coverage of the u.s. senate floor proceedings and key public policy events. and every weekend, booktv. now for 15 years the only television network devoted to nonfiction books and authors. c-span2, created by the cable tv industry and brought to you as a public service by your local cable or satellite provider. watch us in hd, like us on facebook and follow us on twitter. >> now, a hearing on recent changes to military retirement benefits. the senate armed services committee examined a provision that was part of a biartisan budget agreement -- bipartisan budget agreement which reduced colas for working age military retirees. congress voted later in the year to repeal that cola cut. here's how they came to that decision. it's two hours, 15 minutes. [inaudible conversations]

>> good morning, everybody. the committee meets this morning to review the reduction in cost of living adjustments, the colas, for working age military retirees that was enacted as part of the bipartisan budget act of 2013. we welcome today the acting deputy secretary of defense, ms. christine fox, and vice chairman of the joint chiefs of staff, admiral sandy winnefeld. and i will introduce the second panel of outside witnesses after we hear from secretary fox and admiral winnefeld. the bipartisan budget act adopted in december included a

provision that reduced the cola for working age military retirees by 1% until a retiree reaches the age of 62 at which time retired pay is adjusted to the level it would have been had the cola not been reduced. in a "usa today" column defending the legislation, congressman ryan explained the provision as follows: here's what the new law will do, we make no changes for those currently at or above age 62. this reform affects only younger military retirees. right now any person who has served 20 years can retire regardless of age. that means a serviceman who enlists at 18 becomes eligible for retirement at 38. the late 30s and early 40s are prime working years, and

most of these younger retirees go be on to second -- go on to second careers. now, the consolidated appropriations act adopted a few weeks ago amended the bipartisan budget act to exempt disability retirees and their survivors from the cola reduction. i believe that the cola reduction is wrong because it targets a single group; military retirees. to help address the budget problems of the federal government as a whole. while reforms have been made to the federal civilian pension system over the past several years, those changes applied prospectively to new employees. by contrast, this change to military pensions will apply upon implementation to current

retirees, their families and survivors. we've established a commission to review the military compensation and retirement systems, but i believe it is unfair to single out military retirees in a federal deficit reduction effort. there have been myriad proposals to repeal this cola change including proposals with different offsets and some with no offsets. these include proposals from senators shaheen, ayotte, mcconnell, sanders, pryor, hagen and others. the differences among these proposals highlight the challenges and opportunities in endeavoring to repeal this legislation before it takes effect in 2016. but i believe we must find a way to repeal it, and i predict that we will. i i trust that our first panel

will also address the broader context in which this provision's repeal will be considered including both the stress placed on the department of defense budget by the combination of congressionally-mandated budget reductions approaching a trillion dollars over the next decade, and also combined with the dramatic growth in the cost of military pay and benefits. the military services have responded to severe budget pressure by reducing force structure and end strength, deferring repair of equipment, delaying or canceling modernization programs and allowing training levels to seriously decline. the department of defense has told us that it will be unable to meet legislatively-mandated future budget levels unless it also begins to curtail growth in the cost of military pay and

benefits. army chief of staff ray odierno told us in november that the average cost of a soldier's pay and benefits has doubled since 2001, and if left unchecked, will double again by 2025. the service chiefs have testified that this rate of growth was not sustainable even before the steep budget cuts mandated by law and that a failure to curb this growth will necessarily result in dallas cantic -- drastic reductions to military force structure, readiness and modernization. so we look forward to the testimony of our witnesses on the impact that the reduction in c.o.l.a. for military retired pay will have on the current force and on retirees, its impact on recruiting and retention and how these changes fit into the overall department of defense budget picture.

senator inhofe. >> thank you, mr. chairman. almost everything that you said was in my statement too, so i'll just forgo that except for one thing that wasn't mentioned, and that is the fiscal 2013 ndaa established a commission to undertake the comprehensive review of the military compensation and retirement system and proposed reforms to congress by early 2015. now, when the commission was created, congress made a promise in law to retirees and those currently serving that they be grandfathered from any changes to the benefits that they were promised when they volunteered service to the their country. i've often said that people making a career decision, mr. chairman, and it's predicated on what they are told at that time would be the situation to, and to change that, i think, becomes a moral issue. that promise of grandfathering was again made by the president through the presidential

principles submitted to guide the commission, section 403 breaks these promises. i think we all agree that there needs to be a serious look back at military pay compensation. however, the piecemeal approach taken in the budget act is the wrong way to do it. and i would add that this is on top of other cuts that respect classified as -- that aren't classified as cuts, but such changes to the detriment of our retirees in the, in tricare. so is i think we're onboard here together in trying to come up with a solution to this problem. thank you, mr. chairman. >> thank you very much, senator inhofe. [inaudible conversations] okay. secretary fox. >> thank you, mr. chairman.

chairman levin, senator inhofe and distinguished members of the committee, i appreciate the opportunity to appear before you with admiral winnefeld to discuss the state of military compensation and retirement benefits. on behalf of secretary hagel and the men and women in uniform we serve, i'd like to begin by offering my appreciation for the support of this committee in once again enacting the national defense authorization act. your dedication to passing the ndaa means the department has the authorities it needs to accomplish the incredible array of missions we undertake around the world each and every day as well as those that support our number one asset, our people. allow me to situate today's discussion within the larger frame of the department's fiscal situation. we in the department are grateful for the support of the congress in enacting the fy-2014 appropriations act and for the bipartisan budget act of 2013

which provides us with much-needed certainty over our budget for fiscal years 2014 and 2015 and partially addresses some of the significant budgetary challenges imposed by the sequester provisions of the budget control act of 2011. in response to sequestration, last summer secretary hagel directed that the department be prepared to operate with significantly fewer resources than those previously requested. the resulting strategic choices in management review showed that savings from increased deficiencies, reduced overhead and reduced military and civilian pay and benefits would not come close to closing the funding gap created by the budge control act. -- budget control act. nonetheless, every dollar saved in these areas could remedy system of the shortfalls to military readiness, capacity and capability caused by sequestration. that's n part, why last summer secretary hagel announced another round of management reforms, most notably a 20% cut

in the department's major headquarters, staff directorates and support agencies. while the bipartisan budget act partially mitigates the worst of department's readiness problems in fy-2014 and to a lesser extent in fy-2015, beyond those two years the bca remains the law of the land. if sequestration is allowed to persist, our analogies shows that it will -- our analysis shows that it will lead to a force that is too small, inadequately equipped and insufficiently trained to fully defend the nation's interests. that is why the department continues to call for a change in the law, even as we plan responsibly for a future that could include a return to sequestration. it's within this context that i join the rest of dod's leadership in stating that we cannot afford to sustain the rate of growth in military compensation with we've experienced over the last decade. the one-third of the defense

budget consumed by military compensation cannot be exempt as an area of defense savings. we must find ways to slow the rate of growth. i'd like to be clear. we are where we are today with respect to personnel costs because of good intentions from a desire to make up from previous gaps between military and private sector compensation to the needs of recruiting and retaining a topnotch force during a decade-plus of war to an expression of the nation's gratitude for the sacrifices of our military members and their families. as a result, inflation-adjusted pay and benefit costs are 40% higher than in 2001 even though the active force today is only slightly larger or. larger. defense health care costs alone have grown from less than $20 billion in 2001 to nearly $50 billion in 2013. payments for housing costs have also increased faster than inflation.

this rate of growth occurred, of course, in an era in which the department's top line was also growing to meet the needs of a nation involved in multiple conflicts. given today's fiscal realities, barring unforeseen events, we are unlikely to see defense budgets rise substantially for some time. so if this department is going to maintain a future force that is properly sized, modern and ready, we clearly cannot maintain the last decade's rate of military compensation growth. admiral winnefeld and i brought with us a simple handout that details the elements compensation each of our service members receive. it is on your table in your packages just below our written testimony. what we hear unmistakably from our people is that they feel that the quality of life enabled by the pay and benefits package on this chart is relatively high. but conversely, what we increasingly hear them saying is lacking is particularly

following sequestration isn't their level of pay, but their quality of service. our men and women are the first to say that they're well compensated, but the department doesn't have money to maintain their equipment or supply them with the latest technology or send them to get the training they need, and then they are being done a disservice. when they're sent into harm's way, this disservice can quickly translate into a breach of trust. here i am referring to to our collective, sacred obligation to provide our troops with the finest training and equipment possible so that they can deploy to combat able to accomplish their mission and return to their families safely. against this backdrop, the department has done a senate amount of work to -- significant amount of work to explore how we slow the rate of compensation growth responsibly, fairly and effectively. we have provided the congress several proposals in recent years, some of which have been accepted. most notably, just this year congress accepted a 1% basic pay

