1. Bracketed numbers, where used in induced voluntary separation programs, indicate personnel not counted in service totals; these numbers are already counted in other categories which are additive. 2. See app. IV for a separate break-out of losses by officer and enlisted personnel. 3. The number of losses occurring from involuntary actions and reductions in force will increase or decrease depending on the actual results of the ongoing VSI and 588 programs. 4. Individual services vary somewhat in the extent to which they indicate losses through "involuntary separation" and "other" categories. The category "other" includes separations for not meeting physical requirements, hardship, death, trainee losses, unsuitability, misconduct, desertion, attrition of active duty reservists (non-Desert Shield/Storm related), miscellaneous adjustments, and others. Both "other" and "involuntary separation without pay" categories appear to be closely related. Sources: Budget justification data submitted to the Congress by the military services in conjunction with their Amended FY 1992/TY 1993 Biennial Budget Estimates and other data provided by OSD and the individual military services as of March 23, 1992. Table 6 indicates that 11 percent of the total service losses during the 2 years are attributable to use of the VSI and SSB programs. Of the 218,000 net reductions, 37 percent are attributable to VSI and SSB in fiscal years 1992 and 1993. Table 7 indicates the number of officers and enlisted personnel from each service who have requested separation under the VSI and SSB programs as of March 1992. Bote: Numbers indicate persons applying for separation under these programs; all have not been approved. As of March 23, 1992, DOD reports that 40,182 persons (out of a fiscal year 1992 goal of 45,123) have requested separation under either the VSI or SSB programs. Approximately 85.4 percent of those persons electing separation under these programs have opted for the lump-sum SSB program and 14.6 percent have chosen VSI. This reflects a somewhat greater preference for the SSB program at this point than DOD officials had expected. DOD's Amended Fiscal Year 1992/1993 Biennial Budget Estimates projected that, of those persons electing a voluntary separation incentive pay, 62 percent would take SSB and 38 percent VSI. However, DOD officials have noticed some lessening of this preference for SSB within the past couple of weeks; it is too soon to tell whether this signals a longer term trend change. According to DOD officials, junior officers and enlisted personnel are among those most frequently opting for the SSB program. While authority for the VSI and SSB programs exists through fiscal year 1995, the extent of its use varies by service and it is not clear to what extent each of the services will use this authority in future years. For example, the Army indicates it is trying to maximize its use of these programs during this first year of availability. Its offering to its officer and enlisted force is broader than any of the other services, and it is giving special emphasis to personnel in over-strength skill areas and per sonnel likely to be affected by changes in reenlistment quality criteria or application of the criteria. As compared with the Army, the Navy is making less use of these separation incentive pay programs to reduce end strength-the Navy has less need for these programs since its reductions during the 2-year period are less than a third of the Army's. The Navy states it is offering the separation incentive programs to enlisted personnel only, particularly E-5s and E-6s, to selectively target over-strength skill areas. After offering the program for a short time period to ascertain the extent of takers, the Navy told us it has launched a second effort offering the incentives to a much broader range of over-strength personnel. The Marine Corps is making selected use of the special separation incentive programs for officer and enlisted personnel. The Marine Corps has the smallest reductions of all the services and as a result has less need of the incentive pay programs. It is, however, using the incentive pay programs as a vehicle for voluntarily separating marines in obsolete specialty codes. The Air Force intends to use the special separation incentive programs through calendar year 1992, targeting both officer and enlisted personnel, with a larger emphasis on E-4s and E-5s with 9 to 15 years of service, except for those in critical skill areas. It is also offering the program to personnel at bases and units slated for closure. FUNDING OF SPECIAL SEPARATION INCENTIVE PROGRAMS Some funding questions remain regarding the special separation incentive programs. Significant personnel savings will not be likely during fiscal year 1992 since, according to DOD officials, most personnel who are leaving the military under these programs will be doing so during the last 3 months of the fiscal year and most will be departing with a lump-sum payment that must be paid out of this year's military appropriations account. Others, departing this calendar year under VSI, will also receive their initial annual payment, paid out of the services' military personnel accounts, when they leave the service. Under legislation authorizing the program, the present value of future years' benefits then becomes an unfunded liability. VSI payments made after January 1, 1993, will come out of an accrual funded Voluntary Separation Incentive Fund. In approving legislation for the VSI program, the Congress mandated accrual funding rather than a pay-as-you-go approach. The legislation charged the Defense Retirement Board of Actuaries with establishing a fixed period of time for amortizing the unfunded liability. The Secretary of Defense then is required by legislation to make deposits to the fund in accordance with that amortization schedule. For personnel who leave the services under the VSI program after December 31, 1992, the Secretary of Defense must pay into the account an amount equal to the present value of the future benefits payable as determined by the Board of Actuaries. The Defense authorization legislation stipulates that amounts paid into the Voluntary Separation Incentive Fund will be paid from funds available for the pay of members of the Armed Forces under the jurisdiction of the Secretary of each military department. The budget justification books of each military service submitted to the Congress, in conjunction with the Amended Fiscal Years 1992/1993 Biennial Budget Estimates, state that the budget estimates include specifically identified amounts for projected SSB requirements and for VSI payments associated with those who accept VSI before January 1, 1993. Since the number opting for the SSB rather than the VSI is greater than DOD anticipated in developing its new budget estimates for the amended fiscal years 1992/1993 biennial budget, this indicates that not enough funds will have been set aside for payments required this year. DOD officials told us they are still accumulating data on the proportion of persons opting for VSI and SSB and will have to calculate a new funding requirement that will likely require a reprogramming action for this current fiscal year. Financing