Author’s note: I have cross posted this entry, it can also be read at OP-FOR.com.
Recently a briefing on reforming the U S Military retirement system by the Defense Business Board is a step in the right direction. While I am a beneficiary of the current retirement system, it has been clear for over twenty years that it was unsustainable.
The current military retirement system was developed in a period when the United States had a small military and the life expediency of a retiree was around a decade after retirement. Since the end of World War II the United States has maintained a large standing military with much larger numbers of individuals qualifying for retirement benefits.[i] In addition in many cases they live for twenty or more years after their retirement from the military. The result is an exponential growth in retried pay and the cost associated with that pay. For the Army today personnel costs are approximately forty percent of their annual budget, retiree costs are a large part of those personnel costs.[ii] Moreover the current system is:
- The current system cliff vests at 20 years of active service.
- Personnel with fewer years of service earn no retirement.
- Only 7% of personnel leave between the 15thand 20thyear of service, compared to 76% of those serving 20 to 25 years.
- Years served is the only factor in the retirement benefit calculation, regardless of whether the Service member’s career risk profile is in an administrative role or a high risk combat role.”
As I see it the proposal by the Defense Budget Board is actuarially sustainable, but more importantly it does the following:
- It is flexible as it offers those who leave the service before eligibility for retirement[iv]
- Provides for rights of survivorship.
- Would be based on the Thrift Saving Plan and would allow service member contributions
- Transportable between civilian and military sectors; this would allow for service members to leave the military, spend time in the civilian sector, and return to the military.
- Contributions are flexible and reward longer service, high risk assignments, and family separation.
- Combat tours would result in greater contributions by the government.
- Would not effect those who are already retired or retired because of disability. For those with less that 20 years –proportional benefit under “old plan” if they stay for 20+ years (example: 10 years of service would result in 10/20 of the old plan benefit at old vesting date or 25% of pay at retirement)
- System would allow individuals to borrow money, to receive an immediate payout at retirement, a deferred annuity at social security retirement age.
- There would be only one system for both Active and Reserve component personnel, unlike today in which there are two distinct retirement systems.
In a few weeks the written report will be released, as they like to say the devil is in the details. This is not a radical departure and it reflects the fiscally constrained environment the nation and the Department of Defense must operate.
As you can imagine the usual suspects of special interest are or will line up against this proposal. AUSA has come out against the proposal, MOAA is taking a wait and see attitude. There have been several pronouncements by various individuals urging the “military coalition” to come out against the proposal.
As a nation we can no longer accept the Status Quo. If there is no solution to the military retired pay the result will be a smaller standing military to pay for those who have already retired.
[i] See Chart 10, which shows the growth of retired pay since 1960. 1960 is about the time that the first cohort of individuals eligible for retirement began to retire after the World War II buildup of the military and the maintaining of a large standing military after World War II.
[ii] “The military retirement system has not materially changed for over 100 years
- The current military retirement system was designed for an era when life spans were shorter,
- Pay was not competitive with civilian pay, and
- Second careers were rare since military skills did not transition easily to the private sector” see page 5 of Defense Business Board briefing.
[iii] Slide 11 Defense Business Board Briefing
[iv] Currently 83% of those serving receive nothing for their time in the military.