raise even the employment cost index called for an increase of 1.8%. we are currently reviewing all military payments and benefits and may offer further proposals. a few word on the c.o.l.a. -1 provision included as part of the bba. to my knowledge, no dod officials were consulted on the details of the bba including the the cpi -1 provision. the department fully supported the changes made to the provision to exempt military disability retirement and survivors. moving toward, we support a comprehensive review of this provision including its effects on retirees not currently exempted. if the congress decides to retain the cpi -1 approach, we strongly recommend it be modified to include grandfathering. because of the complex nature of military retirement benefits, i would urge that the congress not make any changes in this area

until the military compensation and retirement modernization commission presents its final report in february 2015. there are many ways we might change military retirement, including far more fundamental reforms. because the cp be i -1 -- cpi -1 provision does not go into effect until december 2015, there is ample time for such a careful review including waiting for the commission to provide its input. i'll conclude by reiterating that pay and benefits are an area where we must be particularly thoughtful, cognizant of commitments made and our ability to recruit and retain the force needed for tomorrow. yet it has become increasingly clear that slowing the rate of growth of compensation cannot be excluded from critical efforts to sustain a force that is balanced, equipped with the latest technology and ready to meet challenges seen and unforeseen. not to do so in the name of serving our people or for any

other reason would ultimately risk a future in which our men and women could be sent into harm's way with less than what they need to accomplish their mission. secretary hagel and the rest of the's leadership won't let this -- the department's leadership won't let this happen on their watch. he and i appreciate the support of this committee and look forward to working with you to achieve the balance we all seek and our men and women deserve. >> thank you very much, secretary fox. admiral winnefeld. >> good morning, chairman levin, senator ip of and distinguished members of the armed services committee. thank you for the opportunity to testify today on the cpi1 provision and on military compensation in general, and i'd like to start with the latter, if i may. first, i want to make it very clear that our magnificent volunteer men and women in uniform and their incredible families deserve the best possible support we can provide, including competitive pay and other forms of compensation. this is especially true when they've experienced over a decade of wartime deployments

and stress, coming on top of all the normal disruptions of military life including the sacrifices made by our wonderful spouses and their families. however, we must also exercise good stewardship over the resources that the american taxpayers and trust the department of defense to protect the united states. this means investing prudently to maintain the highest quality, all-volunteer force while simultaneously getting the best value for the capability, capacity and readiness that we need to win decisively in combat. in this light i try not to forget that the american people have been very supportive over a decade of war to those of us who wear the uniform. they provided ample funding for our combat operations. they treat us in person far differently from our vietnam war predecessors. many businesses have offered generous discounts and other special benefits to the men b and women in uniform. and our nation, with the support

of congress, has provided substantial increases over the last decade in compensation that have more than closed previously-existing gaps with the rest of our nation's work force. we in uniform are very grateful for all of this. it means a lot. however, demanding at this point that our compensation not only remain at its currently high relative level, but that it continue to rise faster than that for the average american is simply not sustainable at a time when our entire budget is under great pressure. this growth has been substantial, and rightly so. by the 1990s military compensation had fallen to a deeply unsatisfactory level relative to the rest of the working population in america. the quality of our all-volunteer force suffered as a result. to address this, with the help of the congress we substantially increased compensation growth trajectory in the late '90s and in the post-9/11 period. these increases worked.

in 2001 u.s. median annual household income was $42,000. that equated to the direct pay of an average e7 in the u.s. military. today median annual household income is $52,000, roughly equal to what an average e5 makes. so in short, the average enlisted service member surpasses the u.s. median annual household income two pay grades earlier or about 8-10 years earlier than his or her career would have in 2001. none of this includes indirect compensation or the special pays and bonuses we use to shape our force or very generous changes to the g.i. bill. to provide additional context, in 2002 the quadrennial review of military compensation, or qrmc, concluded that in order to attract and retain the best that america has to offer and because of the rigors of military service, military pay should

equal around the 70th percentile of civilians with comparable education and experience. but in 2000 mid-grade enlisted personnel only place inside the 50th percentile. by 2009, our higher compensation trajectory enabled us to more than close this gap. in 2012, the qrmc reported that average enlisted compensation had climbed between the 58th and 90th per -- can 85th and 90 percentile. understandably so during a decade of war. while these per seven tile numbers are not a goal, they are an indicator that we can and should gradually place compensation on a more sustainable trajectory. as secretary fox mentioned, congress and the department have already made some initial adjustments, but more are probably needed. the department, with the support of the joint chiefs and our senior enlisted leaders, is now considering proposals that would meet that intelligent. con -- that intent. contrary to what some are reporting, one of these proposals would reduce the take-home pay of anyone in

uniform. we belief we should make -- we believe we should make this adjustment once. we'll still be able to recruit and retain the best of our nation into our all-volunteer force, and indeed, we are hearing from our people that they're much more concerned about their quality of life, their ability to continue serving in a modern and ready force than they are about maintaining the trajectory of compensation that closed previous gaps. we realize that we will probably not get this exactly right. we seldom do. and there may be special cases and issues that require corrective action. if future upward adjustments are required in order to remain competitive for the best america has to offer, we will surely recommend them. we'll also do our best to insure both active and retired communities have the most accurate information possible. some will say that savings and should be found elsewhere through efficiencies. we agree. we're working hard to do just that, and we could use additional congressional support in that area.

yet even with our most ambitious efficiency efforts, we will still need to address the growth rate of compensation. in the end, we believe the most important way we keep faith with the fantastic young men and women who volunteer to defend our nation is to only send them into combat with the best possible training and equipment we can provide. controlling compensation growth in a tough budge environment will help us do just that. now, regarding the cpi -1 provision, we are very pleased that the bipartisan budget act prevented a government shutdown and gave us at least a couple of years of long-needed predictability in our budget. however, the inclusion of the cpi -1 provision has clearly led to considerable and understandable anxiety among those who are currently retired or who are planning for retirement. i want to make it clear that chairman dempsey and i and the service chiefs and senior enlisted leaders sport --

support grandfathering any changes to our retirement structure. the chairman has testified several times on this point. and the current cpi -1 provision does not fit within that principle. we believe changes to our retirement plan, if appropriate, should only be made after the commission takes a holistic look at the many variables involved in such a plan. accounting for changes in the cost of living is only one of those variables, and it's far too soon to reach a conclusion on whether it should be part of a grandfathered plan. i'd also say that however and whenever the specific provision is addressed should not permanently remove cost of living adjustments as a potential variable in a future grandfathered plan. in other words, we don't have to rush into this, we just need to make sure we get it right. however, as secretary fox said, we're grateful that the appropriations bill does exempt military disability retirements and survivors of members who die on active duty.

we thank the congress for this correction. it's an important signal to those in our force who have sacrificed the most. thank you again for the opportunity to speak today and for your continued strong support for our magnificent men and women who serve and who have served. i look forward to hearing your views and your questions. thank you, sir. >> thank you very much, admiral. you both have made reference to the fact, as did senator inhofe and myself, that we have a military compensation and retirement modernization commission that is at work. their report is due in about, i think the end of this year, early next year. now, i guess we're looking -- what i would first ask both of you, and we'll have a seven-minute first round here, by the way. what i would ask both of you is this: do you have, you've made

reference to the possibility or the need for some kind of acceptable adjustments to benefits given their growth. you talked about them being made holistically, admiral, but that means that there's got to be some kind of a criteria which is utilized to help draw that line between acceptable adjustments to existing benefits and changes that would cross the line and undermine commitments that we have made. now, one of those criterias would be grandfathering. is there any other criteria beside that one which either one of you would suggest that we consider as we find a way to repeal this provision? or the commission considers they look at the broader picture. either one of you have suggestions on that?

