New retirement changes are coming soon. What's your opinion?

SFC Joe S. Davis Jr., MSM, DSL — Mon, 05 Oct 2015 21:31:13 -0400

In a recent Armytimes Article dated 12 October 2015:

After years of debate and false starts, Congress has finally settled on a plan for a major overhaul of military retirement, a dramatic cultural shift away from the traditional 20-year model to a corporate-style plan designed to better compete with civilian recruiters. Now the question is whether lawmakers can seal the deal. The plan is contained in the fiscal 2016 defense authorization bill, which must survive a White House veto threat over an unrelated budget issue. And outside advocates warn the compromise retirement plan still has problematic points, including a controversial lump sum payout option that is sparking concerns about financial hardship later in life for retirees. The new plan’s details, unveiled by House and Senate negotiators Oct. 1, would for the first time give almost every service member some retirement benefits when they leave the ranks. Instead of retirement payouts only for the one in five service members who stay in uniform for at least 20 years, the new plan would give almost all troops who serve more than two years some benefits upon separation from vested 401(k)-style investments into their Thrift Savings Plan accounts.

However, the level of basic pay awarded under traditional retirement would shrink by about 20 percent. The proposed overhaul comes after years of research and study into modernizing the retirement system and nine months of focused congressional debate over government matches, financial literacy training and potential retention impacts.
Lawmakers have praised the measure as a much-needed tool to allow the military to attract better talent, and as a way to reward tens of thousands of troops who serve honorably but never make it to that daunting 20-year mark. But the measure still must navigate the murky political waters ahead for the annual defense authorization bill, a normally safe piece of legislation that faces a presidential veto over Republicans’ desire to use temporary war funds to get around mandatory defense spending caps — an issue that has nothing to do with the retirement plan. If it survives, the new system would not go into effect until January 2018 and would be mandatory only for newly enlisting troops; those already serving at that time could opt into the new system or stay under the traditional retirement model. Defense officials and military advocacy groups say that for the changes to be successful in coming years, the plan needs to move forward now.

Retirement funds for all

The goal behind the retirement overhaul is simple: Give some level of retirement pay to every service member, not just the roughly one in five who makes it to the current 20-year retirement threshold. “The biggest surprise of this deal is that it’s actually getting done, “said Bill Rausch, political director for Iraq and Afghanistan Veterans of America. “We’ve been having this conversation about getting (retirement) benefits for everyone for at least a decade, and now we’re headed there.” The new “blended” retirement plan would provide an automatic government contribution to every new enlistee’s Thrift Savings Plan equal to 1 percent of their annual military pay. Troops would become fully vested in the plan after just two years of service, giving them a benefit they could take with them upon separation at any time after that point. Congressional negotiators modeled their plan on proposals from the Military Compensation and Retirement Modernization Commission released in February. In addition to the automatic 1 percent government contribution, the government would provide matching contributions of up to 5percent of military pay if troops make personal contributions to their accounts. That means troops could see up to 11 percent of their annual pay flow into their retirement savings every year. Congressional staff said the compounding returns and portable investment accounts make for an attractive recruiting tool that compares favorably too many private-sector offerings.

However, money in these savings plans would not be available without tax penalties before age 59 and a half, a significant departure from the current system that begins payouts immediately upon retirement to troops as young as age 38. Further, lawmakers will reduce the traditional payouts for individuals who serve 20 years by 20 percent to account for the investment contributions. For example, those who serve exactly 20 years under the current system receive 50 percent of their average basic pay rate over their three highest “earning years” in uniform, almost always their last three. That would drop to 40 percent under the new plan. Outside advocates have worried that this will discourage midcareer officers from staying to the 20-year mark and encourage senior troops to leave earlier than they had previously planned. To counter that, the plan includes a “continuation pay” bonus for members who stay beyond 12 years of service, and matching contributions lasting until 26 years of service. Congressional aides said those moves will keep incentives flowing to all but a small percentage of senior service members. Lump-sum concerns Military advocates have largely praised the new retirement plan, with one glaring exception. Capitol Hill negotiators put in their final draft plan an option for lump-sum payouts for troops who stay in for 20 years, a feature originally created to save the government money. Both the Pentagon and military advocate experts have called the lump-sum option a potentially bad deal for troops. “This is payday lending at its worst,” said Norb Ryan, president of the Military Officers Association of America. “It’s such a financial penalty for those who take it ... such a huge risk.” Under the lump-sum option, retirees could receive a one-time check for either 25 percent or 50 percent of their total anticipated retirement payments up until their 60th birthday. The remainder would continue as reduced monthly pension payouts. It’s a tradeoff of thousands of dollars in annual inflation increases in favor of immediate cash, one that Ryan and other advocates warn will be confusing and misleading to many troops. But congressional aides said they believe the option is important to include in the plan, even over Pentagon objections, since some retirees may need a big cash payout to start a small business, pay off college tuition bills, or to pursue other personal financial goals. They also noted that as structured, lump-sum payouts would not completely empty out retirement funds and cut off annuities. And the overhaul plan also calls for new financial literacy training for all service members, at multiple points throughout their careers. Ryan said he questions how effective that training can be in light of current service offerings on financial planning that he called uneven. And he questions whether that training will ever be enough of a safeguard against the temptation to grab that lump-sum. “This is just not the right thing to do,” he said. Support, but uncertainty still, most outside advocates are pleased with the overall plan. Ray Kelley, national legislative service director for the Veterans of Foreign Wars, said the plan “looks like it has more good than bad” and represents an impressive improvement of the military retirement system. If approved, the new system would go into effect Jan. 1, 2018. For individuals who enlist after that date, the new blended retirement system will be their only option. Those who enlisted before Jan. 1, 2006, would be grandfathered under the current system and would not have the option to enroll in the new plan, except in extraordinary circumstances. Those in between — troops with fewer than 12 years of service when the new plan goes into effect will have to choose whether to stay in the traditional 20-years-or-nothing system or enroll in the new investment-style program.

