Tuesday, March 26, 2013

In defense of the current DoD retirement system


I disagree with all this "fairness" talk.

There has been a lot of talk lately of how "unfair" the DoDs current retirement system is, especially as it pertains to younger Sailors. The Defense Business Board has pushed to get the DoD to move to a 401K style program, in the name of fairness. I say the fairness argument is complete crap.

When it comes to manpower, the DoD, including the Navy, is very different from most companies.

High ranking leaders are created from within. Every Admiral was once an Ensign, and every Master Chief was once a Seaman Recruit. The Navy does not have a system to bring in outside people directly as Admirals or Chiefs. This is very different from the business world, where if you need a CFO, you simply find the talent and offer that person the position (and a lot of money).

The Navy pays a lot for initial accession training. I commissioned and went through the nuclear pipeline. Despite having a bachelors in Electrical Engineering, I spent 15 months in school before seeing the inside of my first submarine, all of which cost the Navy a lot of money. Enlisted personnel are the same way: between boot camp, 'A' school, 'C' school, equipment schools, and all sorts of other required training, the Navy makes a large UP-FRONT investment before getting any work out of a Sailor. Most companies don't do this. They look for people who have already held an internship or gotten a license to perform a skill. After that person works for a while, they'll likely invest in them, but not to the level the Navy does (and they certainly don't have special pays and health care like the Navy does either!).

These facts make the current 20 year retirement system make sense. First, the Navy has to get back the amount of money it pays out for training. If someone leaves after two years, the Navy reaps no benefit, and the taxpayer gets screwed. All the money spent on training is wasted. That's why the Navy is willing to spend $50K a year to get nuclear officers to stay in, when they could make more in the civilian world.

Second, the Navy has to create Admirals and Master Chiefs to run the place, and thus they need to keep talent in long enough to get people to that rank. An Admiral needs all sorts of skills, and these can only be learned by doing certain jobs, which takes around 23 years. That person can easily make more money in the civilian world. If you think of an O-6 Commanding Officer as a CEO running a small company, he makes approximately $120K, which sounds like a lot until you see that the average CEO makes somewhere between $500K-$900K a year, working the same hours.

The initial jobs for junior enlisted and junior officers are comparable to sweeping a shop floor: not fun, and it seems like it doesn't make a difference. After their initial tour (approximately 5 years) is up, the Navy has invested a lot of money into a Sailor, who may then decide to walk. How is this fair to the Navy? The taxpayer supplies all this money for training and education, and ends up with a barely qualified journeyman who can now leave. Of course junior personnel want an end to the 20 year retirement system! They stand to reap benefits on both sides: they get all the training money the Navy shells out, and then they get to walk and take a 401K nest egg with them.

That's why there are big bonuses for junior personnel to try and keep them in. Then, once they get to the 10 year mark, there is that monetary incentive to finish 20 years and get a retirement. It helps overcome the pain imposed by a job that requires deployments, long times away from family and friends, ugly working conditions, and occasionally getting shot at by angry foreigners. The Navy's incentive model is designed to overcome the problems it has with recruiting talent.

Instead of changing the retirement model, how about changing the promotion model?

- Actively screen officers earlier. Not everyone is a good LT. The Navy doesn't force any officers to leave (short of them getting a DUI) until they are reviewed for LCDR, somewhere around their 8-9 year point in the Navy. Sadly, in many cases we have a 90% selection rate. Do we really think that 90% of our officers are just that good? Taking a more active review of LTs at their 6 year mark would be a way to drop some of our poor performers early, and prevent them from simply hanging on to make LCDR and 20 years. Even if we only removed the bottom 5%, that's still a lot of folks, and helps keep our officer corp healthy.

- Remove a lot of the waste. We have too many officers in lame jobs that don't require their skills. Starbucks doesn't need engineering majors to serve coffee (that's what Art History majors are for), and the Navy doesn't need officers to perform tasks that are beneath their paygrade. The taxpayer gets his or her money's worth when officers are well employed, and the Navy has real performance to evaluate (seriously, can you fail as the Voting Assistance Officer onboard a surface combatant?)

Changing the 20 year retirement system to something like a 401K would only be fair if we completely overhauled how the Navy does manning in general.