personnel costs and under your leadership between now have a commission established that i think could come up with recommendations that would take into consideration the views of the military and civilian leadership in the pentagon and hopefully we can are arrived at consensus. our next panel of witnesses today will be very adamant in understandably so about their concern about the affect of this action taken by the budget committee on the morale and readiness and the ability of us to keep our promise to the men and women who have served and are serving. i think you, mr. chairman, for anticipating the fact that this issue has to be addressed and i hope we will be able to convince all of the american people of the need, what we do, based on the recommendations of the most

highly qualified people we can find. i thank you, mr. chairman. >> thank you, senator mccain. senator donnelly. >> thank you. as we look at this challenge in light of our belief that these should be grandfathered and we look at this $6 billion amount we should be looking at, are there things that you can sit with other folks at the pentagon and the joint chiefs and such and say are there areas where over a year's period in this budget we can try to find $500 million? putting it in your best judgment as opposed to imposing something from top down here in regards to our retirees?

>> we have accepted the need to do that with a piece of this that is already inside the dod budget where we pay into the accrual fund, a $500 bill. when the legislation was passed, our accounts were credited, $500 million and we start to plan prudently to use it, we have to backtrack on that if this proposal is repealed but we are prepared to make those difficult decisions. if we are asked to account for the money outside the dod budget, $6 billion in mandatory spending, that is the more difficult problem and as secretary fox mentally two pots of money on the mandatory side we can address and one is retirement that should be grandfathered and the other is the try care for life which is a difficult question. >> would you like to -- >> we are prepared to find the $500 million a year because we believe grandfathering is the

right thing for the people. it is another one of the reductions the department would seek to maintain back loaded savings and that is the challenge. but we are prepared to address that challenge. >> as we look at the future we have a commission coming up next year and you don't want to step in front of them for any of the decisions that are going to be made, what are the areas we can take a close look at and make a difference while still saying to our perspective service members this is a great place to be and a great opportunity to have in your life? admiral? >> good question and it gets back to the variables inherent in any retirement plan and one of the -- what has been discussed the most has been divestvested kind, the piece abu

have to wait 20 years, we want a young force that will stay and we need a number of them to move on to bring new faces in. it would be difficult to design a system that would give vesting above for that but it is not impossible and that is something the commission should consider. >> secretary fox. >> i would like to share some of vice i got from secretary gates when i was trying to mackenzie's issues and he warned me and i will share with you what he said. he said the defense department is like a dinosaur. little tiny brain and very poor motor skills. if we start fiddling with these retirement benefits we have a chance of messing it up. this is why is it is so important the commission do this work looking at all the analysis because it is important that we

understand changes in investing, what that does to the shaping of our force. the needs of our force are changing as we look into the future, technology changes, expertise changes, we see people with important expertise to stay long grandmothers to move through faster and be young and bring in new ideas. how do we get that exactly right? it is a difficult challenge and we are working with the commission and look forward to continuing to do so. >> as we look at the commission, as you indicated, the challenge you have of saying we want that mix to change at the end, decide on other career choices and stuff. is it pretty much -- you have to dig deep to try to figure out how do we set this up so in 7 years we don't lose people we want for 20 or whatever and the skills we want and on the flip

side of that, folks who may choose to move on, that they have that choice. is it going to be a major consideration of the commission when you look at this as to how to get the mix right before the future? >> i think is. we have pretty good models and the like. under our current system, for retention behavior. we understand that fairly well. there are always unknown variables, the number of variables is dizzying, national employment, propensity to serve on the part of a population, believe it or not even family income, a person graduating high school needs to get into a job. in number of recruiters. the number of the amount of pay we give, bonuses, other retirement program, big soup of variables, the commission has to

consider that carefully and when you open up and released the glue and introduce a new framework that could allow people to retire earlier those models are going to be upset and we have to determine how to modify them so we can understand and that is part of the challenge for the commission, to understand whether we have a model that can accurately predict behavior so we can profile our force correctly. >> thank you, mr. chairman. senator wicker. >> important hearing, appreciate you calling it and i appreciate you starting out at the outset saying that this cpi minus 1 was wrong and needs to be fixed. not a single voice has been raised on either side of the dais in support of what this congress enacted and what we

signed into law. i appreciate this and i also want to appreciate the seriousness of this hit to the military retirees that are affected and it hasn't been mentioned yet today. if either witness wants to challenge me on this now is the time to do it but for the typical enlisted military person ever who retires below the age of 62 this will mean a life time hit of somewhere between $70,000 and $80,000 a more lifetime to the military member. correct me if i am wrong but that has been substantiated over and over, depending on exactly when the enlisted person retires and exactly what the rank was at the time. for officers it is $100,000. out of their pockets, lifetime. this is a serious matter where c