>> um, i can certainly start, i think -- i'll bet we'll both have thoughts on this because we have been thinking very hard about it. i do believe that the changes to compensation fall into two buckets. there's changes to pay and co-pays and things of existing benefit programs and pay, and then there's retirement. so the kinds of things the department has proposed in the past it's looking at are adjustments to things like pay raises. you going to get paid next year, how much your raise is, is something we should talk about. certainly, we believe those need to be looked at in a very clear-eyed way to make sure we can recruit and retain the best people that we need for the all-volunteer force. there are standards for that but, frankly, we monitor that very, very closely every year, and as admiral winnefeld said, would certainly come back to you if we saw any kinds of trends in a negative direction. retirement, however, is a program that the commission is looking at and considering

fundamental reform. those reforms are important for the ways we think about shaping the force, how long people stay in on the force, for example, and that has to be thought of in a very different way. and that's why we really do want the commission to help us think through and look at all the considerations of how that would affect the shape of the force in the future. so we parse them in that way and have been thinking of them in that way. admiral winnefeld -- >> senator, i think you were mostly referring to the retirement side, and, you know, when i came in the service as a young, aspiring fighter pilot, i didn't think i was very smart, i didn't really know, you said what promises were -- understand what promises were being made to me. but i did feel like i was going to get 30 days of leave, i was going to have my own personal health care covered and i was going to be able to retire at 20 years. and i think that's the expectation that currently-serving members and retired members have. so, you know, a grandfathering

piece, i think, is important to us that so that the currently-serving and retired members don't sense a change in what they believe they were promised. and i don't believe i got many promised when i came in. i do think as we look and as the commission looks at future potential changes to the retirement system, they've got to look at all the variables, and those variables include vesting time, you know, is it 20 years, is it something else, what your retired base pay is, what the defined benefit multiplier would be if there is such -- if that would be included. any bonuses that would take care of that and matching and also cost of living. but in the end, i think there are three goals that such a system has to meet. one of those is that we have to take the best possible care of the people who have served this country. another goal is that we have to allow the retirement program to help us shape our force with the right profile, and third, we've got to get the best value for the american taxpayer. and i think as long as we can meet those three goals with the commission and grandfather what

we do, then i think we'll be in good shape. i hope that helps. >> thank you. do you expect there's going to be any changes in benefits in the 2015 budge request? budget request? >> you talking about retirement benefits? >> yes. i don't think so. >> no. nothing -- we won't propose anything on retirement benefits in 2015. we are waiting for and working with the commission to think through retirement. >> do you agree with that, admiral? >> guest: absolutely. and i think this goes back to what sec take fox said a moment ago. any adjustments we might make, those are changes within an existing structure. we think the commission is going to look at the entire structure, and that takes a much longer, deliberate look that addresses the variables that i mentioned. >> the, when we find a way to repeal this provision, some of

us are going to want to find an offset. some of the bills that have been filed don't require an offset. but if we're looking for offsets, which is about a $6 billion number, do either of you -- since i think you have indicated that you support repealing this provision -- do any of you, either of you have suggestions on offsets inside the defense budget? >> i can certainly start that. we have looked at that. it's about $6 billion, as you said, sir, in mandatory spending. inside the defense budget there's really only two places to go for mandatory; tricare for life or changes to retirement. and we've already said any changes we believe should be grandfathered. we have proposed changes to tricare for life fees that would contribute but not cover a $6 billion bill. so that's inside the defense budget. in our budget there are savings

that we would accrue aside from the mandatory savings that you refer to the of about $500 billion a year. we understand in our planning that these types of changes take time. so if you grandfather, those savings would accrue over time. and that's true for all the compensation changes we've proposed, force structure reductions we've proposed, efficiencies. we understand it takes time. that's one of the big challenges with a sudden drop like sequestration, it would give us before the bba, and we may go back to in '16, that sudden drop is a real challenge for us because it does take time. we understand that. >> admiral, do you have anything on that? >> i'd just add, i just want the make sure that the distinction is clear to the members that there is the $6 billion in mandatory and then inside dod because of the c.o.l.a. -1 provision, there's about 500 million a year that we're already going to have to contend

with which will involve readiness, capacity choices we will not be able to make because of that. we're prepared to deal with that. we understand it's a factor among all the many other factors that we have to deal with when crafting a budge. >> thank you. senator ip of. >> thank you, mr. chairman. secretary fox, as a former director of the cost assessment program evaluation, you led the strategic choices and management review. now, in that effort you spent many hours examining the department's military personnel benefits structure including retirement pay and benefits. in your current role as the interim deputy secretary of defense, you will have been heavily involved in the department's fiscal year '15 budget. now, i have a chart that you can see over there on this side, and it shows, this is a chart we have used quite a bit. i've talked to both of you about this chart in my office, and i

think that you have to review this. >> can i interrupt you? >> oh, excuse me. >> hey, roy? could you stay? we have a quorum now. could we keep you here for one minute? we want to get nominations, and forgive the interruption, but senator inhofe has encouraged me to interrupt anybody to get our nominations voted on, including himself. thank you very much. sorry to do that to you. we now have a quorum, so i would ask the committee to -- >> so much for sneaking out, mr. chairman. [laughter] >> yeah, right. i shouldn't have singled that out. you never have dope that. this is a unique opportunity for me. since a quorum is now present, i ask the committee to consider three civilian nominations and a list of 1,096 pending military nominations. first, i ask the committee to consider the nominations of principal deputy administrator, national security nuclear association, william la plant

jr. to be assistance sec secretary of the -- >> i so move. >> and is there a second? all in favor say aye. >> aye. >> opposed, nay? the ayes have it. the committee will consider a list of 1,096 pending military nominations. all of these have been before the committee -- >> so moved. >> second. >> all in favor say aye. >> aye. >> opposed, nay? the notion carries. thank you so much. sorry to have dope that to you. >> yes, good-bye, roy. >> i'll be right back, but now that we've moved over a thousand nominations while i was here, i'm glad i was able -- >> well, thank you. senator inhofe, we will not take that from your time. >> that's find. mr. chairman, i just wanted to point this out to kind of get the big picture here, you're both familiar with this. this is the area of savings prior to the budget that was passed. the black line cuts down in the area of the balance which is the readiness for the first two years. and so, but just to get an idea,

that would be what i would call the orange up there is really the readiness area. the modernization prior to the budget is the green. you can see that's not very much. force structure is a big thing, but in the first years, it's in the last. and i think when we talk about the savings from various changes in compensation that you're looking at the blue line, and you're really only looking at about half of the blue line there. because that's, that's entitled "efficiencies," of which changes in compensation would be a part. so it'd be about 50%. now, secretary fox, do you agree with that analysis of that chart? >> yes, sir. you briefed my slide extremely well, sir. i would just -- one point. we did not in the strategic choices management review consider retirement changes. >> uh-huh. >> because of the commission and the complexity, as i've said before.

so those compensation that is about half the blue, as you said correctly, are just changes to pay and fees and things of existing programs. >> yeah. i understand that, and i appreciate it. the reason i wanted to bring this up is that this meeting here today is about compensation. and there's this misunderstanding of where that fits in the overall picture. most people would think it'd be about the size of, perhaps, the green and the blue put together. and i think people would need to understand that it's a big deal, it's a lot of money, but relative to the rest of it, the it's not. my concern has always been in the readiness area. secretary fox, we've already seen that this is going to have a devastating effect on the long-term financial impact for those who are currently serving. and i think that we need to be sure that we're all on the same page on this.

the cut squeezes military retirements between tricare fee increase that apply at the c.o.l.a. rate and a come pounding decrease -- compounding decrease in c.o.l.a. adjustments to retired pay. now as a result, the military retired pay will not keep up with inflation. i wanted to bring this out because this is over and above those issues that we've already, that are already in play right now. do you both agree that, yes, as bad as they are, they're even worse because of the fact they already have taken what most people consider to be cuts in tricare medical services? >> sir, i want to make certain i've got your question. is the question is that the c.o.l.a. -1 provision not grandfathered compounds on the changes we've made to tricare? >> that's correct. over and above those changes. >> okay. certainly, again, we believe that we should grandfather any changes to retirement, and we also believe that for retirement

we need to look more holistically. c.o.l.a. -1 might be right for the future, it might not. so, absolutely, the c.o.l.a. -1 is important. the tricare increase that we've talked about in 2012 was an increase of $60 a year above, as our chart shows, a 500 -- it's now up to after being indexed, excuse me, 548 a year. that compares for civil servants to $820 a month. a month. so, yes, there is an increase, but in my view anyway, $60 a year as indexed is not as significant as the c.o.l.a. -1 provision that we're talking about. >> no. >> so that's all we're trying -- >> it's just over and above it. >> it is. yes, sir. >> and, again, my concern has always been, and when i was serving in the army many years ago, probably before you guys were even born, the --

[laughter] we were talking to people who had, who were going to be reenlisting. people were making career decisions, and it was always based on what was there, promised to them at this time. and i think that's the reason i always bring that up. general dempsey said the other day, and i'm quoting now: if anybody here thinks i want to be known as chairman who goes down in history for having carved up compensation and health care, i assure you, i do not. i don't want to be that chairman. the problem is there's going to be a chairman that has to do it, so in my view we should get on with it, but we should do it all at once. now, what he's referring to here is the military compensation retirement commission which will be coming out next year. i think you already answered the question, secretary fox. admiral winnefeld, would you agree also that the military, that the commission should be allowed to finish its report and then do everything all at once rather than to do it piecemeal? >> we certainly think that on

the retirement side it would be a big mistake to make piecemeal changes, which is why the c.o.l.a. -1 thing was a surprise and a bit of a disruption there. we think, though, on the generic compensation side that we have all of the information we need to make -- you know, these are fine-tune adjustments on the regular compensation, but definitely on the retirement piece we should wait until the commission reports. yes, sir. >> very good. thank you very much. mr. chairman. >> thank you very much, mr. inhalf. senator hagan is not here. manchin, senator manchin. >> thank you, mr. chairman. i want to thank both the witnesses for their testimony before the committee today. ..

