Here it is... so, what are your concerns on the new military retirement system proposal?

2015-06-11T11:00:06-04:00

This is just an update from the ongoing discussions on military retirement reform.

it looks like our leadership in the Pentagon are OK with this new plan - but of course they are not voting for their own plan...

This is slated to take effect in 2018, so those currently in and not retired, will have some "grandfathered" time to decide which way to proceed. This is a summary (from the article):

The military's recommendations include:

1. Shrinking the size of the current pension by 20 percent

2. Automatically creating TSP accounts for all troops and beginning government contributions equal to 1 percent of basic pay.

3. Automatically setting troops' voluntary personal contributions to the TSP at 3 percent of basic pay.

4. Allowing troops to opt out of that 3 percent voluntary contribution of basic pay only after completing financial literacy training at their first duty station.

5. Allowing the TSP to "vest" and be legally transferred to individual service members after two years of service.

6. Beginning the government's dollar-for-dollar match of individual troops' out-of-pocket TSP contributions, up to 5 percent of basic pay, after individual troops complete four years of service.

7. Allowing the individual military services to offer "continuation pay" to boost retention in specific career fields for troops with between eight and 16 years of service.

8. Allowing government contributions to TPS accounts to continue for the duration of service. (Initial proposals called for stopping those payments after 20 years of service.)

Last I love this equivocal comment...

"The Defense Department projects it will have to pay out matching TSP contributions equal to about 4 percent of total basic pay, but that will depend on the decisions made by millions of service members.

"The likelihood is that it will save us money, but we can't really forecast with great accuracy how much because of the labor market variable, because of the opt-in rates in the short run," Junor said.

"We are reasonably sure that it is not going to be an additional bill to the department."

http://www.militarytimes.com/story/military/benefits/retirement/2015/06/10/dod-retirement-plan-details-approved/71011882/

New military retirement system gets Pentagon OK

After months of official silence, the Defense Department on Wednesday sent to Capitol Hill its formal recommendation for transforming military

Response by LTC Stephen F. made Jun 11 at 2015 11:34 AM

2015-06-11T11:34:57-04:00

@COL Charles Williams. I share your tempered hope in this process and skepticism.
Well for those who put implicit trust in the federal government to honor what their predecessors enacted as law this probably seems very good.
I certainly like the voluntary contributions and matching funds if the service member is fully vested in a reasonable amount of time and can keep the funds when they exit the service with the option of transferring the funds into some other individually owned retirement account without a tax bite.
AS far as Congress changing law which impacts separation and retirement here is an example from an earlier reduction in force [RIF].
FYI, as far as I know during the 1992 RIF following Desert Storm, I was the only infantry captain who did not take advantage of one of the buyout programs in 1992 and was forced out after two time non-select to Major. Everybody who participated in the voluntary buy out programs (VSI) annuity and a lump sum and opted to stay in the military was required to pay back all of the funds upon retirement [law passed in mid 1990's requires disbursed funds and taxes taken out to be paid back]. I was forced out and opted to get a USAR commission and was forced out at the end of 30 years service. The Federal government initially took all of my VA disability income and used it to pay back the involuntary separation pay I received and the taxes I paid. Thanks to the intervention of a Congressman they are only taking the equivalent of 10% VA disability each month. They could not wait until I began drawing my retired pay currently scheduled for October 2016 - unless Congress backdates mobilization credit towards retirement from 2008 back to 9/11/2001.

Response by MAJ Robert (Bob) Petrarca made Jun 11 at 2015 1:14 PM

2015-06-11T13:14:09-04:00

I guess I'm glad I'm retired. A bit too structured for me, plus I think they need to look at what large companies are doing because this doesn't seem compatible. I also don't think they are targeting correctly. You would want your younger troops investing as much as possible and instead it seems prohibitive, 4 years before you can get 5%?

"continuation pay" more for one less for another?

The military teaching financial literacy - just when you thought you'd seen every oxymoron possible.