p i-1 sometimes can appeared to diminish the profound effect. let me ask you, secretary fox and let me acknowledge to both of you i understand the problems you are facing and the daunting task making the numbers come out. we want to work on new the on that, that is why we established the commission within parameters. as i understand it, you are sorry this is enacted. you are glad it has been corrected with regard to disabled military retirees and you want to fix it but you want us to wait 13 months to fix it for everyone else. is that correct? >> yes. we want this to be informed by the results of the commission. >> why was it a good idea to fix it, it is going to into effect

by december of 2015 for disabled retirees? why fix it for them? >> i think the disabled retirees cases is very clear. the -- whether to do anything with disabled retirees is not part of any -- >> all right. i think it was clear, i think it is clear on the rest of them too, seems to be clear up and down the aisle. if it was clear for them and we are unanimous in this room and unanimous that the witness table that this is a wrong that should be fixed, seems to me at ought to be made clear and admiral winnefeld, you mentioned predictability, we have an opportunity, proposed on both sides of the aisle to do this, it seems to me it doesn't make any sense, we are all in agreement on this to wait,

unless you want to hold out the possibility we may stick with this. we want to send that signal, waiting for a commission report, waiting 13 months might be a good idea. if we are all agreed, this wrong shouldn't have been done, we can pay for it elsewhere, it seems to me that it makes no more sense to postpone this for 13 months than it did the other clear case. it kind of reminds me of sequestration. mr. chairman, we had witness after witness appeared before this committee, and other committees. we are not going to have sequestration in the united states of america. we have witnessedes from agencies tell committee after committee we are not even making plans for sequestration because it is so unthinkable, so heinous, that we know this is

not going to happen. the president of the united states said in a debate there won't be any sequestration. we hoped that was true but it wasn't true. sequestration did happen and to me, we know this should be fixed, we know it is wrong, we know it was the wrong approach, we regret it but let's wait. to me it holds out the potential that it will be like sequestration and going into effect despite everyone's protestations to the contrary. we said there's not going to be sequestration and there was sequestration. we were told in the city repeatedly if you like your health plan you get to keep it period. turns out that wasn't the case. we told military members you do your side of the bargain, up for

worldwide duty, place your souls on assignment to regions where you are in harm's way and we are going to keep our promise to you, and and last month we broke that promise. now we are being told let's just wait 13 months before we fix that. i can't go along with that. i say to my colleagues this is about a promise that everybody says we need to keep and it is about the process. my friend from arizona said this came out of the budget committee. this didn't come out of the budget committee. it came from behind closed doors and was authored by two individuals and presented to us as a package, take-it-or-leave-it. if we would start following the process in this congress, if the budget conference had been allowed to vote on it we might have adopted these settings

elsewhere. if we had an amendment process like the rules call for in the budget bill we would have had opportunities on a bipartisan basis to pay for this elsewhere, to have the savings elsewhere and keep our promise to the people who fulfilled their promises to the security of the united states of america. if we had this in the omnibus bill, we need to get back to following the rules around this congress. if this had seen the light of day, the elected representatives of the american people, the 100 senators, 435 members of congress would never have stood for this broken promise and this ought to be a lesson to us, let's keep promises but there's a reason we have rules around here and is not to waive or get around them because generally it ends up with bad policy.

i thank you. i want to work with you but i have to say we need to go ahead and act. everyone acknowledges this was wrong. if it was wrong we need to send the signals that we are going to make it right. >> thank you, senator wicker. senator kaine. >> i want to take a different tone than my friend, the senator from mississippi on this one. i agree completely that this is a provision that needs to be changed and i think we will change it. i agree we should change it immediately because it seems the thrust of your testimony is why not return to the status quo pending the 2015 report and we need to change this to return to the status quo so we don't send the wrong signal and whether it is the pay for or not we should return to the status quo. i do want to take on the bigger picture issue instead of kicking ourselves around because we made

a mistake we haven't done a budget in four years. we haven't done a budget in four years. a divided congress hasn't done a budget conference since 1986. so we did a budget and the senate budget did not include this provision. there are four members of the committee on the senate budget committee. this was not in the senate budget. it did come up during the course of the budget conference and negotiations between the two cares. i don't want to trash the shares for coming up with a budget deal that we had to vote on because no budget has been hurting our military and hurting our veterans. sequester has been, which is what we did when there was no budget deal, has been hurting the military and hurting veterans, continuing resolutions instead of appropriations bills has been hurting the military and hurting veterans.

