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:

  • “Inflexible[iii]
  • 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.

3 thoughts on “Military Retirement Reform?

  1. My principal concerns with this are twofold:

    (1) This makes it easier for people who have an inclination to “opt out” before things get dicey–either by resigning a commission or not re-enlisting if the possibility of war exists. While you might say “who needs ’em?” the answer is that ultimately, staffing levels are important.

    (2) This provides an incentive for our “best and brightest” to leave early. If we’d had this system in place post-Vietnam, we could have had an early departure of some junior officers named Alexander Haig, Colin Powell, and Norman Schwartzkopf.

    We all know the military takes it on the chin in tough budget times. Personally I served under Carter, with double digit inflation and a 4% cap on military pay raises, telling my sailors they could get food stamps if they stayed in the Navy after their wives had another child. The lack of a ‘carrot’ at the end of the pipeline will cost us people that we will need later on.

    As a final thought–military or not, these people will have long life spans…and somewhere along the line, they are going to have their retirement funded, be it by military pensions, Social Security, Welfare, or corporate retirement plans. Fixing “military retirement” is meaningless without addressing the overall greying of America.

  2. Bob, I too served in the military in late seventies. I can remember buying one my mechanics a decent set of fatigues because he couldn’t afford them so we could get through an IG inspection.
    I was also in the Army during the Reagan buildup when we had more money than we could spend in a responsible manner.
    I don’t think it will have an impact on those you called the “best and brightest;” they will stay if they believe serving their country is worth their time and effort; if on the other hand they believe that serving one tour is a way of serving their nation they will get out.
    You are absolutely correct that you have to address the greying of the United States which means looking at Social Security and Medicare.

  3. Sir,

    I am writing with concern about the new retirement plan for the Armed Forces. I have seen the proposal the “Business Men” have come up with for our armed forces, and don’t see how its better. How is the military like a business at all! I don’t see to many business men working 60+ hours a week, weekends, in chemical protective gear, away from home 6+ months and sick days military cant take a sick day. Lets see how that works when the President calls the military to “GO” and gets the answer they are taking a sick day. They are looking at just the dollar signs and not the blood, sweat and tears (from family and friends most of all) each military member puts into the protection of your country. When was the last time a business man got called in at midnight after getting released from work at 6PM to stand guard after terrorist attacked the country. They also talked how the military has changed and now the skills a military member earns can transfer to the civilian world. Seems funny how they think it changed, we still have all the tanks, boats and planes we have had for years. Very few of our military members work in an office most are in the field on those tanks, boats and planes. When was the last time you saw a tank riding down the road and a naval vessel just out for a sail or even a fighter jet sitting at your local airport. Pretty easy to see we have not changed much, yes technology has but the same job is still there. They need to look at what happened in the early 90’s when they offered and early out and thousands of our best got out. Some just join the military to see what its like and now you want to pay they for their few years in, most major businesses you have to spend at least 10 years in to see any payment in return, now you want to pay for just 4 years. The best of all is with this cut in retirement and the cuts happening in the education and tougher VA regulations you can pretty much kiss your all volunteer force good-bye and start up the draft or mandatory service for all adults 18-25. Don’t forget government will be forcing them to the military and then will pay them for the few years of service. Does that sound like good business smarts to anyone?

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