Panel will propose new military retirement system

AirForce Times — Wed, 28 Jan 2015 09:35:05 -0500

From: Air Force Times

The long-awaited report on military compensation set to drop Thursday will propose fundamental changes to military retirement and health care benefits, according to several people familiar with the report.

The Military Compensation and Retirement Modernization Commission will propose detailed legislation to phase out the current 20-year cliff-vesting pension payable immediately upon leaving service, according to people who have been briefed on the report but requested anonymity before discussing its recommendations.

The plan calls for Congress to create a hybrid system that includes a smaller defined-benefit pension along with more cash-based benefits and lump-sum payments. A significant portion of troops' retirement benefits would come in the form of government contributions to 401(k)-style investment accounts, those familiar with the report told Military Times.

Specifically, the proposal calls for automatically enrolling each service member in the federal government's Thrift Savings Plan, or TSP, an investment account that accrues savings. Individual troops will be responsible for managing their accounts, and the money is typically not available for withdrawal without penalty until age 59.5.

The government contributions likely would be a percentage of basic pay and could vary depending on years of service and/or deployment status. Full ownership of the TSP account would come only after troops have completed several years of service.

By allowing many troops to keep their TSP government contributions after separation, the new proposal would give limited retirement benefits to the vast majority who leave the military before hitting the traditional retirement milestone of 20 years of service, most of them enlisted members who do four, six or eight years, then leave.

That's a big potential change from a system that now offers retirement benefits to about only 17 percent of the force — many of them officers — who serve 20 years.

Any change to military retirement would require Congress to pass changes in law.

A grandfather clause would shield today's service members from any retirement changes; a new retirement system would apply only to future recruits.

However, the commission is proposing some changes in health care benefits that could affect troops now on active duty.

Many experts say Congress is unlikely to summon the political will to take action on the controversial issue of military compensation. Nevertheless, the report is likely to trigger a new battle in that arena.

Congress created the commission two years ago as pressure mounted on the Pentagon to cut costs after defense spending peaked in 2010. Top military officials increasingly make the argument that the current military compensation system is unsustainable, and personnel costs, if not reined in, will threaten the military's ability to pay for weapons modernization and high-tech research.

A spokesman for the commission, Jamie Graybeal, declined to discuss the details of the new proposal prior to Thursday's official release.

In addition to the 401(k)-style benefits for troops serving fewer than 20 years, the commission will suggest promising a defined-benefit pension to troops who serve a long-term career. That pension would be more modest than the one military retirees receive today, according to one defense official briefed on the plan.

Unlike the current system, this pension would not begin paying out immediately after individuals leave service; instead, those payment checks would begin at a more traditional retirement age, such as 60 or older, according to the official.

The commission's recommendations are based in part on an extensive survey of thousands of active-duty troops conducted last year to identify which types of compensation troops most prefer.

The commission will unveil a proposal to fundamentally change how health care benefits are provided to military families and retirees: Those now served by Tricare could move into the health care coverage provided to federal employees, according to several people familiar with the report.

The proposal calls for a new health care allowance for troops that would be designed to cover some expenses, such as doctor-visit co-pays and eyeglasses.

The plan also calls for the Pentagon to create a new four-star medical command to oversee the Pentagon's sprawling health care system. Consolidation of the military system has been discussed for many years and would mark a significant break from the tradition of allowing each individual service to operate its own health care command.

Sources said the commission also will recommend keeping intact current commissary benefits, to include continuing to sell products at cost plus 5 percent surcharge. That runs counter to a separate DoD budget proposal that is expected to call for increasing prices to fully cover the costs of operating commissaries.

The commission also is expected to recommend consolidating the commissary and exchange systems. Initially, they would keep their separate branding — Navy Exchange, Defense Commissary Agency, etc. — but eventually would be combined.

Another morale, welfare and recreation aspect of the commission plan reportedly will call for building more brick-and-mortar child development centers on military bases, subject to the base commanders' discretion. Military families have long complained of a lack of sufficient child care on many military installations.

Still unknown is how heavy the commission's impact may be. Many experts say real change is unlikely in part because the commission's proposals will not get fast-tracked to an up-or-down vote but will instead move through Congress' normal arcane procedures.

Yet some veterans' advocates say Congress may be spurred to action by several factors, including budget pressures created by the across-the-board spending cuts known as sequestration. And it may prove easier politically to tackle this sensitive topic now that far fewer troops are deployed in combat zones overseas than just a few years ago.

