Military Personnel:

Reserve Compensation Has Increased Significantly and Is Likely to Rise Further as DOD and VA Prepare for the Implementation of Enhanced Educational Benefits

GAO-09-726R: Published: Jul 6, 2009. Publicly Released: Jul 6, 2009.

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In past reports, we have raised a number of concerns about the effectiveness of DOD's approach to compensation. For example, in our 2005 report on the challenges facing the United States in the 21st century, we emphasized the need for a baseline review of all major federal programs and policies, including military compensation, to ensure that they are efficiently and effectively meeting their objectives, particularly in light of concerns about the affordability and sustainability of federal spending. In 2005 and 2007, we assessed the active duty and reserve compensation systems and found the cost to provide compensation was substantial and rising. We also found that DOD's piecemeal approach to compensation involved increasing or making changes to compensation without completely understanding the impact that these changes might have on recruitment and retention. As DOD increasingly relies on the reserve components to carry out its military operations domestically and abroad, DOD and Congress have taken steps to improve recruitment and retention by increasing compensation. One example involves expanding educational benefits for mobilized reservists. The recently enacted Post 9-11 Veterans Educational Assistance Act (Post 9-11 VEAA), which becomes effective on August 1, 2009, provides active and reserve component servicemembers who qualify for the maximum benefit with a more generous benefit than existing benefits by providing (1) full tuition and fees up to the amount of tuition and fees regularly charged to in-state students at the most expensive public institution in a given reservist's state, (2) a monthly stipend for living expenses, and (3) an annual stipend for books and required educational expenses. In addition, the new Post 9-11 VEAA benefit allows eligible servicemembers to use educational benefits after discharge or release from active duty and authorizes the Secretary of Defense to give the service Secretaries authority to allow qualifying servicemembers to transfer unused educational benefits to spouses and dependents. Section 535 of the National Defense Authorization Act for Fiscal Year 2008 (NDAA 2008) directed the Secretary of Defense, in cooperation with the Secretary of Veterans Affairs, to submit a report to the congressional defense committees and the House and Senate Committees on Veterans Affairs, by September 1, 2008, on the feasibility and merits of transferring the administration of existing educational assistance programs available to reservists--the Montgomery GI Bill-Selected Reserves (GI Bill-SR) and the Reserve Educational Assistance Program (REAP)--from DOD to the Department of Veterans Affairs (VA). The act also required that we assess the report and report to Congress by November 1, 2008. DOD has not met its reporting deadline; however, should DOD submit a report to Congress on the transfer of administration, we will assess it as required by section 535 of the 2008 NDAA. DOD has attributed the delay in meeting its reporting deadline to a need to broaden the scope of its assessment to include the new Post 9-11 VEAA. Both the Senate and House Armed Services Committee expressed interest to us on issues related to reserve compensation, including the Post 9-11 VEAA, and the status of DOD's assessment on the transfer of administration of educational assistance programs from DOD to VA. As agreed with committee offices, this report discusses (1) the trends in total reservists' compensation and the projected cost of the Post 9-11 VEAA and (2) the progress that DOD and VA have made in assessing the merits and feasibility of transferring the administration for existing educational benefits from DOD to VA and the steps taken to prepare for the implementation of the Post 9-11 VEAA.

We estimate that total federal compensation for reservists grew by about 25 percent, from about $18.5 billion in fiscal year 2001 to nearly $23.1 billion in fiscal year 2007 in constant fiscal year 2009 dollars. Per capita compensation for part-time reservists, who comprise about 91 percent of the reserve force, increased nearly 52 percent, from $14,400 in fiscal year 2001 to $22,000 in fiscal year 2007. Per capita compensation for full-time reservists increased about 13 percent, from $107,000 in fiscal year 2001 to $121,000 in fiscal year 2007. Of the three cost areas that comprise compensation--cash, noncash, and deferred--deferred compensation costs, such as retiree health care and pensions, grew the fastest, increasing by nearly 28 percent. Cash compensation costs, such as pay and bonuses, grew by nearly 24 percent, while noncash benefits, such as health care and education, increased by about 21 percent. Further, the growth in reservists' compensation is expected to increase more with the implementation of the Post 9-11 VEAA beginning in August 2009 because it will provide more generous education benefits than existing benefits to qualifying servicemembers and veterans of the armed forces. VA estimates that the net cost of the Post 9-11 VEAA will be nearly $78.1 billion from fiscal years 2009 to 2018, of which $12.3 billion will fund benefits for reservists and their eligible family members. Congress appropriated $746 million more than the VA's fiscal year 2009 budget request to reflect the partial-year cost of the Post 9-11 VEAA. According to a VA official, the Post 9-11 VEAA will require $2.1 billion in obligations in fiscal year 2009. Of the VA requested appropriation, $7.1 billion funds the Post 9-11 VEAA program in fiscal year 2010. As of June 2009, DOD had not completed the congressionally mandated report to Congress on the feasibility and merits of transferring the administration of reserve education benefit programs because it has been preparing to implement the Post 9-11 VEAA benefit by the effective date of August 1, 2009, according to DOD officials. However, DOD and VA officials told us that as part of their initial assessment, they have concluded that little would change should a transfer in administration occur. For example, DOD would continue to retain responsibility for submitting eligibility data to VA and verifying VA's eligibility determinations, and VA would continue to process and execute payments. One issue that may require further consideration is the effect that a transfer of funding control from DOD to VA might have on program costs. If funding control were to be transferred, visibility over the total program costs may be limited because VA currently does not recognize future program costs for its education benefit programs. However, VA officials told us that it could develop this capability if required should a transfer of administration occur. Both agencies have taken a number of steps to prepare for the implementation of the Post 9-11 VEAA. These include developing implementing policy, developing information technology, establishing requirements for transferring benefits, and drafting legislative proposals for technical fixes to the sections of the law related to eligibility of National Guard members responding to a national emergency on behalf of the state and increased benefits for servicemembers with critical skills or specialties in occupations for which there is a critical shortage of personnel. DOD and VA provided oral comments on a draft of this report. Both agencies generally concurred with the findings and conclusions. VA also provided technical comments and we incorporated those changes where appropriate.

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