costs extended to multiple federal  departments.  We made a similar recommendation to the department in  our July 2005 report on active duty compensation.  Since our 2005 report,  the Office of Management and Budget published a compilation of active  duty compensation costs and the allocation of cost to cash, noncash, and  deferred compensation in its fiscal year 2008 Analytical Perspectives.  In  addition, the department noted that it has discussed with the Office of  Management and Budget the possibility of expanding the information to  include Guard and reserve compensation costs.  Such actions represent  steps in the right direction.  However, placing the information in the 400- plus page Analytical Perspectives document that accompanies the budget  may not be as effective as an annual budget exhibit included as part of the  military budget request.  While we believe OMB has taken a step in the  right direction, we continue to believe that DOD is in the best position to  exercise ownership over total compensation costs and, accordingly,  should compile and present total compensation costs as part of its budget  submission.  As we stated in our report, lack of transparency over  compensation costs is, in part, due to the fact that DOD lacks a single  source to illustrate total compensation costs for drilling, full-time, and  mobilized reservists.  We continue to believe that compilation of costs in a  single source is an important first step in gaining transparency over total  reserve compensation costs.  This type of compilation would provide  decision makers with a resource to make fact-based decisions about future  changes to compensation.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, and other interested parties.  In  addition, the report will be available at no charge on GAO’s Web site at  http://www.gao.gov.  If you or your staff have any questions regarding this  report, please contact me at (404)679-1900 or pendletonj@gao.gov.   Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. Other staff members  who made key contributions to this report are listed in appendix V.
section_title: Appendix I: Updated Active Duty Compensation Costs
paragraphs: We originally reported total active duty compensation costs to the federal  government in July 2005. This appendix updates the total compensation  costs in that report.  As shown in table 1, adjusted for inflation, the total  cost for providing active duty compensation increased from about $131.7  billion to $173.2 billion (32 percent) from fiscal year 2000 to fiscal year  2006.  Cash benefits accounted for 48 percent of total compensation costs,  while noncash and deferred benefits accounted for 21 and 31 percent,  respectively.  In fiscal year 2006, it cost the federal government more than  $126,000, on average, to provide annual compensation to active duty  servicemembers.  Three things are important to remember about our  estimate.  First, it is an average of what it cost the government to  compensate servicemembers, not what the servicemembers “receive in  their paycheck.”  Second, agencies other than Department of Defense  (DOD), such as the Department of Veterans Affairs, Department of  Education, and Department of Labor, provide compensation to  servicemembers, so our estimate includes their appropriated costs.  Third,  the estimate does not include the cost of adding servicemembers, because  it does not include costs for acquiring and training personnel.
To calculate the cost to the federal government of compensating active  duty servicemembers, we interviewed officials from DOD, Department of  Veterans Affairs, Department of Labor, Department of Education, Office of  Management and Budget, and the Congressional Budget Office.  We  analyzed and compiled data for fiscal years 2000-2006 from the Army, Air  Force, Marine Corps, and Navy’s military personnel and operations and  maintenance budget justification books.  We also reviewed and compiled  data from the Department of Veterans Affairs benefits and health care  budget justification books.  To estimate the total federal tax expenditure  that results from the tax-exempt housing and subsistence allowances  military personnel receive, we used the National Bureau of Economic  Research’s TAXSIM Model to simulate tax liabilities under different  scenarios. To estimate health care accrual costs, we used official DOD  estimates of accrual health care costs for all retirees and their dependents.   In addition, DOD’s Office of Health Affairs provided us the estimated cost  of health care for active duty servicemembers and their dependents for  fiscal years 2004-2006.  To calculate the costs of future veterans’ benefits  for current active duty servicemembers, including the costs for health  care, compensation, pension, and other types of benefits, we used notional  costs as a percentage of basic pay for accruing and actuarially funding  Department of Veterans Affairs benefits in the DOD budget.  Lastly, we  used deflators to adjust the budget appropriations into current fiscal year  2006 dollars.  For more detailed information on our methodology, see  appendix II.
section_title: Appendix II: Scope and Methodology
paragraphs: To determine how Guard and reserve servicemembers have been  compensated, we analyzed relevant regulations and legislation since 2000,  identified changes in compensation policy, and compiled a list of pays and  benefits for which reservists are currently eligible.  We then used  budgetary data to assign costs to the various pays and benefits of the  reserve compensation system.  This included compiling data for fiscal  years 2000-2006 from the Army National Guard, Army Reserve, Air  National Guard, Air Force Reserve, Marine Corps Reserve, and Navy  Reserve’s military personnel and operation and maintenance budget  justification books. Within the operation and maintenance justification  books, we reviewed the budgets of the defense health program; the  defense commissary agency; the morale, welfare, and recreation activities  (OP-34 exhibit); and DOD dependent education activity. We also reviewed  data from the Department of Veterans Affairs benefits and health care  budget justification books.  In addition, we interviewed DOD officials in  Washington, D.C., from the offices of (1) the Assistant Secretary of  Defense for Reserve Affairs; (2) the Comptroller within the Office of  Secretary of Defense; (3) each of the national guard and reserve  components, excluding the Coast Guard; (4) the Actuary; (5) Health  Affairs; and (6) the Office of Program Analysis and Evaluation. We also  interviewed officials from the Department of Veterans Affairs in  Washington, D.C., the Office of Management and Budget in Washington,  D.C., and the Congressional Budget Office in Washington D.C.