requirements and decisions affecting the VSI program will be dependent on the number of personnel who opt for VSI and SSB, and may also be affected by upcoming decisions by the Department of Defense Board of Actuaries. In anticipation of future years VSI funding requirements, the services' budget justification documents state that: "... the Board of Actuaries is reviewing assumptions related to real rate of return and real wage growth [of the Military Retirement Account] in light of continuing trends which deviate significantly from current assump 3 The three-member Defense Retirement Board of Actuaries is charged with performing the same functions for the Voluntary Separation Incentive Fund as it performs for the DOD Military Retirement Fund. tions. The budget anticipates that the Board of Actuaries will approve economic assumption changes effective in fiscal year 1993 and that adequate resources will become excess to finance required VSI payments into the Voluntary Separation Incentive Fund." The Chairman of the DOD Board of Actuaries told us that the Board, which only meets a few times a year, has had limited discussions to date regarding the VSI program; it will address the VSI issue at its next regularly scheduled meeting in July 1992. The Chairman also indicated that the Board will also be reevaluating economic assumption issues related to funding the Military Retirement Account and the use of excess investment returns at its next meeting. Currently, excess investment income is returned to the Treasury. Depending on actions of the Board, there could be a lessening of the ongoing obligation of DOD in terms of its payments into the retirement account. The Board will be discussing whether a portion of those excess funds should be credited to DOD. A decision to request a change in the distribution of excess investment returns and passage of any required legislation to credit some portion to DOD could provide DOD with additional resources to help meet VSI funding requirements. Actions of the Board to change economic assumptions affecting DOD payments into the retirement fund would not normally take effect until fiscal year 1994. Mr. Chairman, this concludes my prepared remarks. I would be happy to respond to any questions from you or members of the subcommittee. Bota: Some increases in personnel numbers for DOD agencies shown in fiscal year 1997 represent the consolidation of some activities and the shifting of personnel from individual services to DOD agencies. Sources: DOD Manpower Requirements Reports and the office of the secretary of Defense with updated data provided by the Department of the Navy as of March 23, 1992. Prior-year data is actual while future-year data is projected as of March 23, 1992. APPENDIX II MILITARY AND SEVERANCE PAY OPTIONS Table II.1 illustrates the levels of severance payments military personnel are eligible to receive in fiscal year 1992 under three separation options. The options include: (1) the Voluntary Separation Incentive (VSI) program, which provides an annual payment for twice the number of years of service; (2) the Special separation Incentive (SSB) program, which is a lump-sum payment paid upon separation; and (3) involuntary separation pay. 1. Eligibility for involuntary separation pay requires 6 years minimum service; it is provided in one lump sum. Involuntary separated members are paid based on type of discharge and reason for separation. Honorable discharge at end of active obligated service normally results in full separation pay--as shown above. Examples of persons separating with full involuntary separation pay would include persons exiting under a RIF action and denied reenlistment. Other persons may be involuntarily separated and be eligible for half pay. Examples of persons exiting with half pay includes persons not qualified and barred from reenlisting and persons with physical profiles such as being overweight. Persons involuntarily separated without any separation pay would include those being let go for misconduct and unsatisfactory performance. 2. VSI and SSB eligibility also require 6 years minimum service; VSI payments are made annually for twice the number of years of service. Present value of the total VSI payments would be less than that shown and would vary according to the investment rate of return. An SSB payment is given in one lump sum. APPENDIX III SEPARATION BENEFITS FOR DOD MILITARY PERSONNEL Involuntary Separation With Pay Lump-sum separation pay (payment cent x years of service) Counseling and job-placement services = monthly basic pay x 12 months x 10 per Transition health care (60 to 120 days), plus special provision for pre-existing conditions Commissary and exchange privileges (2 years) Extended use of military family housing (180 days at reasonable cost) Extended use of DOD dependent schools overseas (up to 1 year) Expanded travel and transportation allowances Excess leave (30 days) and permissive temporary duty (10 days) for relocation transition Free furniture storage (1 year) Priority affiliation with Reserve and National Guard Special Separation Benefit Program (SSB) One lump-sum separation payment (payment 15 percent x years of service) Counseling and job placement services = monthly basic pay x 12 months x Transition health care (60 to 120 days), plus special provision for pre-existing conditions Counseling and job placement services Commissary and exchange privileges (2 years) Extended use of military family housing (180 days at reasonable cost) Extended use of DOD dependent schools overseas (up to 1 year) Expanded travel and transportation allowances Excess leave (30 days) and permissive leave (10 days) for relocation transition Priority affiliation with Reserve and National Guard Voluntary Separation Incentive Program (VSI) Annual payments for twice the number of years of service (annual payments monthly basic pay x 12 months x 2.5 percent x years of service) Counseling and job placement services Free furniture storage (6 months) Reason officer personnel APPENDIX IV PROJECTED OFFICER AND ENLISTED LOSSES DURING FISCAL YEARS 1992 AND 1993 = 1. Bracketed numbers, where used in induced voluntary separation programs, indicate numbers not counted in service totals; these numbers are also reflected in other categories, which are additive. 2. The number of losses occurring from involuntary actions and reductions in force will increase or decrease depending on the actual results of the ongoing VS1 and 388 programs. 3. Individual services vary somewhat in the extent to which they indicate losses through "involuntary separation" and "other" categories. The category "other" includes separations for not meeting physical requirements, hardship, death, trainee losses, unsuitability, misconduct, desertion, attrition of active duty reservists (non-Desert Shield/Storm related), miscellaneous adjustments, and others. Both "other" and "involuntary separation without pay" categories appear to be closely related. Sources: Budget justification data submitted to the Congress by the military services in conjunction with their Amended FT 1992/FY 1993 Biennial Budget Estimates and other data provided by the individual military services as of March 23, 1992. Senator GLENN. Fine. Thank you very much. |