favorable audit. the first the gold standard for auditing. countless claims of mismanagement and waste plagued the pentagon. the goal we are discussing the pay and benefits today.

it doesn't seem prudent for me to say the first thing you have to do is cut soldiers pay and benefits when you don't know if you can run the place a little better. so if the pentagon fails to convince congress and the changes that soldier retirement benefits, or the best option for cost savings, what course of actions would you recommend? because we hear just unbelievable waste and fraud that goes on in the pentagon. >> sir, first i don't want to say that we could not be more efficient. that would be a crazy statement come and of course we could be and need to be more efficient. the other thing i want to share with you is from a time as senator inhofe said as the program evaluation, i spent four years starting with secretary gates running efficiency initiatives in the defense department, and we found savings and we found efficiencies. secretary is of course secretary is of course running his acquisition efficiencies review.

the department has been seized with efficiencies. we found $100,000,000,000.1 and then another 60 and then another 30. this year we will propose more. we expect to propose efficiencies every year. but as senator inhofe's chart shows, those efficiencies while important and we must continue them, are not adequate to pay the bills of the sequestration. that said, we have to do them great slowing the growth of compensation is another piece of this though. we are not cutting compensation, we just needed to slow the growth. it can't continue to grow about 40% inflation, so we think it's another piece of it. but fundamentally come at these budget levels everything is on the table. first and foremost, efficiency. >> i would also reinforce that we are not cutting. no proposals we make are going

to put anybody's paid and that is an important thing to get out. i would also share in the belief that there's an awful lot more the department can do to become efficient. we are working very hard on that. as you know we are cutting staff size considerably and breaking on efficiency. we have a long way to go on that and many senators would point out examples where we have a long way to go although we are making progress received $4 billion on the expendable launch vehicle which is a tribute to ash carter management of the program. but no question we need to become more efficient. but even with our most ambitious efficiencytargets, we still have more of this app that we've got to fill. and as a senator inhofe pointed out this loathing is only a very small slew of the gap. >> the other thing i want to talk about is the national guard. going through the horrible

chemical spill that we are going through in west virginia right now is the front-line defense are the state and always has been and i think every state will go the same. with that being said, i'm concerned in a recent force at the army wants to move the apache helicopters however they could over 40,000 troops from the guard. and i look at what we are doing with contractors, private contractors and the department of defense and it's been a problem for me and really to think that we are going to be containing our contractor size while we are cutting men and women in uniform. and also, the guard just makes sense with the budgets you can use the guard more effectively and efficiently that it seems like the military itself doesn't want to embrace that. maybe you can -- >> we do increase the guard. we love the guard. it is a fantastic institution that this country has used for many hundreds of years depending on which state you talk to, they will give you a different

number. but -- >> they are active going into the reserves and the guard. you have all of this experience and expertise. >> there would be a difference of an proportionality that i wouldn't want to get into details about how one would come down as opposed to the other. we completely share your belief and make sure that we have our contract. it's just getting their salaries going to 900,000 we thought maybe they shouldn't pay more than than a vice president at 233 everybody's pushed back on that. hispanic one thing in the staff production everything that we are taking i know on the joint staff and i suspect elsewhere out of the 20% reduction that we have offered to do the largest proportion is in fact contract

is because they are costly. >> and most of them are military. the guard to me is the most effective and efficient way to go in this country to have the expertise and keep that expertise ready at all times. and for some reason i don't see the pentagon and breezing that even though we've elevated that up to the full joint chiefs of position. maybe it takes time senator graham tells me to take it tastes like wine isn't ready until it's time that i hope that we are getting close to that. with that, thank you sir. >> senator mccain. >> first could i say secretary fox, do you belief that the actions that were taken in the context of the agreement is not

how we would like to see this addressed is that correct? >> that's correct, sir. >> the best way to do this is an overall addressing of the issue through the commission that this committee have written into law and signed by the president? >> that would be our preference. >> would you agree that one thing we should adhere to in addressing this issue. we could address the issue effectively if we do a prospectively rather than creating the impression to the men and women who were serving and those who've already served that we are reneging on our promises to them.

so it will be definitely, you believe, a recommendation from the commission that whatever changes need to be made will be prospective in nature rather than affect the existing benefits and retiring parameters >> i believe that is even written in the establishment of the commission that they would be grandfathered. >> i know that you respect the memory of the budget committee as idea i do but they are not renowned for their expertise on military personnel issues would you agree? >> you don't have to answer, secretary fox. you don't have to answer. i will say that. so, i think you've already answered this question, but for the benefit of the record again, the plan to reduce 1% of military cost-of-living was not

conceived within the department of defense, is that right? >> that's correct. >> were you ever consulted on this decision? >> not to my knowledge. >> was the decision made by the budget committee without ever consulting the department of the defense as to the impact of data still on the readiness morale keeping our promise, etc.? >> to the best of my knowledge we were not consulted. >> mr. chairman, i want to thank you especially for anticipating this issue because it is an issue of rising personnel costs and the fact that under your leadership we now have a commission established that i think we could come up with a recommendation that would take into consideration the views of the military and civilian leadership in the pentagon and hopefully we can arrive at a consensus. our next panel of witnesses today will be very added and

understandably so about they are concerned about the effect 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 that have served and are serving. thank you mr. chairman for anticipating the fact that this issue has to be addressed. and i hope that we will be able to convince all of the american people of the need to base what we do based on the recommendations of the most high because i'd people that we can find. thank you mr. chairman. >> thank you senator mccain. senator donnelly? >> as we look at this challenge, in light of our belief that

these should be grandfathered and we look at the 6 billion-dollar amount that we are 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 at year end this budget we can try to find $500 million? in the judgment as opposed to imposing something from the top down in regards to the retirees? >> we have already accepted the need to do that with a piece of this that's already inside the dod budget where we pay into the funding. that is a $500 bill. >> when the legislation was passed the accounts were credited that $500 million we started to plan prudently to use it here yet read we are going to have to backtrack if this proposal is repealed that we are

prepared to make those difficult decisions. if we are asked to account for the money that is outside of the budget, the $6 billion that was in mandatory spending that is a far more difficult problem and as the secretary mentioned there were only two pots of money in the mandatory side that we could address and one is retirement that we should be grandfathered into the other is to try care for life which is a difficult question as well. >> admiral winnefeld said exactly our position we are prepared to find the 500 million a year because we believe that grandfathering is the right thing for the people. it is another one of the reductions that the department would seek to make that has backloaded savings and that is the challenge as it was shown in the chart that we are prepared to address the challenge. >> as we look at the future and we have a commission coming up next year and you don't want to step in front of them were the

decisions that are going to be made, what are some of the areas you think that we can take a close look at and make a difference while still seeing to the perspective service members this is a great place to be an opportunity to have in your life >> that is a great question and it gets back to the variables that are inherent in any retirement plan. and i think one of them that has been discussed the most is the investing of time, the piece about do you have to wait until 20 years to receive retirement benefits. in the profiling of the force we want to have a young force that is going to stay to a certain point and then frankly we need a number of them to move on so that we can bring fresh new faces in. so it would be difficult to design a system that would give besting before that and that is one of the things the commission

ought to consider. >> secretary fox? >> i would like to share some advice i got from secretary gates when i was trying to look at some of these issues. he warned me and i will share what he said. he said the defense department is like a dinosaur. a little tiny brain and were fine motor skills. if we start fiddling with these retirement benefits, we have a chance of messing it up. this is why it's so important that the commission due commission to this thoughtful work looking at all of the analysis because as the admiral winnefeld said, it's important that we understand the changes and investing and what that does to the shaping of the force. the needs of the force are changing so as we look into the future. technology changes, expertise changes. we see some of our people with important expertise to stay longer and we need others to move to faster and to be young and bringing new ideas to be held we get that right? it is a difficult challenge and we look -- we are working with

the commission and we look forward to continuing to do so. >> as we look at the commission and as you indicated, the challenge you have saying we want that fixed to change at the end where some decided on other career choices and stuff is it's pretty much an art or are you going to have to dig deep to try to figure out how do we set this up so at six or seven years we don't lose people we want from 20 or whatever and the skills that we want on the flip side of that the folks may choose to move on that they have that choice. is it than to be a major consideration of the commission when you look at this as to how to get the mix right for the future? >> yes it is. we have pretty good models in the light under the current system for that retention behavior.