"You have this appetite for change just as long as it saves money. This has created this opportunity, if you could call it that, to give something like this ... little scrutiny and quick implementation," said Mike Hayden, the director of government relations for the Military Officer Association of America, which opposes curtailing military benefits.

One criticism that will swiftly emerge is that moving troops' retirement into individual investment accounts will saddle them with new responsibilities for managing money, with many lacking the requisite skills.

"They are going to have to have a certain amount of financial literacy, which is hard to achieve. Maybe some people will say that is unfair," said one defense official familiar with the plan.

Inside the Pentagon, some top officials say the vigorous debate about compensation should be expanded to include the entire military personnel system.

Vice Adm. William Moran, chief of naval personnel, worries that the "closed loop" system in today's military is inefficient compared to corporate America.

"We know our recruiting, training, and career management systems have not evolved anywhere near the pace of change in the civilian market," Moran wrote last year in an op-ed published in The Hill newspaper.

Moran pointed to laws that govern military promotions based on time served in paygrades and suggested that today's force is losing some of its best and brightest future leaders because the youngest service members are frustrated with stovepiped career fields and inflexible career tracks.

"They watch their corporate peers rising past others based on merit, not merely when they joined the firm. Or they see opportunities to master a profession without worrying about an 'up or out' system which assumes everyone must be groomed for the highest possible rank," Moran wrote.

"They wonder why they can't do the same, in service to their country."

The commission's report is hardly the first proposed overhaul of the military retirement system.

In 2011, the Defense Business Board, a Pentagon advisory group, published a detailed proposal that would have replaced monthly pension checks with 401(k)-style investment accounts. That suggested the government contributions should be at least 16.5 percent of basic pay, with higher rates for deployed service members or high-demand career fields.

That plan went nowhere after it was criticized by service members, disavowed by the Pentagon leadership and landed with a thud on Capitol Hill.

Last March, the Pentagon's personnel and readiness office broke its long silence on the topic and offered several detailed and complex alternatives to the current system: hybrid options that included both a TSP with government contributions as well as the promise of smaller, partial pension checks before traditional retirement age.

That plan also included some lump-sum payments for troops staying at least 20 years, offering a "transition pay" equal to as much as three years' basic pay.

http://www.airforcetimes.com/story/military/benefits/2015/01/27/panel-will-propose-new-military-retirement-system/22400003/

Response by SFC Vernon McNabb made Jan 28 at 2015 9:53 AM

SFC Vernon McNabb — Wed, 28 Jan 2015 09:53:10 -0500

I think the benefits portion is crap! I retire in a couple of years, and I had always planned on my retirement check to plus up my income from whatever career I choose next. I sincerely hope I don't have to wait another 20 years before I can collect what I have already earned.

Response by Capt Richard I P. made Jan 28 at 2015 9:54 AM

Capt Richard I P. — Wed, 28 Jan 2015 09:54:45 -0500

I don't think anyone is really shocked by this possibility.

Response by SGT Jim Z. made Jan 28 at 2015 10:36 AM

SGT Jim Z. — Wed, 28 Jan 2015 10:36:13 -0500

Although I did not retire I think this is loaded bag of smelly and burning manure. Retirees already know for the most part they will need a second career because of high cost of living and such but to make them wait is not cool at all, if they wanted that they would have joined the Guard or Reserves. To offer a lump sum payment which I am sure will be taxed at 42% is garbage as well.

Response by COL Jason Smallfield, PMP, CFM, CM made Jan 28 at 2015 10:44 AM

COL Jason Smallfield, PMP, CFM, CM — Wed, 28 Jan 2015 10:44:11 -0500

- The grandfather clause is essential to ensure people already serving do not have the "rules of the game" changed while in the middle of the game.
- "a hybrid system that includes a smaller defined-benefit pension along with more cash-based benefits and lump-sum payments." Make no mistake, this change is not for the benefit of the individual but for the benefit of the government. Cash based benefits and lump sum payments are less expensive for the government and have less long term value for the individual.
- "only 17 percent of the force — many of them officers — who serve 20 years". I would like to see actual numbers and not just handwaves. What does 17% mean? What does "many of them officers mean"?
- "Unlike the current system, this pension would not begin paying out immediately after individuals leave service; instead, those payment checks would begin at a more traditional retirement age, such as 60 or older". See comment 2 above. I do not know the dollar impact but common sense says no payments from age 38-42 to 60 (18-22 years) is a significant negative impact for the individual.
- I will reserve judgment until I am able to read the actual report itself but the above bullets do not fill me with confidence for the positive benefit on future Soldiers.