All of the associated costs for the reserves could not be found in the  budgetary exhibits. In some instances, we requested data from the  appropriate federal agency.  For example, the Office of Health Affairs  provided (1) per capita TRICARE cost estimates for full-time  administration and support personnel for fiscal years 2004 through 2006;  (2) cost estimates for TRICARE Reserve Select (TRS) for fiscal year 2005  and fiscal year 2006; and (3) projected cost estimates for TRS for fiscal  year 2008 to fiscal year 2013.  To calculate the health care cost for full-time  reservists for fiscal years 2000 through 2003, we relied on our previous  health care cost estimates for active duty personnel.  The Office of the  Actuary provided the costs for the retired health care accrual.  Although  the Department of Veterans Affairs provided assistance, we determined  that the portion of reserve deferred or acrual cost associated with most  veterans’ programs could not be identified without creating an accrual  model.
In other instances, we found it necessary to estimate the cost to the  federal government.  For example, we used the data from the Office of the  Actuary’s Valuation Report to calculate the Department of Treasury’s  contribution to disability compensation accrual.  We also estimated total  federal tax expenditures that resulted from tax-exempt housing and  subsistence allowances received by military personnel in 2005 and 2006.   To do this we estimated the taxes owed by an active duty servicemember  for every combination of years of service, rank, and family size, with and  without the tax exemption for housing and subsistence.  The number and  pays of servicemembers were provided by DOD’s Selected Military  Compensation Tables.  Only military income was used to calculate the  taxes owed. We calculated taxes owed for each group using the National  Bureau of Economic Research’s TAXSIM model, which simulates tax  liabilities under different scenarios.  We calculated the tax expenditure as  the difference between the taxes owed without the tax exemptions and  with the tax exemptions.   We determined the average tax expenditure for  active duty servicemembers by computing an average based on the  number of servicemembers in each category.  We applied these results to  the active duty compensation cost.
Next, to estimate the percentage difference in tax expenditure between  active duty and full-time reservists, we computed the ratio of average tax  expenditure in 2006 based on the distribution of years of service and ranks  for full-time reservists and active duty servicemembers.  When computing  the taxes owed by reservists, we assumed that the family size of full-time  reservists was the same as active duty servicemembers of identical rank  and years of service.  Data for reservists were taken from the Official  Guard and Reserve Manpower Strength and Statistics.  We applied these  results to the compensation cost of full-time reservists.
Additionally, to estimate future health care costs for the current reserve  population when they retire, we used official estimates of health care  accrual costs for servicemembers older than 65 (Medicare eligible) and  younger than 65 (non-Medicare eligible).  DOD’s Office of the Actuary  provided the per capita normal costs for postretirement medical benefits,  that is, the present value of the current year's attributed portion of future  benefits for active personnel and their eligible dependents. The 2000-2002  per capita normal costs were provided by DOD’s Office of the Actuary  based on data from a report prepared by Milliman USA Consultants and  Actuaries.  Per capita normal costs for 2003 and 2004 were based on data  from Milliman’s spreadsheets.  The 2005 and 2006 per capita normal costs  come from the DOD Office of the Actuaries’ valuations as of September 30,  2004, and September 30, 2005, respectively.
Finally, when calculating aggregate costs for the various types of  compensation, we used military personnel deflators from the National  Defense Budget Estimates for fiscal year 2007 published by the Office of  the Under Secretary of Defense (Comptroller) to adjust the budget  appropriations into current fiscal year 2006 dollars.  To aid our analysis,  we classified the types of compensation into three categories: cash,  noncash, and deferred.  In addition, we classified the reserve service  population into two categories: full-time and part-time.  Our analysis  produced per capita costs for each category of the population. For the full- time per capita cost, we used the average strength identified in the military  personnel budget justification books for the administration and support  population as the denominator.  The average strength, of Pay Groups A  (reservists assigned to units), B (reservists designated as Individual  Mobilization Augmentees), F (reservists completing initial entry training),  and P, located in the military personnel budget justification books was  adjusted by subtracting the average number of mobilized Select Reservists  from each fiscal year to approximate the actual number of part-time  drilling or “active” reservists.  This “normalized” strength was used as the  denominator for the part-time per capita cost. The office of the Assistant  Secretary of Defense for Reserve Affairs provided assistance with querying  the Contingency Tracking System managed by DOD’s Defense Manpower  Data Center to identify the monthly number of reservists serving on active  duty orders for named contingencies by reserve component. To assess the  reliability of Contingency Tracking System data, we interviewed  knowledgeable officials about the system and related internal controls,  and we reviewed our prior work on the reliability of Contingency Tracking  System data. To assess the reliability of the analysis (monthly deployment  totals) produced by the Defense Manpower Data Center from the  Contingency Tracking System, we reviewed the SAS program that  generated the results.  We determined the data we received were reliable  for there intended purpose in this engagement.
To assess the extent to which DOD’s mix of cash, noncash, and deferred  compensation helped DOD meet its human capital goals, we reviewed the  requirements for establishing program objectives and outcome measures  in federal government standards such as the Government Performance  and Results Act of 1993 as well as in GAO guidance and strategies for  human capital management.  We reviewed applicable DOD directives,  policy, and guidance and interviewed DOD officials from each of the  reserve components, as well as representatives from the Office of the  Secretary of Defense and Reserve Affairs in Washington, D.C., to assess  whether DOD had established any strategies for compensation or outcome  measures to determine the efficiency of its compensation tools.  We  interviewed DOD recruiting and retention officials to determine the extent  to which compensation is used to attract and retain reserve personnel.   These interviews were conducted with officials in the U.S. Army  Accessions Command at Ft. Knox, Kentucky; U.S. Army Retention  Command at Ft. McPherson, Georgia; and Air National Guard Office of  Recruiting and Retention in Arlington, Virginia.  We also reviewed reports  done by DOD, the Congressional Research Service, the Commission on the  National Guard and Reserves, the private sector, and others on recruiting  and retention of reserve forces as well as commonly accepted economic  theory.
