The Hidden Costs of Star Creep: Generals Making More in Retirement Than In Service

The cost of our nation's top-heavy military--which now features a historically large proportion of generals and admirals, a trend called Star Creep--doesn't end when these top officers retire. Indeed, top generals and admirals can make even more in retirement than they do on active duty, as USA Today’s Tom Vanden Brook revealed last week.

After the Pentagon lobbied for changing the pension rules at least as early as 2003, Congress passed the 2007 National Defense Authorization Act, which increased retirement pay for general and flag officers. These changes allow retirees with more than 40 years of service to receive pensions greater than their basic pay at the time of retirement. Specifically, 2.5 percent greater per year they serve beyond 40. Previously, generals and admirals’ pensions were capped at 75 percent of their pay.

The cost of these changes is not trivial.

According to the Pentagon’s press office, for the average three-star general or admiral (O-9) that retires from the military, “the annual difference in retired pay between the old and new criteria is about $39,900.” Thus, this revised pension system costs taxpayers an additional $5.8 million per year just for the 146 three-stars that have retired in the last four years.

These additional costs only increase with the rank and years in service of the retiring general or admiral. Thus, four-star generals and admirals (O-10) tend to benefit the most. For every retiring four-star with 38 years of service at retirement (the average amongst the 44 that retired between FY 2007 to FY 2011), the changes in 2007 resulted in an “annual retired pay difference of about $84,600,” according to the Pentagon. This is a jump of 63 percent for such a general or admiral. Thus, these changes result in the 44 four-stars receiving an additional $3,722,400 per year from taxpayers.

We all agree that those serving their country for three or four decades deserve a healthy pension. They sacrifice much and in many cases risk their lives for our country. But it doesn’t make sense to increase retirement pay for just this top clique of military commanders while the active duty force, which also sacrifices much, sometimes everything, is downsized to save money. It also is unlikely to increase retention of senior officers—the stated rationale for the increase in pension—according to a RAND analyst who spoke with USA Today.

Furthermore, in most cases, these three- and four-star officers aren’t retiring; they’re going to work for defense contractors. A Boston Globeanalysis revealed that most retired top brass are “moving into what many in Washington call the ‘rent-a-general’ business.” In fact, “Thirty-four out of 39 three- and four-star generals and admirals who retired in 2007 are now working in defense roles — nearly 90 percent.”

And, this trend has continued since 2007. Just this past week, four-star general and former Vice Chairman of the Joint Chiefs of Staff James Cartwright joined Raytheon’s board of directors, which last year received $14 billion in contracts from the Department of Defense. Raytheon also promptly awarded Cartwright $60,000 in restricted stock.

Pentagon insiders like Cartwright are invaluable to defense contractors like Raytheon, because, according to Raytheon’s CEO, they have a “deep understanding of defense and broad experience in military operations and matters of national security.”

They’re also valuable because defense contractors can charge the government up to nearly $700,000 for the compensation of its employees, and may soon be able to charge up to $750,000.

On top of this, retired officers can become “senior mentors,” serving as hired advisors to their former colleagues. A USA Todayinvestigation in 2010 revealed that senior mentors were being “paid from about $200 to $340 an hour, plus expenses,” in addition to their pensions and private sector pay. Former Secretary of Defense Gates worked to rein in these costs by capping senior mentor pay at Executive Schedule Level II ($179,700 per year), and requiring that senior mentors who serve more than 60 days in a calendar year and earn $119,554 or more to file a public financial disclosure report. Gates also added conflict of interest and “cooling-off” provisions that limited the ability of senior mentors to work as defense contractors simultaneously, or immediately after serving as service mentors. Perhaps unsurprisingly, the Pentagon Inspector General recently found that 98 percent of mentors from the Navy, Marines, and three special combatant commands subsequently left the program—presumably because they didn’t want to disclose their finances and confirm USA Today’s earlier finding that 80 percent of senior mentors had financial ties to defense contractors.

In theory, a retired general or admiral could take advantage of the taxpayer-funded trifecta of the revised pension system, the contractor billable rate for generals who’ve gone through the revolving door, and payment for being a senior mentor (mentors can still earn more than $100,000 without being subject to the cooling-off period or financial disclosure). If such a retired officer took maximum advantage, they could cost taxpayers more than a million dollars per year. Meanwhile, the Pentagon has announced plans to cut lower ranking soldiers and limit their pay.

In the battle over defense cuts, morale matters. Our troops need to know that in this tight fiscal climate they still have our complete support. Former top commanders raking in seven figure salaries from taxpayers while active duty soldiers bear the brunt of the cuts sends the opposite message. The Pentagon must have a top-to-bottom strategy of spending smarter—that means having three- and four-star officers lead by example, not by exacerbating the problem.