and so we did in december what legislative bodies do all the time. there was a budget deal that was a compromise budget had things in it that i loved, it had things in it that i hated and that didn't have things that i wish were in it. that is what doing a budget deal is. this is an example of something we didn't put in the senate budget deal because we didn't like it. we like the grandfathering notion all of us embrace but the vote that we cast on this, i know it is good to put this whole vote as we were breaking up from us, no, we were trying to do a budget for the united states of america in a congress that hasn't done a budget for four years and doing it with the knowledge that there were some pieces we didn't like and felt like we could fix. there is a tendency to kick each other are round or for one house to take the other house around or for the executive to kick the

legislative around legislative to kick the executive around, talking each other down is no way out of the challenge that we have. i think the budget deal be reached in december, just ask q. are you glad we have a two year budget, is that a good thing for the military? >> the department has been very clear we needed the stability and appreciate the stability. >> are you glad we were able to get an omnibus appropriations bill for the full year instead of gimmicks like continuing resolutions? >> and we have a lot of opportunities to do what we need to do which ties our hands as you appreciate. >> a standard budget deal, there was a deal. a standard feature of a budget compromise is there are pieces i don't like. i hope to fix. i wish extension that had been part of the budget deal that wasn't, we are trying to figure out a way to fix that but the

fact that there are pieces of the deal we don't like i don't think should obscure the issue that when we together passed a budget deal in an omnibus we did something really good for veterans, did something good for the military. i did in a state i am sure has the most direct military connection in terms of the number of veterans per-capita, active-duty, military guard reserve, civilian contractor, military installations, we are the most connected stake in the military of any in the country and overwhelmingly even though there are aspects to this deal we don't like and want to fix the fact of the deal is something that i think house senate democrats, republicans come inside outside capital hill should be glad the we finally have shown we can get it, not the weekend make improvements and this is one that i share with everyone around a table that we ought to fix this and i am confident we will. for purposes of those watching this on the earlier discussion about the composition of the

panel it is important and i would like to ask you to describe who it is that is a around the table coming up with the recommendations that you are intending to make to congress in february of 2015 because it is important to note, are all viewpoints and listed, officer and active and veteran, are all viewpoints being represented? not talking about the names but is it a good collection of stakeholders who are making these recommendations to look at these issues in a variety of different angles. >> just for clarity are you asking about the process we used inside the defense department? not the composition of the commission? is that correct? >> within the dod and proposition, this is more to explain for those who are watching this for the commission, i don't have the actual composition of the commission memorize or with me

but i do recall having looked at it and it was a good representative commission of panel that will have a good opportunity to look fairly and thoroughly and retirement in particular and we have confidence in this panel, good cooperation with them and they are working hard and i think they will come up with some pretty good information for us. we had a number of meetings of the joint chiefs with senior enlisted visors in the room and we have talked about this for months on specifically the compensation pieces and we are looking through it, haven't made a budget submission yet and there has been the pharaoh vetting with our senior officer and enlisted leadership of the proposals we might present. >> on top of that, the senior officer, enlisted, brought through the joint chiefs, has come to the department leadership up to the secretary, a lot of time with him, with the

military, civilian, controller, how we might think about it and that is the process we have done every year we proposed any changes to the congress for compensation. >> thank you, mr. chair. senator ayotte. >> thanks so much for this hearing. is an important topic. let me just ask you it has been clear, not one dod official was consulted on this cost of living increase cut, where they? >> to my knowledge there were no dod officials consulted. we heard about it in the end game as other people did. >> just to be clear, the way this went down is many of us sitting around this table serves

on the budget committee and as a member of the budget committee and the armed services committee we weren't consulted about this cut to the cost of living increase. as far as i know the chairman of the armed services committee was not consulted on this cost of living increase parrot and in fact the cat actually violated the principles in our own law the we passed that said if there are going to be any changes to retirement that they would be grandfathered. isn't that right? >> that is correct. >> wonderful that we can reach a two year budget agreement but what is astounding to me is once this became public blonde both sides of the aisle have ideas how to fix it. we couldn't get it fixed than before we inked at this deal. that would have been the right

thing to do. now right thing to do is to fix it now. not to leave this hanging over our men and women's heads in terms of the unfair cuts. to not consult men and women in uniform is outrageous, not include some people on the armed services committee, to make cuts to military retirees, only in washington, and we should commit ourselves not taking from the military budget so we don't have a further impact on sequestration and the service to our men and women in uniform making sure they have the equipment they need. let me ask you, admiral,

sergeant first class, the chairman used an example of you enlist at 18, you put 20 years in, you retire at 38. someone who has done that in the last 20 years, how likely is it that individual has done multiple force in iraq and afghanistan? >> depends on a branch of service but no question if you are a soldier or a marine or someone in the other service you have probably done more than one 4. >> when you do . >> when you do at . >> when you doo . >> when you dou . >> when you do ar . >> when you do a . >> when you do a tour in iraq and afghanistan to you have a chance to put roots down? >> i would say one of the facets of our life in the military is we don't have the opportunity necessarily to set roots down.