we understand that fairly well. there's always an unknown variable out of there and there are the number of the variables is dizzying national employment and the propensity to serve on the part of the population whether we are at war or not. believe it or not even family income as to help a person graduating high school needs to get into a job. number of recruiters. the amount of pay we gave and bonuses. so it is a big soup of variables into the commission is going to have to consider that very, very carefully. when you open up we sort of release the glue and introduce a new framework that could potentially allow people to retire earlier. those models are going to be upset and we will have to determine how to modify them so we can understand them and i think that is part of the challenge for the commission to understand whether we have a model that can accurately predict the behavior so we can

provide all the force correctly. >> thank you mr. chairman. >> senator wicker. >> a really important hearing and i appreciate you calling it and mr. chairman and i appreciate you starting at the outset saying that this cpi minus one was wrong and it needs to be fixed. as a matter of fact not a single voice has been raised on either side of the dais in support of what the congress enacted and what was signed into law. and 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, who retires below the age of 62 this will mean a lifetime hit between 70 to $80,000 or more a lifetime to that military member. correct me if i'm wrong but that's been substantiated over and over and depends on exactly when the listed person retires and what the rank was. for officers it is even more. out of their pockets this is a serious matter of cpi minus one can sometimes appear to diminish the profound effect this has. let me acknowledge to both of you i understand the problems that you are facing and that daunting task that you have to make the numbers come out.

that's why we established the commission with certain parameters. as i understand from secretary, sorry this is enacted and with regard to disable the military retirees you want to fix it but you want us to wait 13 months to fix it for everyone else; is that correct? >> we want this to be informed by the results of the commission. >> why was it a good idea to fix it, what's it going to go into effect until december of 2015 for the disabled retirees why was it the idea to go ahead and fix it from them? dot disabled cases is very clear. whether to do anything is not a part of any -- >> i think it was clear of the

rest of them it seems to be up and down the aisle so if it was clear for them and we are unanimous at the witness table this should be fixed and it seems to me at all to be made clear and admiral winnefeld, you mentioned predictability. we have an opportunity. we have to pay for proposed on both sides of the aisle to do this. it seems to me that it doesn't make any sense. if we are all in agreement on this two weeks unless you want to hold out the possibility that we may stick with this if we want to send that signal, then waiting for a commission report or waiting 13 months might be a good idea but if we are all agreed this wrong shouldn't have been done and we should pay for it elsewhere it seems to me that it makes no more sense to

postpone this for 13 months than it did for the other case. it kind of reminds me of sequestration. we had witness after witness appear before this committee and other committees. we are not going to have sequestration in the united states of america. we had witness is told kennedy after kennedy we are not even making plans for sequestration because it is so unthinkable and heinous that we know this isn't what happened. the president of the united states said there's not going to be any sequestration. we hope that was true but it wasn't true. sequestration did happen. and to me to say we know this should be fixed, we know it's wrong, we regret it but let's wait, to me that holds up out

the potential that it will be like sequestration and go into effect despite everyone's protests to the contrary. we said there's not going to be sequestration and there was sequestration. we were told repeatedly if you like the health plan you can keep it, period. turns out that wasn't the case. we've told military members you do your side of the bargain, you place yourself in assignment to regions where you are in harms way and we are going to keep our promise to you, and last month we broke that promise and now we are being told let's just wait 13 months before we fix that. i can't go along with that. i would say to my colleagues

this is about a promise everybody says we need to keep and it's also about the process. my friend from arizona said this keynote of the budget committee. this didn't come out of the budget committee. it came 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 the senators offset. we could have come up with these savings elsewhere. if we had an amendment process like the rules called for, and the budget bill, we would have had opportunities on a bipartisan basis to pay for this. i swear to have, to have the savings elsewhere and keep our promise to the people who fulfill their promises to the security of the united states of america. if we had this in the omnibus

bill me 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 for the 435 members of congress would never have stood for this broken promise. this all to be a lesson but there's a reason we have rules around here and it's off to wave and get around them because generally, it ends up with that policy. we need to go ahead and act. everyone acknowledges this is wrong. and if it was wrong we need to go ahead and send the signal that we are going to make it right. >> i want to take a different tone than my friend on this one.

i agree this is a provision and needs to be changed and i think that we will change it. i agree i think that we should change it immediately because it seems like the thrust of your testimony is why not return to the status quo pending the 2015 report and we need to change this just to return to the status quo so that we do not send a wrong signal. and whether it is for the pay for or not, we should return to the status quo but i do want to take on the bigger picture issue instead of kicking ourselves around because we made a mistake we hadn't done a budget in four years. we haven't done a budget in four years. and the divided congress hadn't done one since 1986. so we did a budget and the budget did not include this provision. there are four members on the committee that was not in the senate budget. it did come up during the course

of the budget conference into the negotiations between the two chairs. i don't want to trash the chairs 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, which is what we did when there was no budget has been hurting the military and hurting veterans continuing resolutions instead of appropriations bills has been hurting the military veterans. what we did in december that the legislative bodies do all the time which is there was a budget deal that was a compromise. it had things in it that i loved and had things that i hated and that didn't have things that i wished for. we do this in the budget deal

because we didn't like it. we like the grandfathering notion. i think all of us embraced. but the vote that we cast on this, i know it's good to put this vote as we were breaking a promise -- though, we were trying to do a budget for the united states of america in and the congress but hadn't done a budget for four years. and doing it with the knowledge that there were some pieces that we didn't like and faults like we could fix. so, there is a tendency appeared tendency of here to kick each other around or for one house to kick the other house around or for the executive to take the legislative route or the legislative to take the executive. talking each other down is no way out of any of the challenges that we have. just ask you are you glad we have a two-year budget and is that a good thing for the military? >> the department has been clear we needed for stability and we appreciate the stability. >> are you glad that we were

able to get and omnibus appropriations bill for the full year instead of the gimmicks like continuing resolutions? >> yes sir of course. the appropriation gives us a lot to do which just ties our hands as new appreciate. >> so to me a standard feature and the best part about of the deal is that there was a deal and the standard feature of the legit compromise is there are some pieces that i don't like and i hope to fix. i wish the extension had been a part of this budget deal but it wasn't and we are trying to find a way to fix that. but the fact that there are pieces of the deal but we don't like i don't think should obscure the issue that when we together pass a budget deal we did something really good for veterans, we did something really good for the military. i live in a statewide sure has the most direct military connection in terms of the number of veterans per capita than active duty military, guard reserve, dod civilian contractor

we are the most connected states of the military i believe that any in the country and overwhelmingly, even though there are aspects of the deal but we don't want to fix the fact of the deal is something that i think the house senate democrats, republicans inside and outside capitol hill should be glad that we finally have shown we could get it and not that we can make a proving and this is what i share with everyone around the table that we ought to fix this and i'm actually very confident that we will. for the purposes of those who are watching this who were not in on the earlier discussion about the proposition of the panel, i think it's important and i would like to ask you to describe who it is that is around the table coming up with the recommendations that you are intending to make back to congress in february 2015. it's important to know are all of the viewpoints enlisted and the officer acted and ephedrine or veteran or all viewpoints sort of being represented and

i'm not talking about the names, but i'm talking about is it a good collection of stakeholders who are making these are conditions and who will look at these issues from a variety of different angles? >> are you asking about the process we used in the defense department and not the commission is that correct? >> this is more to explain for those who are watching this. for the commission i don't have the actual composition memorized 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 at retirement in particular and we've got confidence in this panel. we've had good cooperation with them and they are working hard to come up with some pretty good information for us.

we have had a number of meetings and the joint chiefs with the senior enlisted advisers in the room and we have talked about this from an us specifically on the compensation pieces and we are still working through. we have not made a budget submission yet, there has been a thorough vetting with our senior officer and enlisted leadership of the proposals that we might present a. >> on top of that, the senior officer in the state brought through the joint chiefs has come to the department leadership right up to the secretary to spend a lot of time with him on the military come, the civilian of the personnel experts, comptroller, analysts all in the room together going through these proposed options for change how we might think about it and that is the process we have done pretty much every year that we have proposed any changes to the congress for the compensation.

