Accordingly, DOD has called more than  335,000 reservists to active duty since September 11, 2001. Similarities between the systems include a minimum of 20 years of  service for vesting and eligibility for retirement benefits, a calculation of  retirement pay at 2.5 percent of basic pay for every creditable year  served, and an opportunity to participate in the federal government’s  Thrift Savings Plan. An  eligible active duty military member receives an immediate annuity upon  retirement that is based on pay rates in effect on the date of retirement. Retired reservists  who remain subject to recall receive an annuity that is based on pay rates  in effect when they reach age 60, and, accordingly, the retirement is  calculated at these higher pay rates. The Extent to Which Changes Are Warranted to the Reserve Retirement System Is Unknown

Current available data do not provide DOD with the information it needs  to determine what changes, if any, to the reserve retirement system are  warranted. In addition, it has not  established thresholds or targets for attrition attributable to retirement. Without thresholds or targets, it is not possible  to assess the extent to which DOD is retaining the desired numbers of  senior military members or the extent to which retirement provisions  influence decisions to leave or stay in the reserves. Nevertheless, our analysis of various DOD data for  selected periods of time when reservists were called to active duty to  support military operations reveals that the overall composition of the  reserve force by years of service, age, and pay grade has remained  relatively even and that DOD has not experienced significant declines in  any of these variables. DOD has, however,  identified certain high-demand occupational specialties where retention  rates have decreased. While these cases do not necessarily suggest that  uniform retirement reform is required, they do suggest that targeted  corrective actions of some sort may be needed. As a result, retention rates may be  artificially high. First, the estimated cost of lowering the age of receipt, from age 60  to as low as 53 with limitations—or, in some cases, lower—will be  significant, given that all reservists who qualify for retirement—and not  simply the minority of reservists who have deployed to recent contingency  operations—would be covered under this change. Considering the fact that military basic pay  will continue to grow and health care costs will continue to rise, the  longer-term cost will continue to be significant. Many of  these reservists are not likely to be the beneficiaries of a reduction in the  age of receipt of annuity, given that only one in four reservists currently  stays in the reserves long enough to become eligible for retirement. Finally, DOD has not yet  studied changes to the reserve retirement system in the context of the  total force, even though these changes could have unintended  consequences on DOD’s active duty forces. Recommendations for Executive Action

We recommend that the Secretary of Defense direct the Under Secretary  of Defense for Personnel and Readiness, in concert with the Assistant  Secretary of Defense for Reserve Affairs, to take the following four  actions:  1.  specify desired metrics for measuring the retention or attrition rates of  senior officer and enlisted reserve component personnel who are  approaching retirement eligibility and, therefore, are most likely to be  affected by changes to DOD’s reserve component retirement system;  2.  determine if gaps exist between the desired and actual rates of  3. identify changes, if any, to the current reserve component retirement  system that would address these gaps, to the extent that they exist;  and  4.  evaluate any changes to the reserve component retirement system and  their associated long-term costs in the context of the total force.
Why GAO Did This Study

Since September 11, 2001, National Guard and Reserve personnel have served, and will continue to serve, a critical role in the Global War on Terrorism. As a consequence, Congress has focused attention on the fair treatment of reservists and directed GAO to review, among other things, the Department of Defense's (DOD) reserve retirement system. Currently, five legislative proposals exist that would lower the age when eligible reservists can receive their annuities. GAO assessed (1) DOD's reserve retirement system as compared to certain aspects of the active duty retirement system, (2) the extent to which DOD data suggest that changes to the reserve retirement system may be warranted, and (3) the potential costs and effects of the five legislative proposals.

What GAO Found

The active duty and reserve component retirement systems require 20 years of service for vesting, provide annuities that are based on 2.5 percent of basic pay for every creditable year served, and offer options to participate in the government's Thrift Savings Plan. Active duty members receive an immediate annuity upon retirement based on pay rates in effect on the date of retirement. Eligible reservists must wait until their 60th birthday to receive an annuity. The annuity of retired reservists who remain subject to recall is based on pay rates in effect when they reach their 60th birthday. Current data do not provide DOD with the information it needs to determine what changes, if any, to the reserve retirement system are needed. DOD has not established thresholds for attrition attributable to retirement and, without thresholds, it is not possible to assess the extent to which DOD is retaining the desired numbers of senior reservists or the extent to which retirement benefits influence decisions to leave or stay in the reserves. Nevertheless, GAO's analysis of DOD data for selected periods when reservists were deployed shows that the overall makeup of the reserve force by years of service, age, and pay grade has remained relatively even and that overall reserve retention rates, to date, have remained relatively stable. DOD has, however, identified certain high-demand occupational specialties, such as military police, where retention rates have decreased. While these cases do not necessarily suggest that uniform retirement reform is required, they do suggest that targeted corrective actions of some sort may be needed. The estimated cost of lowering the age of receipt, coupled with an associated increase in retiree health care costs, is significant and considering the fact that military basic pay will continue to grow and health care costs will continue to rise, the longer-term cost will be significant. Importantly, all reservists--not just the minority of reservists who have deployed to recent operations--would be covered under this change. In addition, reservists who are experiencing increased deployments may not be the beneficiaries of a reduction in the age of receipt, given that only one in four reservists currently stays in the reserves long enough to retire. Finally, DOD has not studied changes to the reserve retirement system in the context of the total force. Changes, if not evaluated from a total force perspective, could result in a significant increased cost with little or no benefit and may produce unintended consequences on DOD's active duty forces.