To assess the extent to which DOD’s approach provided transparency over  total costs to the federal government and determine whether DOD  followed those directives, policy, and guidance, we reviewed how  compensation costs are presented to decision makers by analyzing the  budget justification books and comparing them to applicable directives,  policy, and guidance, such as the DOD Financial Management Regulation.   We also interviewed knowledgeable officials at the National Guard Bureau  (for the Army and Air National Guard), the Air Force Reserve Budget  Division, the Army Reserves (Office of the Comptroller), Marine Corps  Reserves, and Navy Reserve Budget offices in Washington, D.C. to learn  more about transparency issues.  We compared DOD directives and  guidance to standards such as the Government Performance and Results  Act and commonly accepted economic theory.
To calculate the cost to the federal government of compensating active  duty servicemembers, we interviewed officials from DOD including the  Office of the Secretary of Defense, Under Secretary for Personnel and  Readiness’ office of compensation, the Office of the Comptroller within  the Office of the Secretary of Defense and the Services, the Office of the  Actuary, and Health Affairs all in Arlington, Virginia.  In addition, we  interviewed officials from Department of Veterans Affairs, Department of  Labor, Department of Education, Office of Management and Budget, and  the Congressional Budget Office, all in Washington, D.C.
We examined and compiled data for fiscal years 2000-2006 from the Army,  Air Force, Marine Corps, and Navy’s military personnel and operations and  maintenance budget justification books.  Within the operations and  maintenance justification books, we reviewed the Defense Health  Program, the Defense Commissary Agency, the morale, welfare and  recreation (OP-34 exhibit), and DOD dependent education activity  budgets.  We also reviewed and compiled data from the Department of  Veterans Affairs benefits and health care budget justification books.   We  used deflators to adjust the budget appropriations into current fiscal year  2006 dollars.
To calculate the costs of future veterans’ benefits for current active duty  servicemembers, including the costs for health care, compensation,  pension, and other types of benefits, we used notional costs as a  percentage of basic pay of accruing and actuarially funding Veterans  Affairs benefits in the DOD budget.  The notional cost percentages we  used were unofficial Office of Management and Budget estimates.  These  estimates were based on the most recent official percentages shown in  table 12-2 of the 1999 President’s Budget.
Lastly, all active duty compensation costs are not presented in budgets.  As  a result, we estimated the total federal tax expenditure and our methods  are described as part of the reserve compensation costs on page 39.  We  requested DOD’s Office of the Actuary provide health care accrual costs as  described in appendix I.  We also requested that DOD’s Office of Health  Affairs provide health care cost estimates for active duty servicemembers  and their dependents for fiscal years 2004-2006.  We relied on our  previously calculated active duty health care costs for fiscal years 2000  through 2003.  We conducted our review from October 2006 through May  2007 in accordance with generally accepted government auditing  standards.
section_title: Appendix III: Pay and Benefits of the Selected Reserve
paragraphs: Active duty for  training (ADT)
Amount is  determined by the  member’s years of  service and pay  grade.
Amount is  determined by the  member’s years of  service and pay  grade.
Amount is  determined by the  member’s years of  service and pay  grade.
Amount is  determined by the  member’s years of  service and pay  grade.
If ADT is 31 days or  more, the  servicemember is  eligible.  The amount  is determined by the  member’s pay  grade, location of  permanent duty  station, and  dependent status.
Amount is  determined by  member’s pay grade,  location of  permanent duty  station, and  dependent status.
Amount is  determined by  member’s pay  grade, location of  permanent duty  station, and  dependent status. (Enlisted  servicemembers  may receive rations- in-kind)
Eligible, amount  depends on if the  servicemember is an  officer or enlisted.
Eligibile, amount  depends on if the  servicemember is an  officer or enlisted.
Eligible, amount  depends on if the  servicemember is an  officer or enlisted.
Eligible, amount  depends on if the  servicemember is  an officer or  enlisted.
Eligible, limited to  members with  dependents during  permanent change  station when family  cannot accompany  member or  temporary duty  status  (unaccompanied for  31 days or more).
Eligible, limited to  members with  dependents during  permanent change of  station when family  cannot accompany  member or  temporary duty  status  (unaccompanied for  31 days or more).
Eligible, for  members with  dependents, if  member meets  statutory and  regulatory  requirements.
Active duty for  training (ADT)
Housing and  subsistence  allowances are  nontaxable benefits.   In addition, all pay,  allowances, and  bonuses earned  during a month while  in a combat zone  and qualified  hazardous duty area  for 1day of the  month are  nontaxable.   Officers’ monthly tax  exclusion of military  pay earned is  capped at the  highest enlisted  monthly basic pay  plus $225 for  hazardous fire and  Imminent Danger  Pay (IDP).
Housing and  subsistence  allowances are  nontaxable benefits.   In addition, all pay,  allowances, and  bonuses earned  during a month while  in a combat zone and  qualified hazardous  duty area for 1day of  the month are  nontaxable.  Officers’  monthly tax exclusion  of military pay earned  is capped at the  highest enlisted  monthly basic pay  plus $225 for  hazardous fire and  Imminent Danger  Pay.