>> thank you mr. chairman is a very important topic. let me ask you a think it has been very clear not one dod official was consulted on this cost-of-living increase cut, were they? connect to my knowledge there were no officials consulted. we heard about it as other people did. >> and just to be clear, the way this went down is many of us sitting around the table also served on the budget committee and as a member of the budget committee and member of the armed services committee, we were not consulted about this cuts to the cost-of-living increase as far as i know the chairman was not consulted on the cost-of-living increase cut and both had actually violated the principles in our own law

that we passed that said if there are going to be any changes to retirement that they would be grandfathered isn't that right? >> it's wonderful that we can reach a two-year budget agreement but you know what was astounding to me is once this became public, people from both sides of the ideals that this aisle said this is wrong before they even voted on it. people from both sides of the aisle had ideas about how to fix it that we couldn't get it fixed then before the deal. that would have been the right thing to do. and now the right thing to do is to fix it now. not to leave it hanging over our men and women's heads in terms of the unfair cuts and i hope we can agree to fix this now and not delay but this is a lesson to not consult our men and women in uniform. it's outrageous to not include

people who serve on the armed services committee to make the cuts to military retirees only in washington and i think that we should commit ourselves around this table to finding a fix for this. many people including myself have ideas on how to do it, not taking further from the military budget and to make sure they have the equipment they need it me just ask you the sergeant first class used an example of you enlisted in 20 years in and retired at 38. it depends on the branch of service if you are a soldier or

marine or someone in was one of the other services that serves on the ground you've probably done more than one tour. stack when you do the tour in iraq or afghanistan, do you have a chance to put the roots down in a place so that when you do retire that you already have them somewhere that you can establish a career? is that so easy clacks >> regardless whether you are serving in afghanistan or iraq or around the world that's one of the facets of our life in the military that we accept is that we don't have the opportunity necessarily to set the boot down there are those that come in from all over the country that might have residual roots but you are right for 20 years you are moving around. >> isn't that different from the average individual in terms of the ability to establish a career post 20 years in the military? spinet it's even more than that.

it affects the spouses employment. many of them face severe disruption and move from place to place. we've gotten some help from congress but it's hard for the spouse to move on place to another and jump into the same. >> so you need a two income household. so when the 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 as well aren't you? >> its income and i think there is a frustration and anxiety levels next time we move. >> so let's be clear a military retirement is very different in terms of the sacrifices that are made that your average civilian retirement, do you agree? in terms of the sacrifices made by your family and in terms of the opportunity that you use in the income and the opportunities that you lose to put roots down

because of the sacrifices that you have made for the nation; is that right? can absolutely agree and that's why we try not to direct comparisons between the civilian and military requirements. >> when you retire from the military, you can be recalled, can't you? as far as i know in the civilian retirement generally you are mandatorily recalled back to your job. >> it's unusual that in the event of a crisis the national emergency absolutely you can be recalled. >> in fact we have been informed since 9/11 3400 retirees were actually recalled back to to active duty service; does that sound about right? >> i don't have the numbers but i wouldn't be surprised if they were accurate and some come voluntarily and some of them are recalled. >> that is another huge difference and that is a disconnect with what happened in this budget agreement.

an issue that was brought to our attention that involves general officer retirement pay both you, admiral and secretary fox. as we look and saw the report that said in 2007 and the the legislation provided incentives for senior officers to continue serving by extending the basic table from the capital 26 years to provide increased and longevity to pay out years of service and according to one press report, using the 2011 numbers this could result in the four-star officer retiring with 38 years of experience receiving $84,000 more in retirement than previously allowed. i assume the purpose was to encourage combat experience to continue serving during the war. however now we are in a situation where the congress has

made cuts. and i want to say these are penalty. it is a 1% decrease in the cost-of-living and increase in the penalty and we haven't even looked at issues like do we need to continue the increases to the generals and admirals they received now that we are winding down in iraq and afghanistan. could you comment on that? think about the impact on the sergeant first class losing $80,000. that is a huge impact. >> we think the commission should look at all elements of retirement and all of the variables that i listed earlier. so, we look forward to what the commission has to say on that and other issues. seeing what is fair in terms of their compensation as well

because it seems to me that the people that took the biggest hit on this and i don't diminish that but your average enlisted person from what they take as a hit basically as i understand it is about $25,000 a year and moving around and everything like that they have to find another job to feed their family, do you agree with that? >> we are looking at all of the proposals we are considering under the submission that will make this year. general officer pay is one of them. >> i appreciate that and i hope that we can fix this and write it now and not wait. i don't think we should wait. thank you. >> thank you mr. chairman. there are the issues emerging in

the broad consensus raid one is we have to correct this issue and my sense is that it has to be done very quickly and immediately for many reasons. one is the issue of the force in the field. i understand we could move such a bill without a pay for is that accurate? >> that is accurate. i think the one bill that has been referred to the committee we are doublechecking this however is the bill that senator hagan and pryor believes doesn't have a pay for. if there's a pay for an offset in other words, then that i believe will be referred to a different committee.

there is a clear consensus that we should clear the air on this issue. >> i appreciate the clarification. and again i do sense that this is a consensus of course the spectrum of the committee. that does leave open the question of the role of the commission which is absolutely critical and we can anticipate, and i will ask you we can anticipate next year in the commission report that there will be proposals to us and we can deliver eight upon them publicly that will deal with the spectrum of pensions and competition and benefit, etc. and that's necessary because you are reaching a situation where maintaining the operational readiness of the existing force

is being squeezed because of the obligations can you comment on that? >> the commission will certainly offer its recommendations to the congress and certainly to this committee on how to pay in compensation and retirement should be structured. we be leave that we should wait until they -- i'm not saying we should wait to reveal this but we do need to look at what they come up with in the various variables on retirement. on the compensation piece it is possible that the commission could come up with some structural recommendations. any recommendations we would make for the budget wouldn't be structural. they would be fine-tuning the existing system to maintain the

best while getting the best value for the taxpayers. >> not only would the regulations allow us to deliberate and make thoughtful decisions based upon the input from everywhere but also in basic fairness they would be sort of implementing on the basis so that people wouldn't be prejudice. there would be grandfathered provisions because without that, you have people that have served with distinction and great courage through their expectations could be changed; is that the presumption? i'd have to doublecheck that i'm almost certain that the legislation and established commission directs them to not consider anything other than something that is grandfathered and we support that. >> i brought a section with me. the law specifies any changes be grandfathered into that is in the guidance to the commission.

we do want to see the commission's results brought forward and debated. at this point about the timing i hear the consensus we agree is not grandfathered and that isn't what we seek. we want any change in whatever it ends up being is grandfathered. the only point is that it doesn't happen until december 2015. we be leave the two things must happen. it needs to change before it is implemented and we need to give space to the commission to allow it to be defective and if that base is repealed, so be it. if it is wait and see what the commission has to say and then do it one time so be it but that is in the perimeter of the consideration. >> so your point is that at present because the effective date isn't until december, 2015, there is no one who is actually

being demonized the full benefits that were promised? >> the other point you make is that it is entirely possible that the commission could propose some retirement arrangement, maybe not this one identically with 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 over time is that fair? >> that is exactly our position and the commission now will report in february of 2015. >> but it doesn't include us in taking the action to correct it and then wait for the commission's deliberations. one other point what is driving this, not entirely, but what is the need not only to keep our promises to the retired

community which should be considered vulnerable in my view but also everyone's commitment to people in active service if they have the best trained equipment that their families have the best opportunities while they serve and that is one of the fundamental tensions we are trying to deal with. is that accurate? >> yes sir it is and i would add to the that the only real interest that i have in deliberately doing this is simply to make sure that if it is repealed it is in a way that doesn't take it off the table in some form of accounting for the cost of living whatever it is. it it isn't taken off the table permanently for the commission. the commission not to be able to look at all the variables. if it is repealed in a manner that doesn't mess with that if you will come of the timing is completely up to the congress obviously.

>> thank you mr. chairman and both of you for being here today you have presented us with a lot of interesting information. in discussing the conclusions on the strategic choices and management reviews, the secretary has said that chairman dempsey would lead the effort to find $50 billion of savings through the changes to compensation. today you said that retirement changes won't be part of the coming budget request. but what can you tell me what the status is of the general's review on the compensation per? >> we were challenged something like 40 for the compensation savings and other areas of the

department by the way were equally challenged in other ways to find savings. we worked very hard to do that we came up with a set of proposals that would be required to make that mark and we found them severe. so we have been working on a set of less severe proposals that we would consider submitting as a part of the presidents budget request and we are not ready to talk about them because they are not final but we are not going to make the 40 or 50 or whatever it was. but it was a very good exercise for us to see where we could find savings. >> the senator raised an issue earlier and i would like to follow up on it if i could for a moment is the department, including outside groups in its review of the compensation have you reached out to the veterans group's? >> we are still in the process

of deliberating over these and we are not ready to show whatever proposals might be submitted but we do look forward to consulting with the veterans groups because it's important that they understand them. we would like to have their support and we know that would be difficult anytime we are talking about slowing the growth rate of compensation we are not taking anybody's pay away and we understand that's what they are for. we love them and they do an important service for our people but we will definitely consult with them. >> am i understanding you correctly that coming up with proposals in spite of the department and then presenting it to the stakeholders groups looking for input or are you including the stakeholders the transcripts in providing you with suggestions and input? >> we have listened to be support organizations. they are very vocal and we