as the son of a naval officer i don't even know what routes are. there are a number of people who come in from state around the country who might have residual roots there but you are right, for 20 years you are moving around. >> isn't that different from your average individual in terms of the ability to establish a career posts 20 years in the military? >> more than that. affects costss, employment, many face severe disruptions, they move from place to place, we have got help from congress on that but it is hard for a spouse to move from one place to another. >> you need a two income households. when your spouse is moving around all the time, he or she can't have a situation where they can establish their career also so you are losing income there also, aren't you? >> there is in command frustration endings i any level of next time we move am i going to be able to find a job? >> so let's be clear.

a military retirement is very different in terms of the sacrifices that are made, then your average civilian retirement. do you agree? >> in terms of the sacrifice made by your family, in terms of the opportunities that you lose to earn income, in terms of the opportunities you lose to put roots down, because of the sacrifices you have made for our nation. >> absolutely agree and that is why we intend to not make direct comparisons between civilian and military retirement. >> in fact when you retire from the military you can be recalled, can't you? as far as i know in a civilian retirement generally you are not mandatory recall back to your job. >> it is unusual but in the event of a crisis, a national emergency absolutely you can be recalled. >> we have been informed since 9/11 about 3400 retirees were

recalled back to active duty circus. does that sound about right? >> i don't have the numbers but i would not be surprised if they're accurate and some come voluntarily but others are recalled. >> that is another huge difference. a disconnect with what happened in this budget agreement. i want to ask you about an issue that was brought to our attention that involves general officer retirement pay, both you, admiral, and secretary fox. as we look, i saw record set in 2007 legislation provided incentives for senior officers to continue serving by extending the basic pay table for my cap of 26 years to provide increased longevity to pay out 40 years of service. according to one press report in usa today using a 2011 no. this could result in a four star officer retirement with 30

years' experience receiving $84,000 more in retirement than previously allowed. i understand why these changes were made. we were in wartime and the purpose was to encourage combat experience, one and two star generals to continue serving during the war. however, now we are in a situation where the congress has made cuts. i want to say these cuts are up penalty. 1% decrease in your cost of living increase, it is a penalty and we haven't even looked at issues like do we need to continue the increases to the generals and admirals that they received now we are winding down in iraq and afghanistan. can you comment on that? think about the impact on sergeant first class losing $80,000, that is a huge impact.

>> we think the commission should look at all elements of retirement, all pay grades, all the variables are listed earlier. we look forward to what the commission has to say on that and other issues. .. >> we are looking at all of the proposals we are considering under the budget submission we

make this year. flagging general officer pay is one thing. >> i appreciate that and hope we can fix this wrong and right it now and not wait, secretary fox. i don't think we should wait. >> thank you, senator ayotte. senator reed. >> thank you, there are two clear issues emerging with broad consensus. one is we have to correct this issue and my sense is it has to be done very quickly, immediately. for many reasons. one is the issue of what signal we are sending to forces on the field. i understand, correct me or respond that we could move such a bill without a form. is that accurate? >> that is accurate. one bill which has been referred to the committee, we are double

checking this, the bill of senator hagan that does not have a pay for. if there is the pay for, an offset in other words, that i believe will be referred to a different committee but this committee i believe will have the ability to act promptly on a bill. and i hope we will and not wait for the commission because there is a clear consensus we should clear the air on this issue.

>> because of the obligations of these costs that are building up and have been building up because of congressional action. can you comment on that? >> the commission will certainly offer its recommendations to the congress and, certainly, to this committee on how both pay and compensation and retirement should be structured. in the mean -- ask so we believe that we should wait until they, and i'm not necessarily saying we should wait to repeal this, that's a different question, but we do need to look at what they

come up with, the various variables on retirement. on the we sayings piece -- compensation piece, it's possible that the commission could come up with some structural recommendations to compensation. any recommendations we would make for for the fy-15 budget wd be fine tuning the system to retain and recruit the best while getting the best for the taxpayer ors. >> the presumption, i think, within the commission is not only will the recommendations allow us to deliberate and make thoughtful decisions based upon inputs from everywhere, but also in basic fairness that they will be sort of implemented on a basis so that people will not be prejudiced. there'll be grandfathered provisions. because without that you have people who served with distinction and with great courage who their expectations could be radically changed unless that's -- is that presumption? >> i would have to double check,