Response by MAJ Ken Landgren made Jun 11 at 2015 1:26 PM

2015-06-11T13:26:02-04:00

1. You can't withdraw from the 401K until 59.5 years of age. 2. Those who are going to reach that age should have put that money in safe investments a few years ago to preserve capital. 3. Troops need to know the risk relationship relative to time and investment vehicle in order to pick the appropriate investment.

Response by CPT Private RallyPoint Member made Jun 11 at 2015 1:37 PM

2015-06-11T13:37:11-04:00

Assuming current soldiers are grandfathered in with the old pension plans (or offered a choice), and it's not a tale of broken promises, looks good to me. It's a good deal, it reflects what a professional civilian career would offer easily at age 60 or so, it's portable for after your service is done, it's vested for service members that don't make it to the magical 'all or nothing' 20 year mark, etc. In short, gives more choices and independence rather than relying on government to carry us cradle to grave.

Hopefully will see more soldiers staying in for mid term careers (think 8-16 years) instead of just single term enlistment/obligation of service then bailing, or someone disgruntled and bitter at 19 years in just hanging around an extra 300 days to claim their retirement pension. Make it easier to remove problem soldiers that are degrading the unit as well, since you won't be damaging their pension...they should be able to just take their earnings like a 401(K) and roll it over elsewhere.

Having done military, financial services, and government contracting/private sector in my career; my opinion is that giving soldiers flexibility, narrowing the divide between military and civilian career fields, and teaching a little *gasp* fiscal responsibility and literacy would all be beneficial.

I know the dream of doing 20 years, retiring at 40 then never having to work again is held by many, but it's not sustainable as life expectancy increases and population/economic growth slows. Between tax-free allowances and medical coverage taking up the chunk of expenses, saving 5-10% of base pay for 20 years would build a substantial nest egg by retirement age, and make it easy for the soldier to roll into a follow on career with no real changes to their retirement planning/financial plans.

Anyway, take it for what it's worth...let's see how many people get mad and angrily disagree!

Response by MSgt James Mullis made Jun 11 at 2015 1:38 PM

2015-06-11T13:38:52-04:00

My take on proposed new retirement system is that it will:
1. Be a net wash for officer accession and retention.
2. Be somewhat good for short term enlistment (4 to 8 years).
3. Dramatically harm long term/career enlisted retention (9 to 20+). Note: The current bad economy will turn around eventually and if at year 8 or year 16 you can take your retirement fund, education, and experience and run, I think that many of the best will.
4. Require modification the next time we fail to meet enlistment and retention requirements, which will lead to either 5 or 6.
5. Cost more money than if they kept the current system unchanged.
6. Force the need for a draft or ongoing/long term stop-loss in the future.

Response by Cpl Jeff N. made Jun 11 at 2015 1:41 PM

2015-06-11T13:41:53-04:00

In addition to hours of SHARP training I can see hours of FART training (financial analysis and related topics) in everyone's future.

I can tell you that most 18-25 year olds in the military will want to opt out of it as soon as they can for a myriad of reasons. If you do not start early (at these modest amounts and base salaries) you have little chance of securing a decent retirement.

The other thing to watch is the ability to change the program investment tools (funds and fund fees etc), the match percent and other items. Companies moved from pension programs to 401k programs, now the are reducing the matches, the funds available to use, the fees creep up etc. It is not a one and done thing I am sure.

Response by SGT Private RallyPoint Member made Jun 11 at 2015 2:09 PM

2015-06-11T14:09:26-04:00

COL Charles Williams, I read the entire article. The 20% cut doesn't sound very good to me. When I was working, if I had to take a 20% cut in pay, we couldn't have made it. Most people try to live within their means, but, a lot live above their means. It sounds like to me the savings plan is similar to a 401K plan. The matching of the contributions, is a plus, but receiving only 1% of a 3% contribution isn't much of a selling point to me. I'd worry that the young troops would take money out before it gained much interest, because they don't make enough with today's cost of living. The pay is a problem right now and the troops are having to get part time jobs, from what I understand.