Response by CPT Zachary Brooks made Jan 28 at 2015 10:52 AM

CPT Zachary Brooks — Wed, 28 Jan 2015 10:52:29 -0500

A grandfather clause would shield today's service members from any retirement changes; a new retirement system would apply only to future recruits.

- This is a good thing, you cannot change the established contractual benefits for current service members without risking scaring away new recruits. I know I would be thinking "Well how are they going to take away stuff from me in the future?"

However, the commission is proposing some changes in health care benefits that could affect troops now on active duty.

- Again, the point above. This is not an acceptable change, especially if it moves towards the rumored Affordable Care Act plans for the military. That would just be another way to support a failed program and make it look successful.

The retirement system is a bit broken and needs fixed, as long as they do not screw over those currently serving, especially those close to retirement, I think this can be tolerated. Why can we not start reducing the budget by closing foreign bases and stopping crony contracts for unneeded things first? When can the services stop wasting $800 on wrenches?

Response by SGT Larry "Teruji" Sakai made Jan 28 at 2015 10:54 AM

SGT Larry "Teruji" Sakai — Wed, 28 Jan 2015 10:54:17 -0500

They need to work on Veterans health care benefits as well

Response by Maj Chris Nelson made Jan 28 at 2015 11:07 AM

Maj Chris Nelson — Wed, 28 Jan 2015 11:07:27 -0500

So, I see some pros and cons with this....thankfully, they are also talking about grandfathering in all current military members and changes for retirement pay would only pertain to future members. The medical benefits are what could change effective "immediately" depending on when they initiate it. This will also have great impact, but it isn't looked at as closely by most people (until it impacts you)....pay impacts now and is visible in the checkbook...medical impacts also, but is less visible in most cases.

Response by COL Jason Smallfield, PMP, CFM, CM made Jan 28 at 2015 11:13 AM

COL Jason Smallfield, PMP, CFM, CM — Wed, 28 Jan 2015 11:13:47 -0500

Some quick data points:
- US population is about 330 million.
- DoD military personnel (all services, all components) are less than 1% of the US population. ie Less than 3.3 million.
- The US debt is about $18 trillion.
- The annual US expeditures is about $3 trillion.
- About 50% of US citizens pay no federal taxes at all.
- Any solution to the US debt problem will have to include a combination of taxes (left side of equation) and expenditures (right side of the equation).
- Not sure that it is morally or ethically right to:
1. Have DoD take the majority hit for sequestration when it is entitlement programs that are a majority of the budget.
2. Have current and former service members take a large hit (via this report) on retirement and benefits when we are less than 1% of the population and we, almost by definition, pay federal taxes.
3. Military benefits are earned, not given. Say what you want about Social Security but essentially SS is the government taking our money, giving it to others, giving us a crap return on our investment, and then taking money from others when it is our turn to receive benefits. It is a legalized ponzi scheme at best and merely giving us our money back to us years later at worst.

Response by Sgt Aaron Kennedy, MS made Jan 28 at 2015 11:39 AM

Sgt Aaron Kennedy, MS — Wed, 28 Jan 2015 11:39:22 -0500

I'm going to approach this from another angle.

Working "big to small," is Military Retirement & Benefits on the Top 10 of budgetary problems?

Is it an actual reason for us not to Accomplish the Mission? As in, have we ever ran out of cruise missiles because we had to pay for retirees medical expenses or commissary privileges?

That said, I don't have hard evidence, but seeing as how Congress (Specifically the House of Reps) is who MAKES money I find this unlikely.

So, what we have is not a budgetary argument, but a philosophical argument disguised as a budgetary argument. "Blind them with brilliance, or baffle them with Bullsh#$"

Please note, the below statements are rhetoric which I do not personally believe but I think Congress has somehow gotten into their heads.

- Does the retirement system need an overhaul because it is outdated?

- Because it is no longer directly comparable to what is available in the civilian sector?

- Is one type of "government employee" entitled to a lifetime pension after 20 years (at the age of 38), when the average American has to work to 60+ (67 to draw Social Security).

Again, I don't believe any of the above. But I think this is where they may be trying to go with it.