but i'm almost certain the law itself directs them to not consider anything other than something that's grandfathered. and we support that. >> secretary fox, your comments. >> yes, sir. admiral winnefeld is correct, i wrought that section with me. the law specifies that any changes be grandfathered that was as guidance to the commission x. we do want to see the commission's results, and they would be brought forward and debated, ask we look forward to that -- and we look forward to that. this point about timing, i hear the consensus we agree, cola minus one in the provision is knot grandfathered, and that -- not grandfathered, and that's not what we seek. whatever it ends up being is grandfathered. the only point is that it doesn't happen til december 2015. we believe that two things must happen. it needs to change before it's implemented, and we immediate to give space to this -- we need to give space to this commission to allow it to be effective. and if that space is repeal and then do something, so be it.

if that space is wait and see what the commission has to say is and then do it one time, a one time change, so be it. but those are the parameters of our consideration. >> so your point is that at present because the effective date is not until december 2015, there is no one who is actually being denied the full benefits that were promised, etc. the other point i think you make is that it is entirely possible that the commission could propose some retirement arrangement -- maybe not this one identically, but some arrangement -- however, that would have to be debated by us, it would have to be grandfathered to protect people which this provision isn't. so that would provide a much better approach to dealing with the issue of retirement. is that fair? >> yes, sir, that's exactly our position. and the commission now will report out in february of 2015. >> but it doesn't preclude us

from taking immediate action to correct it and wait for the commission's deliberations. and just one other point i want to, you know, what is driving this -- not entirely -- but is the need not only to keep our promises to the entire community which should be considered invulnerable in my view, but also, you know, everyone's commitment to people be active service, that they have the best training, best equipment, that their families have the best opportunities while they serve. and that's one of fundamental tensions we're trying to deal with. is that accurate, admirable? >> yes, sir, it is. and i would add, if i could, that the only real interest that i have in deliberately doing this is simply to make sure that if it's repealed, it's repealed in a way that doesn't take it off the table, some form of

accounting for cost of living or whatever it is, that is not taken off the table permanently for the commission. the commission ought to be able to look at all the variables. if it's repealed in a manner that doesn't mess with that, the you will, the timing is completely up to the congress, obviously. >> thank you, mr. chairman. >> thank you very much, senator reed. senator fischer. >> thank you, mr. chairman. and thank you both for being here today. you've presented us with a lot of interesting information. in discussing the conclusions on the strategic choices and management review, secretary hagel said that chairman dempsey would lead an effort to find $50 billion in savings through changes to compensation. now, today you've said that retirement changes won't be part of the coming budget request. but can you tell me what the

status is of general dempsey's review on the compensation part? >> we were challenged as a sort of a stretch goal to try to find, i don't think it was 50, i thought it was less than that, something like 40, but a decent-sized number for compensation savings. and other areas of the d., by the way, were equally challenged in other ways to find savings. we worked very hard to do that. we actually came up with a set of proposals that would be required to make that mark. and we found too severe. and, so we have been working on a set of less severe proposals that we will consider submitting as part of the president's budget request. ask we're not ready to talk about -- and we're not ready to talk about those because they're not final, but we're not going to make the 40 or 50 or whatever it was. but it was a very good exercise for us in a stretch goal this trying to see where we could

find savings. >> thank you. senator kaine raised an issue earlier, and i'd like to follow up on it if i could for a minute. is the d., including -- is the department, including outside groups, this its review have you reached out to veterans' groups? >> we are, we're still in the process of deliberating over these things, and we're not ready to show whatever roams might be submitted -- proposals might be submitted, but we do look forward to consulting with the veterans' groups because it's important that they understand them. we'd like to have their support. we though that will be difficult. facility you're talking about slowing a growth rate of compensation, and we understand that. that's what veterans' groups are for. we love them. they do a very important service for our people. but i think in due course we will definitely consult with them. >> so am i understanding you correct hi in that -- correctly in that you're coming up with proposals inside the department

and then you're presenting it to stakeholders groups looking for input, or are you including the stakeholders, veterans' groups, for example, in providing you with suggestions and input? >> we've listened to the, certainly listened to the veterans' support organizations. they're very vocal, understandably, and we appreciate that. we understand what their telling us. -- they're telling us. and i think at various levels there have been discussions with members of the veterans' groups, round tables and things. but we have not presented any specific proposals to them because we can't get out in front of the secretary or the president in submitting a budget. >> i go back to this then. you're presenting your proposals to these groups. you're not asking them to present proposals to you with ideas for changes? >> no, we have not brought them in and asked for their proposals on how to change compensation. certainly open to that. we listen to what they say.