Housing and  subsistence  allowances are  nontaxable benefits.   In addition, all pay,  allowances, and  bonuses earned  during a month while  in a combat zone and  qualified hazardous  duty area for 1day of  the month are  nontaxable.  Officers’  monthly tax exclusion  of military pay earned  is capped at the  highest enlisted  monthly basic pay  plus $225 for  hazardous fire and  Imminent Danger  Pay.
Housing and  subsistence  allowances are  nontaxable benefits.   In addition, all pay,  allowances, and  bonuses earned  during a month  while in a combat  zone and qualified  hazardous duty  area for 1day of the  month are  nontaxable.   Officers’ monthly  tax exclusion of  military pay earned  is capped at the  highest enlisted  monthly basic pay  plus $225 for  hazardous fire and  Imminent Danger  Pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, at 1/30 of  the authorized rate  for each IDT period,  if the member meets  the statutory and  regulatory  requirements of the  pay, except for fire  fighters.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, at 1/30 of  the authorized rate  for each IDT period,  if the member meets  the statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Active duty for  training (ADT)
Eligible, at 1/30 of  the authorized rate  for each IDT period.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, at 1/30 of  the authorized rate  for each IDT period,  if the member meets  the statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, at 1/30 of  the authorized rate  for each IDT period,  if the member meets  the statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, at 1/30 of  the authorized rate  for each IDT period,  if the member meets  the statutory and  regulatory  requirements of the  pay.
Eligible. However,  the Secretary of the  military department  may authorize  payment only to  those reservists on  active duty in excess  of 180 days.
Eligible. However,  the Secretary of the  military department  may authorize  payment only to  those reservists on  active duty in excess  of 180 days.
Eligible. However,  the Secretary of the  military department  may authorize  payment only to  those reservists on  active duty in excess  of 180 days.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible for officers  only, for each day of  duty that meets the  statutory and  regulatory  requirements of the  pay.
Eligible for officers  only, if the member  meets the statutory  and regulatory  requirements of the  pay.
Eligible for officers  only, if the member  meets the statutory  and regulatory  requirements of the  pay.
Eligible for officers  only, if the member  meets the statutory  and regulatory  requirements of the  pay.
Eligible for officers  only, if the member  meets the statutory  and regulatory  requirements of the  pay.
Active duty for  training (ADT)
Eligible when  assigned to a  designated mission.
Eligible when  assigned to a  designated mission.
Eligible when  assigned to a  designated mission.
Eligible, if the  member meets the  statutory and  regulatory  requirements for the  pay.
Eligible from the first  day if assigned  permanently to a  designated location  or if assigned  temporarily to a  designated location  for more than 30  consecutive days,  payable from first  day.
Eligible from the first  day if assigned  permanently to a  designated location  or if assigned  temporarily to a  designated location  for more than 30  consecutive days,  payable from first  day.
Eligible from the first  day if assigned  permanently to a  designated location  or if assigned  temporarily to a  designated location  for more than 30  consecutive days,  payable from first  day.
Eligible if the  member meets the  statutory and  regulatory  requirements for the  pay.
Eligible at 1/30 of the  authorized rate for  each duty day.
Eligible at 1/30 of  the authorized rate  for each duty day.
Eligible at 1/30 of the  authorized rate for  each duty day.
Eligible at 1/30 of the  authorized rate for  each duty day.
Eligible at 1/30 of  the authorized rate  for each duty day.
Eligible, medical  officers are  authorized  $450/month and  dental officers  $350/month.
Eligible, medical  officers are  authorized  $450/month and  dental officers  $350/month.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible, if the  member meets the  statutory and  regulatory  requirements of the  pay.
Eligible for officers  who agree to fill  critical shortfalls.
Eligible for officers  who agree to fill  critical shortfalls.
Eligible for officers  who agree to fill  critical shortfalls.
Eligible for officers  who agree to fill  critical shortfalls.
Eligible for officers  who agree to fill  critical shortfalls;  however, DOD  policy prohibits.
Active duty for  training (ADT)
Limited to Selected  Reserve who enlist  to fill critical  shortfalls.
Limited to Selected  Reserve who enlist  to fill critical  shortfalls.
Limited to Selected  Reserve who enlist to  fill critical shortfalls.
Limited to Selected  Reserve who enlist to  fill critical shortfalls.
Limited to Selected  Reserve who enlist  to fill critical  shortfalls; however,  DOD policy  prohibits..
Limited to Selected  Reserve who reenlist  to fill critical  shortfalls.
Limited to Selected  Reserve who  reenlist to fill critical  shortfalls.
Limited to Selected  Reserve who reenlist  to fill critical  shortfalls.
Limited to Selected  Reserve who reenlist  to fill critical  shortfalls.
Limited to Selected  Reserve who  reenlist to fill critical  shortfalls; however,  DOD policy  prohibits..
Option available to  Active Guard and  Reserves with 15  years of service  who first became a  member after  August 1, 1986 and  elect to accept the  lump sum bonus  and to remain under  the Redux  retirement plan.
Eligible for treatment  of injury, illness or  disease incurred or  aggravated in line of  duty.
Eligible, if 30 days or  less, for  treatment  of injury, illness or  disease incurred or  aggravated in line of  duty and if 31 days  or more it is the  same as active duty.
Eligible for treatment  of injury, illness or  disease incurred or  aggravated in line of  duty. provided at a military  treatment facility.
Eligible for  treatment provided  at a military  treatment facility.
Eligible, if ADT is 30  days or less;  however, if ADT is  31 days or more  then dental care and  treatment provided  at a military  treatmentfacility. treatment provided at  a military treatment  facility. treatment provided  at military treatment  facility.