Response by CPO John Sheuring made Jan 28 at 2015 11:46 AM

CPO John Sheuring — Wed, 28 Jan 2015 11:46:14 -0500

You know, as I read this I thought of what I say to my students at college. Read the article once, then read it again and read between the lines. And what I "read" in this article is a concern for current retirees and for future retirees. Why is it when they scream for cuts in the military many service personnel think "wonder what I will lose". Or for many of us who are retirees and we read articles as such, we think, "Now where have I heard this before......then add colorful metaphors"?
I remember a conversation with a colleague this morning and he said something to me. it truly is all about the money. How much will the military person have to lose because no one in DC wants to cut pork? And yet, military personnel never ask if, they just ask where you want me to go; over and over again. I am really worried that within the next 10 years, retirees and those in service will have to face reduction in some form of benefits including money because it is so easy for those who are not in the military to take away from all of veterans and those serving active service.

Response by MAJ Private RallyPoint Member made Jan 28 at 2015 11:54 AM

MAJ Private RallyPoint Member — Wed, 28 Jan 2015 11:54:36 -0500

IRAs are all good and wonderful in the civilian world because high-end talent is allowed stock options and the like along with their personal and company contribution to their retirement plans. However, this isn't a luxury that service members will be allowed to have. On top of this, they make less than their civilian counterparts.

A hospital president will make far more than his counterpart in uniform, usually a COL or BG. The current system has allowed those in the civil service to take pay hits now for a generous and guaranteed package at the end of a career. Changing that will impact quality talent management. Perhaps not at the junior ranks, but definitely at the higher echelons of our military.

Response by PO1 John Y. made Jan 28 at 2015 12:13 PM

PO1 John Y. — Wed, 28 Jan 2015 12:13:10 -0500

Thank God, this doesn't completely affect me. (Rhetorical question) Why isn't Congress looking at their "retirement" plan, benefits, and pay?!

Response by SMSgt Private RallyPoint Member made Jan 28 at 2015 2:16 PM

SMSgt Private RallyPoint Member — Wed, 28 Jan 2015 14:16:54 -0500

This should be a very interesting read.

Again if you are not a member of an organization that lobby's for your benefits please join one like AFSA. Our lobbyist gain more credibility to fight for you the bigger their membership base is. Each member is important and so are the benefits they earned.
Would not at all be surprised if the next big overhaul is Tricare, my guess is our families will soon be paying co-pays!

Response by SFC Jeff Gurchinoff made Jan 28 at 2015 2:20 PM

SFC Jeff Gurchinoff — Wed, 28 Jan 2015 14:20:10 -0500

Two things are at work here. 1; As long as Military spending is in the Federal Government's discretionary wallet which is rapidly being dwarfed by Mandatory spending (which by the way - most of is not even close to mandatory) your "plans" will be in jeopardy and 2; As long as the Government controls Military retirement pay increases as separately distinguishable from other federal retirement programs and Social Security increases. They can effectively flat-line your payments and make your pay insignificant with heightened cost of living (Which if you look at any retirement calculator paints a very rosy picture to look forward to) That rosy picture is what was sold to the American Serviceman/woman for their sacrifices. I do not think it matters what year you retired, your rose is wilting and will continue to do so until the petals fall off.

Response by TSgt Steven Summerlin made Jan 28 at 2015 4:56 PM

TSgt Steven Summerlin — Wed, 28 Jan 2015 16:56:45 -0500

This is a terrible idea and here is why. Consider the new service member who goes on his/her first mission in a combat zone. The vehicle they are driving hits an IED. The result is loss of limbs, vision or significant head trauma that will result ultimately in a Medical retirement. This individual has no real value built in a contribution match system, or a TSP type program. Yes, they will likely get a monthly stipend from the VA, but should also be receiving concurrent pay from a military pension. Not a watered down version of a pension, but full benefits along with the commitment to provide the appropriate medical care at no charge. The comparison to corporate 401k plans is laughable. The majority of them have a vesting period before the company match money sticks. This is normally 5 years or longer, depending on the match rates. Otherwise, if you leave or are terminated in some other way, all you have is what you put into the account. If a service member wants to participate in a retirement saving plan, it needs to be voluntary, not compulsory.

Response by SPC John Decker made Jan 28 at 2015 6:10 PM

SPC John Decker — Wed, 28 Jan 2015 18:10:00 -0500

Before I weigh in, just one question. Is there an active duty and/or retired SM on this commission?