we read what they write, and we take that into account as we deliberate over these things. i don't know whether they would come in with a proposal at all to change the glide slope of compensation, but i would be interested in that if they did. >> may i just add that secretary hagel does meet with the veterans, and so, certainly, there's a dialogue. as add hicial winnefeld has said, we have not concluded anything about the specifics of our compensation proposals. but he meets with them and listens, and they have a general dialogue about far-ranging issues. and i have not been privy to them, but if you would like, i would be happy to take for the record some report back on the kinds of topics that they discuss. >> that would be helpful not just with veterans' group, but any stakeholders that are out there that could offer maybe valuable information as department moves forward in compensation. i would think you would want to seek that. >> may i also add on the

commission there has been a lot of back and forth with the commission sharing data, sharing analysis and so forth. so there's been those kinds of discussion. again, not our specific proposals was they're not done, but there's been a lot of engagement. >> thank you, dr. fox. i appreciate that. secretary hagel has also stated that the department would begin implementing the package in the fy-215 budget. is that sill the plan, and are -- still the plan, and are you going to include any of those changes in the budget? >> so we are still looking at our budget deliberations, but we do, we are seriously considering proposing additional changes to compensation. not retirement, again, let me be clear. retirement is the commission, and we need all the help because it's so hard. but some modest proposals on other parts of compensation following on to the very large effort that the joint staff and

admirable winnefeld has been leading over the past six to nine months. >> okay. i would appreciate it, ask i know that -- and i know that other members of this committee would too, the we could get that information. and i would think the earlier we could get that information, the better so that we can make decisions that, hopefully, will be helpful to the department as well. if you could tell me, have you -- have either of you seen any impact that these recent cola changes have had with regards to recruiting and retention? has there been any impact to date on that? >> i think it's a little some for us to direct -- soon for us to directly measure impact. generally, we find that retirement benefits play a less than 1% accounting in a potential recruit's deliberation as to whether he or she's going to enlist in the u.s. military.

but the it does k of course, impact our retention. in particular it doesn't really -- we find, affect the retention for our first and second-termers, but it very much affects the attention for our third and career termers. so we haven't seen any behavior changes yet, but we do know that they're very nervous about this. they don't like it. and that, you know, if you are 17, 18 years in the military ask you're thinking of retiring at 20, now if the cola minus one provision is memorialized, you heavy to consider staying longer in the military in order to accrue more of the benefit so that your retirement would not be impacted as much. so i think that's the calculus they're doing. i don't think anybody's going to quit the military because of it, but they are nervous about it, and they're, again, doing the calculations on how long they need to wait until they can retire. >> are you had mentioned that earlier, that it may not have that big of an effect on recruitment, but i can certainly are see that it would with retension.

so i would imagine that the sooner we can provide surgeonty to the members -- certainty to our members of military, the better. would you agree with that? >> certainly. i think this is an issue. one thing i would just throw in here is one of the retention concerns we are starting to feel is the concern about the quality of service, will they have the training, will they have equipment, will they have the opportunity to serve in a way that is as rewarding as they expected when they joined. >> okay, thank you so much. thank you, mr. chair. >> thank you, senator fischer. senator hagan. >> thank you, mr. chairman. and admiral winnefeld and secretary fox, thank you for your service and for the jobs that you do. i supported the recent budget after i heard from top military leadership in north carolina's military community about urgent need to halt sequestration of our defense budget. and we've had a number of hearings in this committee about the negative effects of

sequestration, and i think we all agree that if allowed to continue, sequestration will drastically reduce future military readiness and actually jeopardize the national security of our country. we're still at war in afghanistan, it is essential that our service members are fully paid, fully equipped and receive the support and training that they need. however, i have strongly opposed the provision that was included in the murray-ryan agreement that cut the cost of living adjustment to cola that we've been talking about for our service members. we've made a strong commitment to our brave men and women, many of whom -- in my state -- have deployed multiple times to combat overseas. and it is my true belief that we've got to keep our promise to our servicemen and women after they have sacrificed so much for all of us and our country. while it's true that our country faces difficult fiscal challenges, we cannot balance the budget on the backs of those

who have answered the call of duty. and i know that there is strong, broad, bipartisan support to repeal provision. senator pryor and i both have a bill that will do just that and looking forward to bringing that up to the, onto the senate floor. my question is that unlike the private sector where most companies can easily recruit mid-level employees, the armed forces have no alternative but to build and develop their mid-grade officers and noncommissioned officers from within. as service members reach their 8-10 year service mark, many are making that critical decision, are they going to stay in the military, headache it a career or not -- make it a career or not? most of these officers and noncommissioned officers are battle-hardened leaders with multiple deployments to iraq and afghanistan. do you believe that the recent -- excuse me -- cola cuts