Active duty for  training (ADT)
Active duty (other  than training) for 31  days or more  member is ordered  to active duty for  training for 31 days  or more.
Eligible, at military  facilities if space is  available or the  servicemember may  select from TRICARE  Standard, Extra,  Prime or Prime  Remote.
Eligible, at military  facilities if space is  available or the  servicemember  may select from  TRICARE  Standard, Extra,  Prime or Prime  Remote.
Eligible, for 180  days, if involuntarily  separated from  active duty.
Eligible, for 180 days,  if involuntarily  separated from  active duty or if  released from active  duty while serving in  a contingency  operation for a period  of more than 30  days.
Eligible, for 180  days, if involuntarily  separated from  active duty.
Eligible, if member  meets eligibility  requirements and  enrolls,   Eligible, if member  meets eligbility  requirements and  enrolls.
Eligible, if member  meets eligibility  requirements and  enrolls.
Eligible, however,  may have limited  availability for  various services.
Eligible, however,  may have limited  availability for  various services.
Eligible, however,  may have limited  availability for various  services.
Eligible, however,  may have limited  availability for various  services.
Eligible, however,  may have limited  availability for  various services.
Active duty for  training (ADT)
Eligible for some  services but not all.
Eligible, but  availability of space  may be limited.
Eligible, but  availability of space  may be limited.
Eligible, but  availability of space  may be limited.
Eligible, but  availability of space  may be limited.
Eligible to travel  between the  member’s home and  place of training.
Eligible for the  member only within  the continental  United States of  America.
Eligible for the  member and  dependents to all  locations.
Eligible for the  member and  dependents to all  locations.
Eligible for the  member and  dependents to all  locations.
Eligible for the  member and  dependents to all  locations.
Subject to the  availability of legal  staff resources.
Subject to the  availability of legal  staff resources.
Subject to the  availability of legal  staff resources.
Subject to the  availability of legal  staff resources.
Selected Reserve  members are  automatically  enrolled and may  decline coverage.
Selected Reserve  members are  automatically  enrolled and may  decline coverage.
Coverage continues  or eligible to enroll.
Coverage continues  or eligible to enroll.
Coverage continues  or eligible to enroll.
Eligible, if the  member is enrolled  in Servicemember  Group Life  Insurance.
Eligible, if the  member is enrolled  in Servicemember  Group Life  Insurance.
Eligible, if the  member is enrolled in  Servicemember  Group Life Insurance.
Eligible, if the  member is enrolled in  Servicemember  Group Life  Insurance.
Eligible, if the  member is enrolled  in Servicemember  Group Life  Insurance.
Selected Reservists  are automatically  enrolled if the  reservist has  Servicemember  Group Life Insurance  coverage.
Selected Reservists  are automatically  enrolled if the  reservist has  Servicemember  Group Life  Insurance coverage.
Selected Reservists  are automatically  enrolled if the  reservist has  Servicemember  Group Life Insurance  coverage.
Selected Reservists  are automatically  enrolled if the  reservist has  Servicemember  Group Life Insurance  coverage.
Automatically  enrolled if the  reservist has  Servicemember  Group Life  Insurance  coverage.
Eligible, if ADT is 31  days or more.
Active duty for  training (ADT)
Eligible, if ADT is 31  days or more.  Up to  60 days in career.  If  on ADT for more  than 30 days but  less than 365 days,  may sell unused  leave in excess of  the 60-day career  limit.
Eligible, up to 60  days in career, but if  on active duty for  more than 30 days  but less than 365  days, may sell  unused leave in  excess of the 60-day  career limit.
Eligible, up to 60  days in career.
Requires a 6-year  Selected Reserve  service agreement.
Requires a 6-year  Selected Reserve  service agreement.
Requires a 6-year  Selected Reserve  service agreement.
Requires a 6-year  Selected Reserve  service agreement.
Requires a 6-year  Selected Reserve  service agreement.
Enlisted must be or  have been  Montgomery GI Bill- Selected Reserve  eligible and serve in  a critically  undermanned skill.   Member must agree  to a 6-year service  obligation.
Enlisted must be or  have been  Montgomery GI Bill- Selected Reserve  eligible and serve in  a critically  undermanned skill.  Member must agree  to a 6-year service  obligation.
Enlisted must be or  have been  Montgomery GI Bill- Selected Reserve  eligible and serve in  a critically  undermanned skill.  Member must agree  to a 6-year service  obligation.
Enlisted must be or  have been  Montgomery GI Bill- Selected Reserve  eligible and serve in  a critically  undermanned skill.  Member must agree  to a 6-year service  obligation.
Enlisted must be or  have been  Montgomery GI Bill- Selected Reserve  eligible and serve in  a critically  undermanned skill.  Member must agree  to a 6-year service  obligation.
Scholarship program  for Reserve Officers  Training Corps  participants.
Scholarship program  for Reserve Officers  Training Corps  participants.
Scholarship program  for Reserve Officers  Training Corps  participants.
Scholarship program  for Reserve Officers  Training Corps  participants.
Not eligible.
Restricted to officers  in designated health  professions with  obligatory periods of  military training.
Restricted to officers  in designated health  professions with  obligatory periods of  military training.
Restricted to officers  in designated health  professions with  obligatory periods of  military training.
Restricted to officers  in designated health  professions with  obligatory periods of  military training.
Restricted to  officers in  designated health  professions with  obligatory periods  of military training.
Tuition Assistance   Available to Selected  Reservist members  of the Army National  Guard and Army  Reserve.
Eligible, but an  officer must agree to  serve on active duty  or full-time National  Guard duty, unless  waived by the  Secretary  concerned.