Response by MSgt Chris Adams made Jan 28 at 2015 7:09 PM

MSgt Chris Adams — Wed, 28 Jan 2015 19:09:28 -0500

1) This style of program forces retirees to "go get a job and quit being burden on the budget"
Hmmm, feels like we're being compared to a welfare recipient.

2) With the "get a job" mentality, folks like myself who have used this period to finish their degrees with the GI Bill or other means, now have to work harder to find time for school. Makes you feel a little stepped on when everyone values military service but taper their enthusiasm if you have not finished your degree.

I agree with COL Jason Smallfield, PMP, CFM, CM and will hold final judgement, but just reacting to the article, those were the first few things that came to mind.

Response by Capt Private RallyPoint Member made Jan 28 at 2015 9:38 PM

Capt Private RallyPoint Member — Wed, 28 Jan 2015 21:38:58 -0500

I understand this was a 2 year study done by smarter people than me but I can't understand how this will not shoot our recruitment and retention numbers. Because you can receive pension right after retirement it gives you an incentive to join right away. On top of that you get experience while in the military and then you can go to another job at mid life. Well without that immediate pension I don't feel the need to join right away. So maybe I go to a civilian job after high school or college. Do well there and get job experience. Can I transition over to the military? No not unless I start at the bottom. No "lateral movement" is allowed. At 40 years old I'm not going to take SrA pay. I won't even take 2lt pay. Not to mention that old men aren't going to be able to fight wars as effectively. I really want to see their numbers and models. I can see this hollowing out our force. With a lot of young guys joining for education and separating and then at the top you have a few guys staying in as long as possible so as to avoid that period of not getting retirement for as much as possible.

Response by LTC Jason Mackay made Jan 28 at 2015 10:21 PM

LTC Jason Mackay — Wed, 28 Jan 2015 22:21:55 -0500

Four data points missed by the never-served masses:
1. The current retirement, is not really "retirement". When I depart active duty I will not be sitting on the porch in a rocker recalling when Moxie cost a nickel. I will be entering the workforce in my mid forties and a family. The retirement is an economic offset between what I was making and what "entry level" is. This is especially important for the NCOs who are truly starting over. The Army pays $11B in unemployment compensation, yes with a b, each year. It will only get worse under the proposed system. OBTW, you don't always find a job before your terminal leave ends!
2. Retirees are subject to recall to active duty until the day they put you in the ground. Your "retirement" is actually a retainer.
3. A 401 K driven system works for clock punchers. The current system is designed to retain talent that must be grown in house and can not be hired in later, contracted out, or other wise procured. You have to have people who stick around for 20 to get to their ultimate potential and make the contributions needed at that level. There is no combat arms Credentialing/degree program to poach people from Raytheon and Walmart to have Infantry BN Commanders and CSMs.
4. Retirees have sacrificed economically over the 20 year period. Those missed opportunities, can not be recovered, nor accurately accounted for. Home ownership. Lost equity. Short sales. Education detours. Purging a household every two years (batteries, spices, furniture etc). This does not cover family sacrifices and educational detours. We stick with it for the 20 year prize.

I would advocate cost analysis for 15 year retirements to retain talent at mid level, that can then be separated without drama and fanfare. I suspect many would take this in order to re enter the work force at a younger, more marketable age. While it is illegal to age discriminate, burden is on you to prove it.

Response by LTC Jason Mackay made Jan 28 at 2015 10:47 PM

LTC Jason Mackay — Wed, 28 Jan 2015 22:47:05 -0500

How are we going to stand up a Medical 4-Star Command (essentially another Combatant Command like CENTCOM ) when we are shrinking the force? I honestly need someone to show me how that makes the system more efficient.

Response by MSG Brad Sand made Jan 29 at 2015 5:40 PM

MSG Brad Sand — Thu, 29 Jan 2015 17:40:22 -0500

But I thought the government said we were not smart enough to manage our own retirement plans?

Response by MSG Brad Sand made Jan 29 at 2015 5:50 PM

MSG Brad Sand — Thu, 29 Jan 2015 17:50:21 -0500

As I have said on many other similar dsicussions, I am willing to look at 'fixing' military retirement system AFTER we fix bigger and more broken problems starting with Congressional and Presidential retirement systems. Then BEFORE we take benefits from those working to defend our freedom, risking life and limb, how about we look at some hard cuts to the welfare state? Until those are fixed, stop looking at throwing our service members under the bus for some political reason.