will cause mid-grade officers and, this cos to leave -- and ncos to leave the service prematurely, and how do you believe they view these recent cola consistents as well as the broader debate about reform. and if both of you would take a minute. >> i think that retirement is part of the calculus of anybody when they're considering the retention decision. reenlistment decision. the younger ones tend to think more in terms of a. the mid-grade one tends to think of a bonus if they can get one to stay in, and the more senior think in terms of what's coming down the line in retirement. so i don't have anything, a met rick that we can measure right now that indicates a change in behavior because it's simply too soon. we do surveys, we can look at the numbers and the like. but, again, we do believe, we have heard anecdotally that people who are approaching retirement are doing the sort of calculation that says, well, if i retired at 20, i was going to

get this. under cola minus one, i would have to retire at x, 22, 23, in order to have the same benefit accrue over the course of my retired life. and so they are, they're definitely thinking about this. there's a lot of information banking around out there. and so it is a factor for sure, especially for the more senior members of the force. >> when you say senior, how many years are you talking about there? >> we classify our senior folks as i think anywhere from 13, 14 years on. and it's most acute probably for those who i'd say 16 years and beyond who are thinking about this. >> secretary fox. thank you. >> yes, ma'am. so i think that admirable winnefeld articulated nicely all of the factors that's at play. so i'm getting there. it's going to take me longer if it's cola minus one, maybe i should stay longer to get at the that level. and that's exactly the kind of thing we need the help with the commission and the studies that they're looking at. force shaping tools. maybe that's okay, you know?

we need expertise to stay longer. this other cases we don't. -- in other cases we don't, and we can't have that, and we need to incentivize people to say maybe it's not worth it, and they'll want to leave in ten years instead. all of those factors affect the expertise we have in the force to do the things we're asked to do. sometimes you can compensate with bonuses, sometimes with special pays. of course, that takes away from savings. so it's a big stew of calculation and complexity this we need to sort through, and that's the challenge. >> what are the percentage of the bonuses? to salary? >> that varies dramatically. i can tell you somebody who's a nuclear welder in the united states navy probably get cans a pretty substantial bonus compared to somebody who might be in a lesser skilled position in the navy or in another service. so it really varian allies dramatically. >> you know, it's interesting, the welding profession is one that is in high demand all over

the country. and i'm sure nuclear welders even more so. i feel strongly that the recent cola cuts need to be repealed, as i said earlier. but one of the elements that concerns me most is that current retirees and service members were not grandfathered. if of after careful conversation there are future changes to the military compensation and retirement, how important is it to exempt those that have or are currently serving, and what would be the impact of, certainly, failing to do so? >> we've been very clear that we believe that any changes to the structure of the retirement plan should be grandfathered. there are chairman dempsey's said that in several different testimonies, i'm saying it now. all of the joint chiefs are unanimous, and the senior enlisted leaders, we all believe that any changes to the retirement system should be grandfathered. >> and when secretary panetta

was with us and was involved in standing up the commission, he was very clear on grandfathering, and i've spoken with secretary hagel. he also supported grandfathering. so i think there's unanimous consent between the military leadership and the civilian leadership of the department that grandfathering has to be a part of anything we do going forward that changes retirement. >> and when will the commission's report will be, will come forward? >> that's february of of 2015. >> thank you. thank you, mr. chairman. >> thank you very much, senator hagan. senator graham. >> thank you, mr. chairman. thank you for having this hearing and all the things you've done over years to keep us focused in congress about what's the right thing to do for our military. i really appreciate your leadership. >> thank you. >> it seems to me, as senator reed said, we've all reached a consensus are that we would like to undo what we all consider to be an unfairness here. as far as timing, i think the sooner the better, and i would just make this observation. senator wicker kind of expressed the idea that nobody thought we

would engage in sequestration, but here we are. or so i just think the sooner we can go back to status quo, the better. there's enough anxiety among our military service personnel now. we don't need to add any more. of that'd just be one thing off their plate. that's why i would advocate doing it now. and i'd also like to associate myself with senator kaine, you know, it's good to have a budget. you make mistakes in the budget process but, quite frankly, i'm very pleased with my colleagues. we raised this early on, and the way the congress has responded to looking at this with an open mind, trying to fix it in a bipartisan way, i think this is a good thing for the body. everybody makes mistakes, but, you know, you really judge people by their willingness to right wrongs s and it seems like we're on a good glide path to find $6 billion, hopefully, to set aside what we've done with the cola minus 1%. but the idea of reforming compensation count me in, i just think the time has come

