Can savings from military pensions be part of the solution to avoid deeper cuts from defense next month? 
 
 That’s an important question facing House-Senate negotiators as they try to close out a deal this week to avoid another round of sequestration in January and restore some certainty to the appropriations process for the remainder of this Congress. 
 
 Text Size - 
 
 + 
 
 reset Sunday shows in 90 seconds 
 
 The two sides appear close but Democrats are anxious about the level of savings being sought by Republicans from civilian federal workers. Finding some money on the military side of the equation could lessen this burden and make the package more equitable too from a political standpoint. 
 
 (Also on POLITICO: New DOD interim deputy secretary) 
 
 Indeed, the Pentagon has the greatest stake in some agreement and faces a further $21 billion cut in its 2014 budget if nothing is done. There is a greater recognition too –in Congress and among the Joint Chiefs— that it must come to terms with personnel-related costs, which are eating up more and more of what money remains. 
 
 “Forty-four cents of every dollar we spend goes to military personnel,” said House Armed Services Committee Chairman Buck McKeon (R.-Calif.) “You look at Detroit, you look at General Motors, you look at what happens when you build up these costs, but we aren’t doing anything about it in our [defense] bill this year.” 
 
 On the retirement front, President Barack Obama’s 2014 budget opened the door for the GOP by proposing to increase what federal employees contribute to their pensions: adjusting the number upward in three increments from .8 percent of pay to 2 percent. 
 
 When this was last proposed, Congress instead decided to charge newly-hired workers even more. The administration proposal seeks to impose its earlier plan on those hired before 2013. The estimated savings are about $20 billion over the coming decade. 
 
 (Also on POLITICO: Tensions loom in Western Pacific) 
 
 But $20 billion from federal workers –in what’s anticipated to a very modest budget package—can seem out of proportion. And at a time when many of the same employees have seen their pay frozen—and even cut through furloughs over the past year—there is strong resistance from well-connected Democrats, most especially the Maryland delegation. 
 
 The challenge for negotiators is to navigate these waters –and some believe that finding savings from the military side could help. 
 
 The Obama budget partially opened the door here as well. But the president tended to focus more on pharmacy fees and premiums charged for TRICARE just as the president did with more Medicare means-testing. But since Democrats have ruled out big Medicare changes—without some concessions by the GOP on taxes—there is a reluctance to go down the TRICARE road now. 
 
 That brings the focus back to a military pension system that already represents a huge unfunded liability for the government. And unlike the civilian side, it demands no direct pay deductions from active duty military personnel. 
 
 Instead Congress appropriates billions each year to a military personnel line-item knows as “retired pay accrual.” In 2014 this amounts to nearly $16.8 billion for the active duty military –roughly two thirds for enlisted personnel and one third, officers. 
 
 (Also on POLITICO: Improving economy defies D.C.) 
 
 That translates into about $12,334 per individual assuming an end-strength of 1.36 million personnel. Put another way, it’s roughly 32 cents on top of every dollar of base pay. 
 
 Even so, this doesn’t come close to the $50 billion which the Congressional Budget Office estimates is paid out each year to military retirees and their survivors. And since benefits continue to be a function of pay, critics have long argued that some contribution is warranted given the higher salaries of the all-volunteer force. 
 
 (Also on POLITICO: WTO closes $1T trade deal in Bali) 
 
 A second issue is that the system only benefits those who serve 20 years or more, meaning a fraction of those who serve ever benefit. Historically it is far more likely that officers will collect a pension than enlisted personnel. 
 
 The situation is far too complex to be resolved in a short-term budget deal, but if officers alone were asked to contribute 2 percent of their base pay to the retirement system, for example, it could save at least several billion dollars over 10 years. 
 
 A second option included in a recent CBO report calls for lengthening the pay period used to calculate a retiree’s annuity. Right now, this is typically based on the three consecutive years of highest earnings for a civilian; 36 months for the military. 
 
 CBO estimates that if that were changed to five years on the civilian side and 60 months for the military it could trim the combined pension costs by about $5.5 billion over 10 years. The military would share in this: accounting for about $2.1 billion. And it would appear a greater share of the savings would come from officers and higher-ranked civil servants. ||||| By Barbara Starr 
 
 Just days before he leaves office, Defense Secretary Leon Panetta is recommending military pay be limited, effectively decreasing troop salaries next year. 
 
 Panetta will recommend to Congress that military salaries be limited to a 1% increase in 2014. The Pentagon has calculated that the Labor Department's 2014 Employment Cost Index is expected to be above 1% but wants to still cut back on pay because of "budget uncertainties," a department official told CNN. In 2013, a 1.7% increase was approved, based on the index, which has been the basis for military pay for the last several years. 
 
 Three Pentagon officials have confirmed details of the plan to CNN. The Joint Chiefs of Staff have also agreed to Panetta's proposed pay plan. Final approval for the pay would come from Congress in the form of the 2014 budget. 
 
 The recommendation is tied to the Defense Department's 2014 budget recommendation, which was expected to be sent to Congress this month, one of the officials said. But the officials acknowledge it is going to be seen as an effort to push Congress to stop the automatic budget cuts that could go into effect if no deal is reached on spending reductions. 
 
 ALSO: Panetta warns spending cuts will degrade military readiness 
 
 The decision comes as the secretary is stepping up the rhetoric about dire cuts at the Pentagon if sequestration goes into effect. President Obama in 2012 walled off military pay from cuts, so if this current pay plan goes into effect, it's widely seen as "cutting our pay," one military officer familiar with the plan told CNN. "It's a smart move, it puts it in Congress' hands," he said. 
 
 Panetta, in one of his last official speeches as secretary of defense, told an audience at Georgetown University on Wednesday that the Pentagon faced "the most serious readiness crisis in over a decade." 
 
 The defense secretary outlined a series of possible cuts should the Pentagon be forced to find half a trillion dollars more in savings. He warned that 800,000 civilian workers could furloughed for 22 days and that the Army would need to cut back on training and maintenance, putting two-thirds of combat teams at "reduced readiness levels." Pacific naval operations could be cut by as much a third, and Air Force flying hours and weapons maintenance could be cut. 
 
 CNN has also learned that this week, the Navy is expected to announce it does not have the money to pay for refueling and maintenance of the aircraft carrier Abraham Lincoln. That will essentially mean the Navy is short a carrier and overseas deployments will be cut. 
 
 "No good options exist," Panetta said.
– It's long seemed unthinkable, but US military personnel could soon see cuts to their pay and benefits. Top commanders are considering such cuts as they deal with a decreasing budget, the Joint Chiefs of Staff chair said this weekend. While acknowledging that "we can't pay [soldiers] enough," Gen. Martin Dempsey added, "We also have an institution to manage." No specifics have been revealed; details will be released along with the proposed military budget in February, the Wall Street Journal reports. Dempsey did say benefits wouldn't be immediately cut, no changes will be made to the retirement system, and that the plan is a multi-year effort to slow down compensation. Pay and benefits will soon make up 60% of the military budget (currently, the cost of military personnel is about 50% of the budget), meaning that if they're not curbed, there won't be enough money for new weapons or training within the decade, Dempsey said. Defense Secretary Chuck Hagel and President Obama must approve the plan, then Congress, and so far it's not looking too popular with lawmakers. The news comes days after a Congressional Budget Office report that said cutting military pay is one of many options to reduce the budget deficit, Military.com reports.