Kelley said the new financial literacy training will be critical for individuals facing those choices, and for young troops unfamiliar with how stock market investments work. His group, MOAA and other outside advocates have promised close oversight of how those programs are developed to ensure troops get the best information. Final hurdles but before that, the new system still has must be approved. Both Defense Secretary Ash Carter and White House officials reiterated threats to veto the annual authorization bill, despite their past support for many individual provisions in the measure, including the retirement overhaul. A defense bill veto could sideline passage of the retirement overhaul until later this year. Armed Services Committee staffers have not unveiled any strategy for reintroducing the authorization bill post veto, but the annual legislation has become law for more than 50 consecutive years, and remains a point of pride in the politically divided
Congress.

A congressional aide noted that the current retirement negotiations dragged on for much of the summer, and a veto and resulting delay could open up opportunities for some of those compromises to be reconsidered, possibly creating even more delays. If the plan is passed this fall, the first enrollees would not be vested for another four years, and the first opportunity for lump-sum payouts would not arrive for another two decades. Rausch said the retirement changes already are long overdue, and advocates want to move ahead with solutions, not continue debate on a starting point.

Response by SFC Everett Oliver made Oct 5 at 2015 9:35 PM

SFC Everett Oliver — Mon, 05 Oct 2015 21:35:59 -0400

Anytime that congress has anything to do with military retirees it ends up costing the retiree....Doesn't matter which party initiates it or which party is in power, It's almost always BS and it's no good for us...

Response by SSgt Private RallyPoint Member made Oct 5 at 2015 9:51 PM

SSgt Private RallyPoint Member — Mon, 05 Oct 2015 21:51:21 -0400

I'm glad that I'm grandfathered in. I don't sense this being good for troops.

Response by LTC Stephen F. made Oct 5 at 2015 10:54 PM

LTC Stephen F. — Mon, 05 Oct 2015 22:54:29 -0400

SFC Joe S. Davis Jr., MSM, DSL, there a few things I like about this "new" retirement proposal and many I don't. The good , the bad and the ugly.
Good
(1) After being vested [2 years] government contributes 1% of salary to the service members 401 style account
(2) The government matching service member contributions for up 5% for the 401 style account
(3) up to 11 percent of their annual pay flow into service member's retirement savings every year.
Bad
(1) no benefits accrue for first 2 years of service
(2) for those who stay in to retirement the current 2.5% per year is reduced to 2% per year of service.
Ugly
(1) Retirement pay begins at 59 and a half for all who do not stay in until retirement
(2) The government invests the funds instead of the service member
(3) expect that final draft plan option for lump-sum payouts for troops who stay in for 20 years will stick versus the current retirement salary which is paid for life with period COL adjustments
4) No mention of survivor benefit program (SBP) for spouses, dependent children, etc.

Response by Sgt Ken Prescott made Oct 5 at 2015 11:05 PM

Sgt Ken Prescott — Mon, 05 Oct 2015 23:05:31 -0400

Well, this will be fun. Let's see what happens to combat accessions under this model. (My bet: they crash to zero, and we end up grabbing every open contract enlistee as an 11B or 0311, and then we stop-loss them until they "retire.")

Response by SPC Nick Lai made Oct 5 at 2015 11:27 PM

SPC Nick Lai — Mon, 05 Oct 2015 23:27:36 -0400

Hope all the service members has a unit to join in.
With all those train conductors, traffic controllers, trash collectors, includes all the cities and states workers contractors are have better pay and benefits then the servicemen and women. I don't get why the congress always pick them for the cuts, can they go on a strike or something.