Eligible , but an  officer must agree to  serve on active duty  or full-time National  Guard duty, unless  waived by the  Secretary concerned.
Eligible , but an  officer must agree to  serve on active duty  or full-time National  Guard duty, unless  waived by the  Secretary concerned.
Eligible , but an  officer must agree  to serve on active  duty or full-time  National Guard  duty, unless waived  by the Secretary  concerned.
Active duty for  training (ADT)
Eligible upon  completion of 90  consecutive days of  active service in  support of a  contingency  operation.
Eligible upon  completion of 90  consecutive days of  active service in  support of a  contingency  operation.
Eligible upon  completion of 90  consecutive days of  active service in  support of a  contingency  operation.
Eligible upon  completion of 90  consecutive days of  active service in  support of a  contingency  operation.
Eligible upon  completion of 90  consecutive days of  active service in  support of a  contingency  operation.
Initial allowance paid  to enlisted who are  not issued clothing  and officers at the  beginning of their  service.
Initial allowance paid  to some enlisted and  officers at the  beginning of their  service.
Initial allowance paid  to enlisted some and  officers at the  beginning of their  service.
Some enlisted, and  officers called to  active duty for more  than 90 days may  receive an extra  clothing allowance.
Eligible if orders are  for 20 weeks or  more.
Eligible, if completed  6 years of honorable  reserve service.
Eligible, if completed  6 years of honorable  reserve service.
Eligible, if completed  6 years of honorable  reserve service.
Eligible, if completed  6 years of honorable  reserve service. participation points  per year for a  minimum of 20  years. Eligible to  receive pay and  health care at age  60.
Must earn 50  participation points  per year for a  minimum of 20  years. Eligible to  receive pay and  health care at age  60.
Must earn 50  participation points  per year for a  minimum of 20 years.  Eligible to receive  pay and health care  at age 60.
Must earn 50  participation points  per year for a  minimum of 20 years.  Eligible to receive  pay and health care  at age 60.
Must have a  minimum of 20  qualifying years to  be eligible for  retirement pay and  benefits.
Eligible, if the  disability was  incurred or  aggravated in the  line of duty while:  performing inactive  duty training (IDT),  traveling directly to  or from the IDT site,  remaining overnight  immediately before  or between  successive IDT  periods.
Eligible, if the  disability was  incurred or  aggravated in the  line of duty.
Eligible, if the  disability was  incurred or  aggravated in the line  of duty.
Eligible, if the  disability was  incurred or  aggravated in the line  of duty.
Eligible, if the  disability was  incurred or  aggravated in the  line of duty.
Active duty for  training (ADT)
Generally not eligible  unless member  qualifies based on  service in active  military or  mobilization for a  contingency  operation.
Generally not  eligible unless  member qualifies  based on service in  active military or  mobilization for a  contingency  operation.
Generally not eligible  unless member  qualifies based on  service in active  military or  mobilization for a  contingency  operation.
Generally not eligible  unless member  qualifies based on  service in active  military or  mobilization for a  contingency  operation.
A member qualifies  based on active  duty status.
Special and incentive pays are intended to compensate members for more hazardous conditions  than usually experienced in peacetime and provide incentives for certain career fields that would  otherwise experience manpower shortfalls.
Bonuses are intended to provide services with a flexible tool for targeting particular skills and  address critical manpower shortfalls.
There are a variety of programs offering varying levels of coverage depending on duty status and  enrollment.
The John Warner National Defense Authorization Act for Fiscal Year 2007 authorized the  enhancement of TRICARE Reserve Select by making all Selected Reserve members and  dependents eligible for the program at 2 percent of the premium.  The change to the program is  scheduled to take effect by October 2007.
The insurance programs listed are supervised by the Department of Veterans Affairs.  Enrollment in  the programs requires the payment of a premium. The insurance may be bought in increments of  $50,000 up to a maximum of $400,000.  Children are insured at $10,000 at no additional cost.  Up to  $100,000 coverage can be purchased for a spouse.  Traumatic injury insurance provides immediate  financial assistance to traumatically injured servicemembers so their families can travel to be with  them during an often extensive recovery and rehabilitation process.  Payments range from $25,000 to  $100,000 depending on the type and severity of injury.
Unlike Montgomery GI Bill-Active Duty, for reservists meeting the eligibility requirement, the benefit is  automatic and the members are not required to make a payment.  The Montgomery GI Bill-Reserve  Component benefit amount is smaller than the Montgomery GI Bill –Active Duty benefit.
The majority of reservists have prior service in the active component.  Since fees for active duty  applications are lower than reserve applications, reservists with active duty prior service usually apply  based on their prior active duty service.
Both DOD and Veterans Affairs provide disability compensation. Since 2005, disabled veterans have  been eligible to receive disability compensation from Veterans Affairs and disability retirement from  DOD.