appreciate that. we understand what they are telling us and i think that at various levels there have been discussions with members of the veteran groups and roundtables and things that we haven't presented any specific proposals to them because we can't get out in front of the secretary. you are presenting your proposals to the groups and you are not asking them to present proposals to you with ideas for change is? >> we haven't brought them in and asked for their proposals on how to change compensation. we are certainly open to that and we listen to what they say and we read what they write and we take that into account as we disagreed over these things. i don't know whether they would come in with a proposal at all to change the compensation but i would be interested in that if they did. >> may i just added that the secretary does meet with the

veterans and so certainly there is a dialogue. as the admiral said, we haven't concluded anything about the specifics of the compensation proposals that he meets with them and listens with them and they have a general dialogue about the far ranging issues and i haven't been privy to them but if you would like i could take for the records and report back on that kind of the topics that they discuss. they could offer may be valuable information as the department is forward and looking at the compensation. i would think that you would want to seek that. >> may i also add on the commission there's been a lot of back and forth with the commission sharing data analysis and so forth. so there've been those kind of discussions. again, not a specific proposals because they are not done but there has been a lot of engagement. >> i appreciate that. secretary hagel has also stated

that the department would begin implementing the package and the fy 2015 budget. is that still the plan and are you going to include any of those changes in the budget? >> we are still looking at the budget deliberations, but we do -- we are considering posing additional changes to the compensation, not retirement. that is the commission and we need all the help because it is so hard that some modest proposals on other parts of compensation and falling onto the very large effort that the joint staff has been leading over the past six to nine months >> i would appreciate it and i know that other members of the committee would too if 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 either of you seen any impact that these recent changes have had with regards to recruiting and retention? has there been any impact to date on that? >> i think it is too soon to measure the impact. generally, we find that retirement benefits play a less than 1% of accounting and potential recruiting deliberation as to whether he or she is going to end list but it does of course impact the retention. in particular we find the retention for the first and second term but it very much affects the third in career so we haven't seen any behavior changes yet, but we do know that they are very nervous about this

if you are 17, 18 years in the military thinking of retiring at 20 now if the cola minus one is revision you may have to stay longer in the military in order to improve more of the benefit so that your retirement wouldn't be impacted as much. i think that is the calculus. i don't think anybody is going to quit the military that they are nervous about it and they are again doing the calculation on how long they need to wait until they can retire. >> you mentioned earlier that it may not have that big of an effect on the recruitment but i can certainly see that it would with retention. so i would imagine the sooner that we can provide certainty to the members of the literary, the better. would you agree? >> certainly i think this is an issue. one thing i would throw in is one of the retention concerns that we are starting to feel is the concern about the quality of service. wealthy have the training, will

they have the equipment, while they have the opportunity to serve in a way that is as rewarding as they expected when they joined? >> thank you so much mr. chair. >> senator fisher. >> thank you mr. chairman. admiral and secretary fox thank you for the service and the jobs that you do. i have supported the recent budgets after i heard from top military leadership in north carolina about the urgent need to halt the sequestration of the defense budget. we've had a number of hearings in this committee about the negative effects of sequestration and i think we all agree if allowed to continue, it will drastically reduce future military readiness and actually jeopardized national security of the country. we are still at war in afghanistan and it is the central that our service members are fully paid and equipped and receive the support and training that they need.

however i strongly opposed the provision that was included in the agreement that cuts the cost of living adjustment that we've been talking about for our service members. we have made a strong commitment to our brave men and women, many of whom in my state have deployed double times to combat overseas and it is my belief that we've got to keep our promise to our service men and women after they sacrificed so much for all of us in our country. while it's true the country faces difficult fiscal challenges, we cannot balance the budget on the backs of those that have answered the call of duty. and i know that there is strong broad bipartisan support to appeal the provision. senator pryor and i both have a bill that will do just that and we are looking forward to bringing that up to the senate floor.

my question is unlike the private sector where most companies can easily recruitment level employees the armed forces have no alternative but to build and develop their midgrade officers and noncommissioned officers from within. as service members in the eight to ten year service many are making that critical decision are they going to stay in the military and make it a career or not? my question is most of the officers are leaders with multiple deployments to iraq and afghanistan. and do you believe that the recent cuts will cause our officers to leave the service. surely? and how do you believe the view that these cuts as well as the broad debate broader debate about the military compensation reform? and if both of you would take a minute. >> i think it is part of the calculus of anybody when they

are considering a retention decision. the younger ones tend to think more in terms of pay. the midgrade ones tend to think of a bonus if they can get one to stay in and the more senior and in terms of what is coming down the line in retirement. so i don't have a metric that we could measure right now that indicates the change in behavior because of the provision because it is simply too soon. we do surveys. we can look at the numbers and the like that again we do beneath we have heard anecdotally that people who are approaching retirement are doing the that sort of calculation that says i if i retired at 20 i was going to get this under cola minus one i would have to require at 22, 23 in order to have the same benefits accrue over the course of my retired life. ..

that's exactly the kind of thing we need to help with the commission and the studies we are looking at. force shaping tools. maybe that's okay. we need expertise to stay longer. in other cases we don't and we can't have that, and way too incentives people. maybe they will want to leave in the 10 years instead. all of those factors affect expertise we have in the forced to do the things were asked to do.

sometimes you can come up with bonuses. sometimes with special day. that takes away from savings. so it's a big stew calculation and complexity that 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 is a nuclear welder in the united states navy probably gets 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 varies dramatically. >> it's interesting, the welding profession is one that is in high demand all over the country. i'm sure nuclear welder's even more so. i feel strongly that the recent cold attacks need to be repealed. but one of the elements that concern me most is that current retirees and service members were not grandfathered.

if after careful consideration there are future changes to the military compensation and retirement, how important is it to exempt those that have or are truly something? will 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. chairman dempsey said that in several different testimonies. i'm saying it now. all of the joint chiefs are unanimous in the senior enlisted leaders, we'l will believe any e 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 grandfathered in, and i spoken with secretary hagel. he also supports grandfather and. so i think there's unanimous consent between the military leadership and the civilian leadership that grandfathered has to be a part of anything going for the that change the

target. >> when will the commission's report come forward? >> february of 2015. >> thank you. thank you, mr. chairman. >> thank you very much. senator graham. >> thank you for having this hearing and all the things you've done over the years to keep us focused in congress about what is the right thing to do for our military. i really appreciate your leadership. seems to me senator reid said with all reached a consensus that we would like to undo what we all consider to be unfairness. as far as timing, i think the sooner the better and i would just make this observation. senator wicker i've expressed the idea that nobody thought we would engage in sequestration, but here we are. i just think the sooner we can go back to the status quo, a better. vision of anxiety among our military service personnel now. we don't need it anymore. that would one thing off the plate. that's what i would advocate doing it now. i would also like to associate myself with senator kaine. it's good to have a budget.

make mistakes in the budget process but quite frankly i'm very pleased with my colleagues. we raised this early on was to a lot and myself, and the way the congress has responded to looking at this on an open mind and fix it in a bipartisan way. i think this is a good thing everybody makes mistakes, but you really judge people by their willingness to right wrongs. it seems like we're on a good path to find $6 billion, hopefully, to set aside what we done with the c.o.l.a. minus 1%. by the idea of reforming compensation count me in. i think the time is, prospectively to like the sustainability. now there's a difference, admiral, between what you were saying about the overall cost of personnel within the military budget and what some of our veterans organizations are saying. what percentage of deities budget is personnel related?