Response by CPT Private RallyPoint Member made Oct 5 at 2015 11:50 PM

CPT Private RallyPoint Member — Mon, 05 Oct 2015 23:50:50 -0400

yay more mandatory training!

Response by SGM Mikel Dawson made Oct 6 at 2015 1:02 PM

SGM Mikel Dawson — Tue, 06 Oct 2015 13:02:34 -0400

I'm wondering when Congress is going to revamp their retirement plan? The plan we had was good. You knew what you got and what was expected of you. I'm just glad I got my retirement in the bag. Yea, it's only a Reserve retirement, but I knew that when I went in. There was a reason to stay for 20, not they make it iffy.

Response by MAJ Ken Landgren made Oct 6 at 2015 2:21 PM

MAJ Ken Landgren — Tue, 06 Oct 2015 14:21:34 -0400

I see two red flags. They say its better for the SM but it will cost less. The second one is the TSP looks huge but after its growth continues for 20-30 year more years until you reach 68 1/2 or 69, I cant remember.

Response by MSG John McQueen made Oct 6 at 2015 11:17 PM

MSG John McQueen — Tue, 06 Oct 2015 23:17:15 -0400

I retired in 1993. I receive 2 1/2 percent for each year of service (52 1/2 %). The only increases in retirement is if there is a year that COLA is paid. Many states do not tax your retirement but, the Federal Government does. So the Government always takes back a share of your earned retirement. As time passes you end up drawing less and less of your retirement.

I wonder how taxes will affect the SM under the new program?

Remember health care for the rest of your life after retirement. Tricare Standard pays 80% and you must pay 20% or have a supplement insurance ( About $2000.00 a year). NOW, when you turn 65 you must use Medicare and Tricare Standard becomes Tricare for Life which picks up everything Medicare doesn't pay. The provision to receive Tricare for Life you must have Medicare Part A (no cost to you) and Part B (which will cost you $104.00 per month). When you spouse is eligible for Medicare she will also have to pay the $104.00 per month.

To top it all off is if your retirement income is to high based on IRS figures, you will pay Federal Income Taxes on your SSN retirement.

Response by PO1 John Miller made Oct 7 at 2015 9:17 AM

PO1 John Miller — Wed, 07 Oct 2015 09:17:05 -0400

This is a HORRIBLE idea.

Response by CMSgt James Nolan made Oct 7 at 2015 11:07 AM

CMSgt James Nolan — Wed, 07 Oct 2015 11:07:09 -0400

SFC Joe S. Davis Jr., MSM, DSL The general belief is this: Very rarely are financial changes made that truly benefit the troops. The Gov't is looking to save money, it is what it is.

On a bright note, I do think that the 401K type investment is the best thing going for troops, who are disciplined enough as well as financially able to make contributions because of the potential growth (clearly this is not everyone). A trade off of 10% (50% down to 40%) pension, for 5% a year in free money invested. That being said, clearly not everyone will be able to contribute funds, especially at young age when those investments have the largest growth potential. I would be of the opinion that from the ranks of E1-E4 that the 5% should simply be put in by the Gov't. Those are the "workers", and no-brainer, the most needing of finances.

Essentially what is happening is bringing the Military retirement system very close to the Federal retirement system, that is lackluster at best, with the TSP program (401K) being the saving grace...the key being that you have to contribute as much as possible into the 401K.

*Right now today, the retirement system is simple-work 20+ and retire and have pension. Coming soon, you have to make decisions and become involved in your pension. The more involved, the better the retirement. It will not work for everyone, and may have a retention impact.

**I do like the fact that there is a "grand-fathered" area, as well as a "neutral" area. That way people in the current system are given choices. If I were sitting at 12 years, I would think long and fricking hard before I made a decision to change my plan..... 25 years ago, the Federal Pensions changed in the same way: They went from retiring at 85% at 30 yrs to 45% at 30 yrs-pretty significant change....and people who made that change regretted the hell out of that move.

Response by SFC William “Derrell” Chandler made Oct 9 at 2015 5:51 PM

SFC William “Derrell” Chandler — Fri, 09 Oct 2015 17:51:37 -0400

WHY DON'T CONGRESS GIVE THE SAME RETIREMENT THEY RECIEVED TO MILITARY?

Response by SFC Dr. Joseph Finck, BS, MA, DSS made Dec 6 at 2015 12:21 PM

SFC Dr. Joseph Finck, BS, MA, DSS — Sun, 06 Dec 2015 12:21:26 -0500

SFC Joe S. Davis Jr., MSM, DSL While I dislike most of the proposal, especially for career service members, I see the logic. Keep the benefits transportable so transitioning service members are able to take something with them. I would not be in favor of this under any circumstances. For a retiree under this system, seems screwed. one more reason I am glad to be retired, but concerned for our future service members.