section_title: Appendix IV: Comments from the Department of Defense and GAO’s Response
subsections: section_title: GAO Response to Department of Defense’s Technical Comments
paragraphs: The Department of Defense (DOD) made comments on the presentation of  the data in our report and raised a number of technical concerns.  Our  response to DOD’s technical comments follows.  1.  DOD commented that we did not adequately describe the impact of the  increase in funding related to the Global War on Terrorism.  In its  comments, DOD stated that in fiscal year 2006 more than $15.6 billion  of the $173.2 billion in compensation costs were supplemental funding  for the Global War on Terrorism.  While it is true that our estimates  include supplemental funding, we do not believe that the inclusion of  this funding changes our findings or conclusions.  Costs paid from  supplemental funding represents real costs to the federal government  that we believe are appropriate to include when calculating how much  the federal government spends on compensating military  servicemembers.  However, we understand DOD’s concern, and  footnotes in the report that explain our approach are sufficient.   Furthermore, we believe that DOD’s comment illustrates the  importance of providing greater transparency over mobilized  reservists’ costs. As we have previously testified, with Global War on  Terrorism costs likely to continue for the foreseeable future, it is  becoming increasingly important that DOD move those costs into the  baseline budget as the level of effort becomes better known and is  more predictable. Greater transparency over costs would provide  administration and congressional decision makers more information to  make fact-based decisions and weigh competing priorities for the  nation’s resources.  2.  DOD did not disagree with our overall finding that active duty  compensation costs to the government have increased since fiscal year  2000.  However, DOD stated that our reliance on end strength numbers  for active duty personnel distorts active duty per capita costs  calculations because that number does not include mobilized  reservists.  We did note in the report that mobilized reservists are paid  out of active duty cash compensation costs and that our active duty  per capita cost estimates do not take these mobilized reservists into  account, and acknowledge in the report that the per capita costs to  provide compensation would be lower if these mobilized reservists  were taken into consideration.  DOD’s concern further highlights the  need for the department to establish greater transparency over the  costs of reservists.  As we state in this report, accounting for mobilized  reservists is problematic, given that they count against reserve end  strength numbers but are paid out of active duty accounts.        3.  DOD raised concerns about the adjustments we made in our data to  account for inflation, and felt that the deflators, or price indices, we  chose understated the real growth in compensation costs between  fiscal years 2000 and 2006.  We are aware that the price indices we  used make our growth estimates conservative and that other indices  would show similar or greater growth.  We recognize that in examining  the growth of military compensation over time, the division of this  growth between real growth and growth due to inflation depends on  the price index or deflator used to adjust for inflation.  For example,  when dividing total growth in compensation between real growth and  growth due to inflation, a higher rate of inflation will produce a lower  real growth rate, and vice versa.  We used the deflators for military pay  that are contained in the National Defense Budget Estimates for fiscal  year 2007 that are published by the Office of the Under Secretary of  Defense of the Comptroller because they represent the official DOD  indices for military pay budget matters.  This office produces several  different deflators or price indices that DOD uses officially to adjust  dollars amounts for inflation for different budgetary purposes, such as  procurement or operations and maintenance.  We recognize, as DOD  suggested in its comments, that we could have used the Employment  Cost Index or the Consumer Price Index (for Urban Wage Earners and  Clerical Workers) to adjust for inflation. Although DOD suggested the  Employment Cost Index for wages and salaries would have been a  more appropriate price index, we would have used the Employment  Cost Index specific for total compensation for the private sector,  because the military compensation number we calculated included  more than wages and salaries.  For example, in addition to wages and  salaries we also included such things as allowances for housing and  subsistence and retirement pay accrual.  As we previously stated in our  report, we used the military pay deflator and found that reserve  compensation costs grew at a real rate of 47 percent from fiscal year  2000 to fiscal year 2006.  When we redid our calculations using the  Employment Cost Index, we found that reserve compensation costs  grew 48 percent from fiscal year 2000 to fiscal year 2006.  When we  redid our calculations using the Consumer Price Index, we found that  reserve compensation costs grew 55 percent from fiscal year 2000 to  fiscal year 2006. However, we note that DOD does not use this index to  prepare its military personnel budgets.  4.  DOD commented that the calculation of the part-time reservists should  have included pay groups for initial entry reservists in the average  strength.  We agree and changed our data to include the pay groups for  the initial entry reservists in the average strength.   5.  DOD commented that the department made a conscious decision to  improve the transparency of compensation costs of mobilized  reservists starting in the fiscal year 2007 supplemental submission.  We  agree that the services have taken the first step of displaying these  costs as part of the supplemental request; however, we believe the  department would benefit from greater transparency over these costs,  including presenting them as part of a complete picture of  compensation costs in the military personnel justification books.           6.  The sentence in question does not discuss whether or not reserve  retirement pay has changed or whether DOD sought the TRICARE  Reserve Select program; it simply provides examples of deferred  compensation. However, we altered the sentence for clarity to reflect  that we were talking about health care benefits for retirees.    7.  We adjusted the language for clarification to reflect the fact that not  living in close proximity to military bases does not effect eligibility.    8.  We adjusted the language as suggested.     9.  We changed the sentence to reflect the fact we are referring to  mobilized personnel only.    10. We specify in the introduction of the report that we limited our scope  to, part-time, drilling reservists, and full-time support personnel  serving in the Active Guard and Reserve program of the Selected  Reserve.  We excluded reserve and guard members who were  mobilized from our cost estimates.  We defined our scope based on  cost information presented by DOD in the budget justification books.   These books present the cost of part-time and Administration and  Support personnel.   11. Our Results in Brief now show that DOD has testified that adding  deferred compensation is not their preference.  12. We excluded mobilized reservists from our cost estimates because  their costs are not presented in the reserve justification books.   However, we believe that the total costs of the Guard and reserve  should include the cost for mobilized reservists and that the  department should take steps to provide greater transparency over all  compensation costs for decision makers to make fact-based decisions.    13. We added language to clarify that mobilized reservists are paid out of  supplemental funding.    14. We addressed the comment by adding a footnote to the section.    15. We reordered the presentation of the reserve components as  suggested.    16. Agency officials told us that ongoing operations had been part of the  reason for the increase in full-time reservists during the course of the  review.  However, we deleted the sentence as requested in the  department’s formal comments.  17. We defined our use of the term full-time reservists to mean Active  Guard and Reserve in the introduction of the report.   18. This statement is referring to reserve compensation costs as they are  currently presented to decision makers in the justification books.   However, we added “reserve” into the sentence for further  clarification.  19.  The report did not state that DOD has sought increases in deferred  compensation, so no change was needed.    20. The sentence refers to the cost of the program to the government and  not to bonuses received by individuals.     21. We added a statement to acknowledge that DOD has not sought some  recent additions to deferred compensation, specifically TRICARE for  life.  However, DOD has not formally assessed the appropriate mix of  compensation and has not developed a written policy or document  that specifies the departments overarching strategy for compensation.  22. While it is true that DOD has sponsored a study assessing the use of  compensation under a reserve continuum of service concept, we  continue to believe that DOD has not developed any performance  measures to regularly and systematically assess all types of  compensation. The study points out the effectiveness of targeted  compensation.  This is an example of the foundation for the  compensation strategy we are recommending DOD formalize.        23. The focus of our reports in 2005 and 2007 was on the difficulties with  rolling out the Defense Integrated Military Human Resources System  rather than on any particular service system.      24. DOD provided separate enclosures, in addition to its agency  comments, that provided technical comments on tables in our report.   We made those changes as suggested.
