Posted on Jan 28, 2015
AirForce Times
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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/
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Responses: 22
COL Jason Smallfield, PMP, CFM, CM
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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.
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SSG Program Control Manager
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>1 y
My understanding is that tax revenues as a percentage of GDP are at a 60 year low. I believe we need to raise taxes, without raising taxes on the middle class.

I don't believe the DoD is getting too much or too little money, I do believe that the services need to improve their efficiency. Senior leadership within the services should not be allowed to get into the defense contracting business. More resources need to be allocated to rooting out fraud, waste and abuse and those doing the investigating need to be given real teeth. We can't allow Congress to override subject matter experts in the military when it comes to how the services allocate resources... politics should never trump service requirements.
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LTC Jason Mackay
LTC Jason Mackay
>1 y
Unfortunately Social Security is a Ponzi Scheme
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Lt Col Aerospace Planner
Lt Col (Join to see)
>1 y
Well said COL Jason Smallfield, PMP, CFM, CM

I also would like to add that we should stop corporate protectionism as well. One case among many comes to mind. We buy on average cane sugar from a wealthy family that runs the National Crystals INC in Florida for around 1.4 Billion dollars. Not so we have sugar reserve, I don't think we need one of those. But so we can keep that commodity at a fixed price 17 cents per pound above the international market price. We also do it to protect the corn industry. Most of our sugar based products are extracted from corn which is a much more expensive process than cane sugar refining.

There is not going to be a number on a pie chart showing a direct transaction. There will be a number on how much the USDA gets and they distribute through programs that congress enacts.

And that's just one small example of this kind of crap.
This is madness. They can screw us over because we have no bargaining power. We just take have to take it as it comes. It is a shame that we no longer have any allies in the legislative or at least in enough numbers to make a dent. While our government just keeps doing this. We are going to be in a accelerated stall pretty quick.

They say they cant afford us anymore, but they had no problem throwing trillions away a few years ago for contractors to do work at 5 times the cost which was supposed to be a value added for the country. There is money to pay us but they would rather pay their special interests first.

Until the country wakes up and it will too late I am afraid we will be in serious trouble unless we can get some politicians with a conscience that what is going on is dead wrong and dangerous.
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MAJ Special Operations Response Team (Sort)
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6 y
We need to abolish corporate socialism. Everyone... even the really wealthy, even corporations, need to PAY their taxes. Not just the middles class which is already getting the heck taxed out of it and supporting everyone. If I am paying 28% on $100,000 then the guy making $100,000,000 should as well. Its common sense.
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COL Jason Smallfield, PMP, CFM, CM
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- 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.
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SFC Vernon McNabb
SFC Vernon McNabb
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Well said, COL Jason Smallfield, PMP, CFM, CM. I may have jumped the gun with my statement, but if the changes stand, then my point is made.
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MSgt David M.
MSgt David M.
>1 y
I agree, any change now will be at the expense of the individual and during a reduction in force time frame-will hurt future retention/recruitment. This seems to be a very shortsighted view by our government and will hurt in the end. Our all volunteer force will be at the expense of bureaucratic non-sense and will lead towards a Draft (I hope/pray I am wrong).
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LCDR Civil Engineer Corps (i.e. Seabee) Officer
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Also, how many of the "many of them officers" are people like me who spent 12 years enlisted making less than $40k/yr before I commissioned?
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LTC Jason Mackay
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Edited >1 y ago
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.
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SGM Mikel Dawson
SGM Mikel Dawson
>1 y
Great post Sir, and I agree with everything you said. I will also say, as a Reservist, I knew I wouldn't get my retirement until I reached 60. This was what I planned on. Those who think because we've deployed more than two weeks a year we should get retirement earlier, well, go active or stay out. You knew what the deal was when you went Reserve /Guard. Everything was laid out out at the start, nothing hidden. Yes, I've lost money being in the Reserve. After my first deployment I lost my vehicle and almost my house. After my third deployment it took over two years of hard work to get my business back up and running, but I had my sights on target (retirement). I made my choices and wouldn't change.
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LTC Jason Mackay
LTC Jason Mackay
>1 y
SGM, I personally think the post 60 retirement draw sucks. But as you said, you knew it going into it.
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MSG Brad Sand
MSG Brad Sand
>1 y
SGM Mikel Dawson

Thank you for your service and sorry for what you have lost. While I was wanting to agree that "We knew what we were getting into when we enlisted." BUT we didn't know that we were looking at the World changing in such a way, especially for our Reserve and Guard. IF we are going to force multiple deployments on them, we need to balance the damage done to their civilian careers.
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LTC Jason Mackay
LTC Jason Mackay
>1 y
Agree that being integrated into the operational force has had second and third order consequences no one really factored in. I just meant that you can get at your retirement until you hit 60
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