Michael Mattock

"The purpose of the project was to identify potential costs or savings of changes to Army reserve component (RC) retirement that align it with that offered to active component (AC) soldiers"--Page iii.

MCRMC engaged the RAND National Defense Research Institute for analytical support during its internal deliberations regarding the form and details of its retirement plan. We based our analysis on the RAND Dynamic Retention Model, a dynamic programming model of individual choice regarding active-component (AC) retention and reserve-component (RC) participation that has been estimated based on longitudinal data and with significant capability to simulate alternative compensation policies. An important criterion of the analysis was whether a reform could sustain the current force size and shape. We found that the MCRMC plan could do so; this was the case by service, for officer and enlisted, for AC and RC. Further, the MCRMC plan would decrease cost. We estimated cost savings in the steady state ranging from $2.3 billion to $7.7 billion per year, depending on the DC plan contribution match rate and the lump sum versus second-career annuity choice, with an intermediate example showing cost savings of $4.3 billion a year. The report also discusses how our estimated savings figures compare with those reported by the MCRMC.

"Office of the Secretary of Defense Cost Assessment and Program Evaluation requested RAND National Defense Research Institute help in developing an efficient means of decreasing force size. The researchers proposed the use of voluntary separation pay (VSP) and showed how it can be designed to meet drawdown goals within a certain time frame without over- or undershooting the goals. RAND's dynamic retention model determined the appropriate VSP levels by year of service to achieve drawdowns of alternative sizes for the active component Army, and the approach could be applied to other services. The analysis was done for enlisted personnel and officers and for the steady state and the transition to it. The analysis suggests that VSPs can draw down the force rapidly without creating a hollow force or bathtub. Implementing VSPs requires an increase in outlays, but net decreases in personnel costs can still be realized even if selected military occupational specialties are cut deeply. The net decrease in personnel cost is less if a VSP is offered for multiple years, if members anticipate that a VSP will be offered in a future year, or if deeper cuts are made to portions of the force versus a shallower across-the-board cut. For a 10-percent cut in the force, net decreases range from 6.4 billion to 7.4 billion in 2013 dollars over the first ten years. The Army would initially require 1.7 billion to 3 billion to implement VSPs for such a cut, depending on how it is done"--Publisher's description.

The U.S. Department of Defense needs the capability to assess alternative policies to enhance the retention of officers. This capability should be founded on empirically based estimates of behavioral response to policy and recognize that, when making decisions, members are forward-looking and take into account future opportunities and uncertainty and the outcomes of past decisions and policies. Further, the capability should enable DoD to simulate or predict the effects of alternative policies on officer retention and the costs of those policies. This report documents efforts to implement such a capability for officers and illustrates its use. The authors statistically estimate the parameters of a dynamic retention model of officer behavior and use the parameter estimates in a simulation model to help evaluate the effect that changes in compensation can have on the retention of officers and to show how policies that change the retention behavior of these officers can also change the aggregate retention of the population of officers at earlier or later years of their careers. The model can also be used to gauge the effect of alternative policies to enhance retention. In addition, the authors have created a spreadsheet version of the model that can provide quick estimates of the effect that bonuses, gate pays, and separation pays can have on retention in all years of service. This report provides the mathematical foundations and the source code for the spreadsheet model. The spreadsheet model is also available on request from the RAND Forces and Resources Policy Center.

"The U.S. Department of Defense (DoD) plans to reduce the size of its civilian workforce through 2021. An important downsizing tool available to personnel managers is the Voluntary Separation Incentive Payment (VSIP), but its cap, $25,000, has not been adjusted since 1993. The authors of this report used RAND's dynamic retention model (DRM) for DoD civilians to compare the cost-effectiveness of alternative approaches to achieving a given downsizing. These include packages of VSIP, voluntary early retirement authority (VERA), and involuntary separation if also needed, versus using involuntary separation alone. Increasing the VSIP cap to $41,000 (the real value of VSIP in 2015 dollars) increases voluntary separations by about 45 percent and, compared with the $25,000 cap, would result in greater net savings to DoD and greater net savings in government outlays over five years. Although the apparent cost savings, as reflected in the budget, are greater when involuntary separations are used, there are off-budget costs, such as workplace turmoil, disruption, and lower morale, associated with involuntary separation. The authors used the DRM to estimate the cost borne by employees who are involuntarily separated in terms of the value of the loss of employment, net of the severance pay they receive. Such costs could potentially hurt retention and workforce productivity among those who remain. Using this broader concept of cost that includes both the cost to the government and the cost borne by employees, VSIP generates more net savings and is more cost-effective at the margin than involuntary separation"--Publisher's web site.