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the contact named above, David Moser, Assistant Director;  Lori Atkinson, Ben Bolitzer, Renee Brown, Linda Keefer, Susan Langley,  Julia Matta, Erin Noel, Charles Perdue, Rebecca Shea, Kathryn Smith, and  Sonja Ware made key contributions to this report.
section_title: Related GAO Products
paragraphs: Military Personnel: DOD Needs Action Plan to Address Enlisted  Personnel Recruitment and Retention Challenges. GAO-06-134.  Washington, D.C.: November 17, 2005.
Defense Health Care: Health Insurance Stipend Program Expected to  Cost More Than TRICARE But Could Improve Continuity of Care for  Dependents of Activated Reserve Component Members. GAO-06-128R.  Washington, D.C.: October 19, 2005.
Military Personnel: DOD Needs to Improve the Transparency and  Reassess the Reasonableness, Appropriateness, Affordability, and  Sustainability of Its Military Compensation System. GAO-05-798.  Washington, D.C.: July 19, 2005.
Military Personnel: Preliminary Observations on Recruiting and  Retention Issues within the U.S. Armed Forces. GAO-05-419T.  Washington, D.C.: March 16, 2005.
DOD Systems Modernization: Management of Integrated Military  Human Capital Program Needs Additional Improvements. GAO-05-189.  Washington, D.C.: February 11, 2005.
Military Personnel: A Strategic Approach Is Needed to Address Long- term Guard and Reserve Force Availability. GAO-05-285T. Washington,  D.C.: February 2, 2005.  21st Century Challenges: Reexamining the Base of the Federal  Government. GAO-05-325SP. Washington, D.C.: February 2005.
Military Personnel: DOD Needs More Data Before It Can Determine if  Costly Changes to the Reserve Retirement System Are Warranted. GAO- 04-1005. Washington, D.C.: September 15, 2004.
Military Personnel: Survivor Benefits for Servicemembers and Federal,  State, and City Government Employees. GAO-04-814. Washington, D.C.:  July 15, 2004.
Military Personnel: Active Duty Compensation and Its Tax Treatment.  GAO-04-721R. Washington, D.C.: May 7, 2004.
Military Personnel: Observations Related to Reserve Compensation,  Selective Reenlistment Bonuses, and Mail Delivery to Deployed Troops.  GAO-04-582T. Washington, D.C.: March 24, 2004.
Military Personnel: Information on Selected National Guard  Management Issues. GAO-04-258. Washington, D.C.: December 2, 2003.
Military Personnel: DOD Needs More Effective Controls to Better Assess  the Progress of the Selective Reenlistment Bonus Program. GAO-04-86.  Washington, D.C.: November 13, 2003.
Military Personnel: DOD Needs to Assess Certain Factors in  Determining Whether Hazardous Duty Pay Is Warranted for Duty in the  Polar Regions. GAO-03-554. Washington, D.C.: April 29, 2003.
Military and Veterans’ Benefits: Observations on the Concurrent Receipt  of Military Retirement and VA Disability Compensation. GAO-03-575T.  Washington, D.C.: March 27, 2003.
Military Personnel: Preliminary Observations Related to Income,  Benefits, and Employer Support for Reservists During  Mobilizations. GAO-03-573T.  March 19, 2003.
Military Personnel: Management and Oversight of Selective  Reenlistment Bonus Program Needs Improvement. GAO-03-149.  Washington, D.C.: November 25, 2002.
Military Personnel: Active Duty Benefits Reflect Changing  Demographics, but Opportunities Exist to Improve. GAO-02-935.  Washington, D.C.: September 18, 2002.
Military Personnel: Higher Allowances Should Increase Use of Civilian  Housing, but Not Retention. GAO-01-684. Washington, D.C.: May 31, 2001.
Defense Health Care: Observations on Proposed Benefit Expansion and  Overcoming TRICARE Obstacles. GAO/T-HEHS/NSIAD-00-129.  Washington, D.C.: March 15, 2000.
Unemployment Insurance: Millions in Benefits Overpaid to Military  Reservists.  GAO/HEHS-96-101.  August 5, 1996.
The Congress Should Act to Establish Military Compensation Principles.  GAO/FPCD-79-11. Washington, D.C.: May 9, 1979.