prospectively to look at the sustainability. now, there's a difference, admiral, between what you're saying about the overall cost of personnel within the military budget and what some of our veterans' organizations are saying. what prang of dod's -- percentage of dod's budget is personnel related? >> the military compensation by itself is about a third. and overall conversation to include civilians is about half of the budget. but i'd hasten to add that we, the more i've dug into this -- >> right. >> -- and the more we as a body deliberating this have dug into it, theless sophisticated that metric soundsment because there are so many variables go into it; how many people do we have, do you include oco or not, it's just a squishy number. and you want -- wouldn't want to pin. because if that changed, it would disrupt things. we really want to find out what it takes to recruit and retain

the best and pay them fairly. >> get with some of your veterans' groups here that have a different view of what the personnel costs are. was remember, chairman dempsey talked about 54, 50 president of the current budget is ab a sobbed in personnel costs, and when you look at the outyears, the growth of tricare, where are we headed in terms of personnel costs inside the budget over a 15 or 20-year period? >> right. i think when chairman dempsey was referring to the 50 president, he was including civilians -- >> right. yes, right. >> you also have to ask do you include benefits as well as direct pay. frankly, it's probably going to stay stable. there was some initial information, and the information's all over the place -- >> even if you don't, even if you don't do reforms, it will stay stable? >> if we do reforms, the percentage would probably stay stable. >> without reform. >> without reform. without reform it might go up a little bit. with reform it's going to go down a little bit. but again, the more

sophisticated way, we believe, to look at it is what is the best way to recruit and retain the best america has to offer? take the best possible care we can of them and get the best value for the american taxpayer. that's an isolated look. it's knotts a what's the right share of the budget. you can imagine if you picked a budget share and the budget went down, does that mean we'd reduce pay? >> no. >> we don't want to do that. >> no, i understand what you're saying. secretary fox, i guess the point i'm trying to make is that if about half the budget is going to be personnel costs direct or indirect, the other half will be spent on readiness, modernization, being able to actually go to the fight. the reason we're looking at reforming compensation is because over time we think it's unsustainable. am i right or wrong? >> yes, sir, you're correct. these statistics, this budget share includes the number of people we have and the amount they are compensated.

so if compensation costs were allowed to grow unsustained, we'd just take it out of the people. we'd have fewer and fewer people -- >> well, you'd have fewer and fewer people with less equipment to fight with. >> yes, sir. it would be -- >> the goal is to have a well paid, well trained military that can win the war, right? >> and come home safely. >> come home safely and not have a fair fight. we're not looking for a fair fight in the future, right? we want overwhelming force on the battlefield so the war i understand as quickly as possible -- ends as quickly as possible with the least amount of casualties, and that means we have to have the equipment and the training. is that right, admirable? >> you're absolutely right, senator. we want to win 100-0. >> 100-0. those who go to war have to believe they will lose, and those dumb enough to go to war will lose,st just that simple. but you've got to make sure you keep the people around to make sure you can win the war. now, gdp on the fence. historically in a time of peace, what's opinion the historical average say since world war i

gdp pent on defense? >> -- spent on defense? >> sir, i don't remember. i'll have to take that for the record. >> i know you have very good command of those numbers, sir. i think it has changed over time, as you well know. >> okay. does 5% sound about right? okay. where will we be at the end of sequestration even with the relief we have provided in terms of gdp spent on defense? >> senator, i think you know the answer to that question, sir, and -- enter yeah. but i'm not in the pentagon. i need somebody in the pentagon to tell me this. >> i'll have to take that for the record. >> the reason i want you to find out, because we need to make an intelligent decision about sustainability of benefits prospectively. telling peopleyou sign up in the future, you may not be able to retire at 38. you may have to wait a few years. we're going to tell the retired community we're not going to, you know, dump on you. we're going to do this prospectively.

but somebody has to have the vision of where we'll be as a nation at ten years from now in terms of budgeting. and that takes me back to she questionsation -- sequestration. it's my belief we're going to be dramatically under 3% of gdp if we keep this glide path intact, and in 15 seconds what are our allies doing in nato? are the people we fight with spending more or less in the next ten years on defense? >> in seven seconds, less. >> okay. so our allies are spending less. if we leave sequestration intact, we could be well below what we spend in time of peace. do you consider, do you -- what's the likelihood the war on terror will be over this the the next decade, admiral? >> we think that we're going to have to continue to suppress, contain, defeat al-qaeda until it collapses of its own internal contradictions, and that's going to the take some time, absolutely. >> likely not to occur within ten years? >> we would love for i