DoD and Congress have to reform military compensation and benefits to ensure the United States can fund a military force able to meet future security challenges, Senior DoD leaders told a Congressional committee this week.

Slowing the growth rate of compensation must be one element in the larger approach to preparing a future force that is balanced, and ready to meet challenges seen and unforeseen,” Acting Deputy Secretary of Defense Christine Fox and Vice Chairman of the Joint Chiefs of Staff ADM James A. Winnefeld, JR, USN, said in a statement before the Senate Armed Services Committee (SASC).

Fox said the FY2014 Omnibus Appropriations Act does mitigate “the worst of the Department’s readiness problems” by providing significant relief from across-the-board sequester cuts. The bill sets the DoD total funding level $21 billion higher than the sequester-level. However, she pointed out the budget agreement provides a FY2015 funding level that is only $9 billion above the sequester level. And, for FY2016 and the outyears, DoD still faces full sequestration cuts that could be about $57 billion per year. So, she said, DoD continues to urge the Congress to find an alternative to future sequester cuts.

She said the continued constrained budget picture and the uncertainty about sequestration in the outyears means that DoD must continue to pursue savings from increased efficiencies. But, she stressed, savings alone cannot close the funding gap that is caused by sequestration. Efforts to slow compensation and benefits growth must be part of any program to cut overall costs.

Fox described a current budget situation that is much changed from the early 2000’s. DoD’s topline increased significantly since 2001 as the U.S maintained a wartime posture. Military servicemembers’ pay and benefit costs, adjusted for inflation, have increased about 40 percent, and DoD health care costs have risen from $20 billion in 2001 to nearly $50 billion in 2013, she said. “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,” she told Senators. ADM Winnefeld agreed saying that “compensation must be placed on a more sustainable level.”

The witnesses said the department is working diligently to explore how to slow the rate of military compensation growth in a responsible, fair, and effective way. But, they assured Senators that DoD is doing so while ensuring that pay and benefits remain at levels that would allow DoD to continue to attract and maintain a quality all-volunteer force (AVF). In addition, they testified no currently-serving member’s pay would be cut and any savings achieved by compensation and benefit proposals “should be invested in war-fighting capability and personnel readiness.”

Fox described proposals by DoD to slow the growth in compensation costs, including changes to the TRICARE program and other health care programs. She pointed out that Congress has partially approved some of these proposals such as modest increases to TRICARE enrollment fees, indexing fees to inflation, and some increases in pharmacy co-pays.

The budget agreement included a proposal that would reduce the cost-of-living (COLA) adjustments by one percent for pensions of military retirees under age 62 (so-called working age retirees). In the Omnibus bill, Congress approved this COLA adjustment, but exempted medically retired servicemembers and recipients of survivor benefit plan annuities from this reduction.

The witnesses said DoD would like to see a comprehensive review of this provision and recommend that no action be taken until the Military Compensation and Retirement Modernization Commission (MCRMC) completes its work. However, if the provisions were retained, Fox said DoD recommends that Congress exempt currently serving servicemembers from any change.

The MCRMC was established by Congress in the Defense Authorization Act of 2013. The purpose of the Commission is to “conduct a review of military compensation and retirement systems and to make recommendations to modernize such systems.” The nine-member Commission is headed by Alphonso Maldon, Jr., who served as Assistant Secretary of Defense for Force Management and Policy from 1999 to 2001. The Commission is required to submit a report, including findings, conclusions, and recommendations, in early 2015.