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Wednesday, May 10, 2006

SOTU Alternatives: MILITARY / RETIREMENT

Originally Posted: January 29, 2006 -- 7:38 PM
Fool Boards Link: http://boards.fool.com/Message.asp?mid=23627924

The second of two follow-ups for strategies for improving the State of the Union.

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I posted a commentary on January 22 reflecting an alternative State Of the Union report.

http://boards.fool.com/Message.asp?mid=23593419 (An Alternative State of The Union Report)

I mentioned I'd follow it up with specific suggestions for improvement rather just whining about the status quo. You can read the first batch of suggestions at

http://boards.fool.com/Message.asp?mid=23626816 (SOTU Alternatives: WAR POWERS)

Here's the next batch covering military support and retirement / pension security.

MILITARY OPERATIONS / SUPPORT

A variety of actions could be taken to address current issues with staffing, equipment, weapons systems and chain of command issues in the military.

Improve pay within the military across the board (deployed, active duty and reservists). -- The 2006 military pay scale increase pay across the board by 3.1 percent. The pay grades available online indicate top pay for enlisted personnel ranges from $1814 (E-5 grade with less than 2 years) to $4022.10 (E-9 grade with over 10 years). That's a range of $21,768 to $48,265 per year. A 2003 supplementary spending bill (part of a $79 billion total) signed by President Bush increase combat pay from $150 to $225 per month and a Family Separation Allowance from $100 to $250 per month and another $100 for hardship duty in Iraq or Kuwait. THINK ABOUT THAT. $575 per month in extra compensation for serving in combat on top of base pay that amounts to chump change given the risks involved and toll on personnel and their families.

This isn't a criticism of Bush per se. This is a damning statement about how we as a country attempt to compensate people who are sacrificing a great deal by being in the military even if a shot never gets fired. Most members of the military aren't in it for the money and no amount of money could compensate them for their service. However, I would sure prefer having more money go to military personnel DIRECTLY than go through a corporation and employees not under the military's Uniform Code of Military Justice and chain of command.

DRASTICALLY curtail use of military contractors in combat. -- Doing so will reduce chain of command and accountability issues within war theatres. Typical daily pay rates for contractors of Blackwater, Halliburton, etc. can range from $350 to $1500 per day ($91,000 to $390,000 yearly for a 5 day week) for security forces, convoy protection. If the risk is great enough to warrant that kind of pay, the area is not stable enough to trust to non-military forces. That money should go to ACTIVE military personnel with current training and logistical support to provide the proper security. This by no means assumes that paying enlisted soldiers $70-90k for combat duty in any way "compensates" them for their service (nothing can really do that...) but it will likely improve our insight into what's happening on the ground (single chain of command), ensure responsibility for actions we take is clear and likely improve retention rates in the volunteer military.

Eliminate Stop-Loss Retention of Personnel -- Stop-loss practices increase the hardship faced by active military forces and their families and make prospective enlistees think long and hard about volunteering. If I sign up for a 5 year hitch and wind up deployed in year 5, I might get stuck serving an extra year or longer. With more work doled out to contractors, the work remaining for active duty forces is growing in "intensity". Given the financial and family sacrifices made by those in the military, we owe them at least the right to walk away when they've completed their hitch. Continued use of stop-loss policies will ultimately harm readiness and morale.

Eliminate the Osprey V-22 and build a reliable replacement for the Chinook. -- The Chinook choppers still in use date from 1964. I'm not sure it's possible to design a helicopter that can withstand the dust of a desert but current troop transport choppers seem to kill too many troops without an enemy shot. The Osprey has been a lemon from Day One and was nearly eliminated by Cheney as Defense Secretary in 1992 before it was revived by the Clinton Administration. It should have been left for dead.


RETIREMENT SECURITY

Government is not responsible for ensuring specific dollar levels of financial security to individuals. Trends indicate Americans are clearly on their own going forward to save for retirement and manage that nest egg on their own. Most new workers acknowledge that responsibility (some happily). As companies move away from defined benefit pensions, they aren't giving that money to employees to invest themselves. The employees are going to have to save from current incoming and become even more watchful of their money. It then becomes government's responsibility to improve the management transparency of these investments by:

Improving protection of remaining pension funds in bankruptcy -- Bankruptcy law should be updated to put non-executive employees at the top of the pecking order for available pension funds. This change would prevent funds in remaining pension plans from being raided or squandered by executives and jeopardizing the retirements of even more employees. The pecking order might be

* retired employees
* employees with more than 20 years service
* remaining non-executive employees
* executives' normal retirement

The exact rules ("20 years service", whatever) can be argued but the aim is to ensure that employees who presumably have entered their "fixed income" years get top priority of remaining dollars, while employees who have a chance to make up for the loss of promised savings feel more of the pinch while executives, who are typically over-compensated anyway come last. If you're an executive making $200-300k per year (or $2-3M per year), you should have a lot more cushion to deal with losing your pension than line employees making $30-70k.

Nullifying all executive deferred compensation plans in the event of bankruptcy -- If senior executives were being paid enough money to sock some away outside 401ks, etc. on a tax deferred basis and the company went bankrupt, those executives clearly didn't deserve the oversized compensation to begin with. What better triggering event to eliminate those obligations than a bankruptcy filing? Any remaining cash in the company should go to creditors and non-executive employees, not towards completing the overpayment of the executives who led the company into bankruptcy.

Preventing pension funds for retired employees from being invested in company stock -- As employees of Enron and WorldCom now know and as most financial advisors will tell you, it is a really BAD idea to invest your 401k money in your own company's stock. You already depend on the company for your salary (and maybe its pension) so adding 401k savings to the list bets your entire financial picture on a single company. However, many companies who DO offer pensions actually invest the pension contributions they make in the company's own stock. When things go well, this boosts the company's stock, allows the company to expand, further improves returns, etc. This may be good for the company but it is bad financial policy for society as a whole if the company suddenly goes bankrupt leaving thousands of retirees with nothing. Companies should be required to gradually begin shifting funds associated with retiree pension benefits to mutual fund type investments rather than leaving those dollars in the company's stock.


WatchingTheHerd

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2006 Military Pay Scale: http://www.dod.mil/dfas/money/milpay/pay/Web%20Pay%20Table%20Version%202006%20-%20updated.pdf

Combat Pay Bonuses: http://usmilitary.about.com/cs/moneymatters/a/combatzone.htm

Contractor Pay in Iraq: http://www.cnn.com/2004/WORLD/meast/04/01/iraq.contractor/