>> the military compensation i itself is about a third. and overall composition to include civilians is about half of the budget. >> but hasten to add that the more i've been into this and the more as a body have dug into this, the less sophisticated that make it sound. they are so many variables that go into. how many people do we have? what is the cost of health care? it's a squishy number and you would want to pin. here's the goal, it should be 32.5% gaza that change. we really want to find out what it takes to recruit and retain the best. >> i would suggest is give with your veterans groups that have a different view of what the personnel costs are because remember, chairman dempsey talked about 54, 50% of the current budget is personnel cost. we look at the out years, the growth of tricare, where are we headed in terms of personnel costs with inside the budget

over at 15 or 20 year period? >> i think when chairman dempsey was referring to the 50% he was including civilian. you also have to have indirect benefits as well as direct me. frankly, it's probably going to stay stable. there was some initial information and the information is all over the place -- >> even if you don't be reforms that 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 reforms it will go down a little bit. the more sophisticated we believe way 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 and get the best value for the american taxpayer. that's an isolated look. it's not what's the right share of the budget. you can imagine if you take a budget share and the budget went

down, does that mean we reduce pay? we don't want to do that. >> i understand what you're saying. secretary fox, i guess the point i'm trying to make is that it's about half the budget is going to be personnel costs, director indirect, the other half will be spent on readiness, modern nation, being able to 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 and sustained, we just take it out of the people. we have fewer and fewer people. >> fewer and fewer people with less equipment to fight with. the goal is to have a well-paid, well-trained military that can win the war, right? >> and come home safely, yes or. >> and not have a fair fight.

we're not looking for a fair fight in the future. we want overwhelming force on the battlefield so the war is as quickly as possible with the least amount of casualties. and that means we have to have the equipment and training, is that right, admiral? >> your absolute right. we want to win 100 to nothing. >> we don't want to go to war because those who go to war have to believe they will lose. those dumb enough to go to work will lose. it's just that simple. he got to keep the people around to make sure you can win the war. gdp on defense. historically any time of peace, what's been the historical average, say since world war i, gdp spent on defense? >> sir, i don't remember. i will have to take that for the record. >> i know you very good command of those numbers. i don't have it memorized but i'd think it has changed over time, as you will. >> does 5% sound about right? okay. where will we be at the end of sequestration, even with the

relief will provide in terms of gdp spent on defense? >> senator, i think you know the answer to that question, sir, and -- >> but i'm not at the pentagon. i knew someone at the pentagon to tell me this. >> i will have to take the 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 people if you sign up in the future you may not be able to retire at 30 and have to wait a few years. we're going to tell the retired community we are not going to dump on you. we going to do this. somebody has to have a vision of where will we be as a nation 10 years from now in terms of budgeting. that takes me back to sequestration. it's my belief we are going to be dramatically under 3% of gdp if we keep this path in fact, anand in 15 seconds, what are or allies doing in nato?

are the people we fight with spending more or less in the next 10 years on defense? >> in seven seconds, let's. >> our allies are spending less. it really sequestration in fact, we could be well below what we spend in time of peace. do you consider -- what's the likelihood the war on terror will be over in 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 is going to take some time, absolutely. >> let's plan for the worst, right? thank you. >> thank you, senator graham. senator blumenthal. >> thank you, mr. chairman. and thank you both for being here today. thank you both for your extraordinary service to our nation. i would agree with my good friend senator graham and his assessment that we are on a path

to repeal the very unfortunate and unwise cola cuts in retiree pensions that were a flaw in the budget agreement. i would disagree with him only on his reference to glidepath in which implied and ease and unimpeded track that is rarely found in the congress. and i think it will take some doing to have the path achieved. but i think that the debate and the discussion you this morning, and your testimony, has been very helpful to reaching that path, which i think we have an obligation to do. i voted for the budget agreement like so many of my colleagues. i did so with the understanding that that flaw would be corrected and that it would be corrected before the next ndaa, as soon as possible, right away, for all the reasons you outlined

so well. the effect on the morale and really the dedication of our armed services. and the brave men and women who serve as. they deserve better than this kind of cut without any provision for grandfather but the cut itself in my view is offensive. but i want to do with the broader issue that has been referenced here this morning as well, which is how we attract, recruit, retain, not only new, best and brightest of their generation but also the mid-level officer and noncommissioned leadership that is battle hardened and perhaps battle weary, but one of our greatest assets in this country. because at the end of the day, and i would hope that you agree,

they are as important as any weapons system, any platform that we have. and i know that you outlined well the impact that retirement and other benefits may have, but maybe you could give me a broader assessment, give the committee a broader perspective. transport if he could begin and then i would be interested, secretary fox, as well. what are the incentives we need to offer? how do we change if we need to change because we need to do it before 2015. i think we need to do it now, right away. >> very good question, senator. i address recruiting and retention simply. on recruiting we take surveys of people that decided to raise the right in a put on the cloth of their nation. why did you do this? why did you come in? it's interesting that the number one reason that we're hearing back right now is pride, self-esteem, honor. the number two reason is to

better my life. the number three reason is duty and obligation. the number four through eight recent our travel, future education, experience, and they want to be challenged. next comes a. more discipline in the life, adventure and helping others. so that gives you, that makes they feel pretty good that our young men and women are coming into the service for the right reasons. >> that's very encouraging. >> in terms of retention, particularly for those midgrade officers and ncos were talking about, our two variables that are fundamentally, all kinds of sub variables but the two most important variables our quality of life and quality of service. and retirement of course is something that the senior folks look forward to. but in terms of quality of life, as we just applied for compensation were going to do and it very carefully. we have to be watchful of that. there's so many other things that go into what quality of life really means, how often do

you have and can just ask her job, that sort of thing. in terms of quality of service we're hearing more and more from our people that are sort of surprised by all this. what really matters to the more than keeping a high rate of growth is they want to fight in a modern and ready force. they want to go to work everyday and they want to parts in the bin where they can repair the thing that they are entrusted with. they want to be up to drive it off like it or sale want to feel confident that they are on a winning team. that matters if it's an intangible but it makes a tremendous difference for people and we have to look after that as well as the quality of life. >> senator, i would just add i think it was laid out beautifully. these intangibles i think are important as we look at any changes to retirement, for example, going forward. i do believe we have really excellent models of the broad

economics, and i'm pretty convinced that whatever we do we can find ways to twea tweak it h pace and incentives and so forth. it's very hard for those models to account for those intangibles, and the individual's view of what they are there to do at what they are able to do given the way we support them in this broad term that's overused readiness, but that means the things that admiral winnefeld outlined about the ability to operate, the ability to have parts to fix it to their ability to show up for duty on a ship and at other people there. they're not trying to do three or four jobs. all of the things i think are eroding the morale of our force right now. >> and another way of putting it might be the sense that the country appreciates what they're doing as well because they're not on on a winning team, the best team, a gold medal team, that the country appreciates their work that they're doing. >> you can't even begin to

understand how important it is to our young soldiers sailors airmen bring coast guardsman as they walk through airports, train stations, you name it, when ordinary americans come up to them and thank them for their service. it's huge. >> one other question in the limited time i have left, i know that you do surveys that you try to apply some scientific method to assess the incentives and so forth that you just described, and, of course, we all have our personal experiences. senator kaine as a second serving. i have too. we know friends and so forth. i wonder how well you think those surveys, the scientific effort, are doing in measuring the kinds of incentives and so forth that are at play here? >> it's a good question.

you always have to take any kind of survey or data with a grain of salt. if you're not listening to the drumbeat that you were hearing from people and it totally, what they're saying to you, what your senior enlisted leaders who are terribly important to the process are saying to you, then you don't get it. we have to temper anything we here in the surveys. i don't have a crisp answer for you on whether there's a dichotomy there but i think in general, it's what we are hearing. they're both reflected, reflecting the same thing. >> attitude we are very aware service can lack and did you think that's why our service chiefs under secretaries spend so much time out talking to the force, to the men and women in uniform. >> thank you. thank you for your excellent testimony this morning. thank you, mr. chairman. >> thank you, senator blumenthal. senator vitter. >> thank you, mr. chair. thank you both for your service. certainly i want to express strong support for fixing this

problem, absolutely as soon as possible as well. i voted against the budget deal in december, and this issue was the single biggest reason why. so we need to get it fixed. and i want to express strong support for fixing it in a way that doesn't increase the deficit in any way. that would be doing through two steps what a huge majority of us vowed absolutely not to do. and so that would be a failure as well. so i'm very hopeful we will get this done. i just have one question for both of you. this provision essentially treated folks in uniform fundamentally differently and worse than federal, civilian employees, all other federal civilian employees. it sort of penalize them retroactively on this issue, while the change was made for all other federal employees was prospectively only. do you think there's any

justification for that different treatment? >> i think it was surprising. i don't think that the vast majority of our force actually thought that through. they were aware i think. it was we just c.o.l.a. minus one piece itself a registered with them. but it is definitely a difference. >> i think again that's why we support grandfathering and believe that you have to look forward, maybe there's a change, whatever change that is its for new people coming in. >> well great. i'm glad most of them don't realize it but my description unfortunately is accurate, and i just want to underscore that i think that's fundamentally wrong and inappropriate. thank you. >> thank you, senator vitter. senator king. >> thank you, mr. chairman. in light of the fact we have a second panel i think i will submit my question for the record. i just have one observation.

in light of senator kaine's comments i always thought the passing of the first budget out of a divided congress in 20 years was somewhat miraculous, but i think today we have established that this provision, this c.o.l.a. minus one provision confirms that because we can't find erica. it was an immaculate conception i think this, this provision, immaculate misconception might be a better term for. but i appreciate your testimony and i will have some questions for the other panel. i associate myself with everyone else here but i don't think we should wait until the commission to i think we should fix this. it's not a huge item. it should be fixed, and i think our veterans and people who are receiving pensions for some odd reason may not fully trust us to resolve this in 2015. so i think we should take care of it as soon as we can. >> thank you very much. that will complete