Posted on Feb 6, 2014
Should the Military stick with its retirement program, or move to a 401K style retirement system?
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<p>It seems that the current system leads to a dead-end for many service members who don't serve 20 years. This includes the majority of military personnel. So after 10, or even 15 years of service a service member could leave the service, or in a downsizing environment be encouraged, or forced to leave, and end up with nothing. A 401K type system would allow for contributions throughout one's career, long, or short, and can be taken with the service member whenever he/she leaves the service. </p><p> </p><p> I understand there is the issue of defined benefit vs defined contribution, but the crux of the issue lies in the fact that the majority of those who serve leave with very little as far as retirement goes. It's also important to note that the earlier one starts saving for retirement, the greater the benefit, and a 401K system would get new enlistees and officers on the right track of saving for retirement whether they decide to make the military their lifelong career, or as a spring-board toward future civilian careers.</p>
Posted in these groups: 
Retirement
Pension
Retirement Pension
Posted 12 y ago
Responses: 15
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I think this discussion is flawed if the edict is that we MUST change the retirement system. The Rand study needs to show us that this area is the area that is easiest to modify with the greatest amount of savings.
Are we wisely spending money procuring equipment for wars that we may never fight? Are we being efficient with costs to equip the force with new uniforms (for operations and training in garrison or PT)? Has there been analysis to determine if it is cost effective to analyze and change ARs and our doctrine so frequently? Is there a study that determines what other costs/pay/benefits COULD also be on the table that could save/reduce our personnel costs.
Retirees made it -- one could say that they are able to get into another career, that they can do this and that...but retirees invested the time and ASSUMED THE RISK. They completed their end of the bargain. Reward them. The thanks alone for a CAREER of service to military retirees who complete 20 years or more should not be trivialized by percentages, which as I stated above, really don't compare to other costs in the big picture. One less ship? A few less fighters? Less tanks (what tank force are we going to fight and where)?
While I am a retiree now, my beliefs in honoring and supporting are careerists has remained constant. I'm not interested in attacking an area in isolation -- compare the impacts on this benefit with other potential cost savings and let's see what makes the most sense then.
Are we wisely spending money procuring equipment for wars that we may never fight? Are we being efficient with costs to equip the force with new uniforms (for operations and training in garrison or PT)? Has there been analysis to determine if it is cost effective to analyze and change ARs and our doctrine so frequently? Is there a study that determines what other costs/pay/benefits COULD also be on the table that could save/reduce our personnel costs.
Retirees made it -- one could say that they are able to get into another career, that they can do this and that...but retirees invested the time and ASSUMED THE RISK. They completed their end of the bargain. Reward them. The thanks alone for a CAREER of service to military retirees who complete 20 years or more should not be trivialized by percentages, which as I stated above, really don't compare to other costs in the big picture. One less ship? A few less fighters? Less tanks (what tank force are we going to fight and where)?
While I am a retiree now, my beliefs in honoring and supporting are careerists has remained constant. I'm not interested in attacking an area in isolation -- compare the impacts on this benefit with other potential cost savings and let's see what makes the most sense then.
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SSG Gerhard S.
I refer to the axiom that government does few things effectively, and fewer efficiently. Trusting one's future to politicians is a risky proposition at best, a foolhardy proposition under predictably normal circumstances. The TSP hasn't caught on because there are not matching funds for military contributions. (at least that's my understanding). To make this proposition enticing matching funds should be offered at an increasing rate to keep service members interested in saving for their own retirements in an account under their own name. This reduces enormously the possibility of having their benefits lost to the arbitrary axe of politics.
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Lt Col (Join to see)
A big part of the difference between a 401(k) and TSP is that most companies with a 401(k) will provide some contribution towards your retirement. TSP is essentially no different than getting an IRA from a commercial bank...you make all the contributions, the military pays nothing into it.
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SSG Gerhard S.
My wife works for the VA and they have employer contributions into their TSP accounts.... So it can be done...
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Pvt Diane Pownall
I think a 401 K could be wiped out in a stock market crash but military retirement is protected I think
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I think it would be good to give people leaving early than 20 years something better than a pat on the back.
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I think you are asking an excellent, and very important, question here SSG. The current military retirement system is extremely expensive and leads to some perverse incentives when combined with the "tenure" policy that kicks in when service members reach certain ranks. For example after a Marine is promoted to Major at 12-16 years of service the retirement program encourages him/her to stay until 20 years whether or not their performance is up to par (Let me be very clear here, this is an intentionally vague example, and is not meant to disparage or characterize anyone who serves or has served 20 years).<div><br></div><div>The military pension system is the most generous system for any employees that I can find. More generous than any private company. More generous than fire fighters and police officers as well. I can go on, but I think everyone gets the idea. It can be said that our service members deserve this, but the fact is our country can no longer afford it. Continuing to demand pension benefits that an employer can no longer afford is partly what led to our government having to bail GM out and could very easily lead to a loss of all benefits when the country's love for her troops fade as does memory of our last 2 wars.</div><div><br></div><div>Additionally, it is important to keep in mind that 73% of the military never sees 20 years. That means that the vast majority of our warfighters see no benefit from our retirement program.</div><div><br></div><div>A 401(K) would go a long way to fixing both of these issues. First, the government could match a very generous percentage of every individuals' contributions and still not spend nearly as much as they currently do on retirement. Second, a 401(K) that starts on day one and is vested immediately would ensure that every service member has a nest egg, if they desire it, when they leave the service. </div><div><br></div><div>Obviously, current retired pensioners should maintain their benefits and I would argue that a one time government contribution to current service members' 401(K) accounts could be made to make up for any service given prior to the change. A formula based on number of years served, deployments, and overseas posts could be used to determine what size of payment needs to be made.</div><div><br></div><div>This system would be more equitable to all service members and cheaper for the government. Even better, it would be portable to future career opportunities.</div>
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Capt Whitney Davis
LTC (Join to see), you're right, and I hadn't considered it, that compulsory savings would disproportionately affect the junior enlisted. That would certainly be an issue, though leaders like you help right now by providing sound counsel to others regarding savings.
I think that the civilian world does want senior service members in the market. This is an entirely different subject on which I have many ideas and gripes, but bottom line up front: we do a terrible job of selling ourselves. There are many reasons for this, to include: lack of a vocabulary in the civilian world, non-transferable (though still applicable) training certifications, lack of education regarding opportunities, and a general reluctance to "toot our own horns." Additionally, many transitioning service members (myself included) have to take a step back in terms of responsibility and pay rate because there is a lack of understanding in the civilian world about the scope of responsibilities that relatively young service members have in relation to their civilian counterparts. If that is not understood and accepted by people before they leave the service it can lead to a very difficult job search.
I think that the civilian world does want senior service members in the market. This is an entirely different subject on which I have many ideas and gripes, but bottom line up front: we do a terrible job of selling ourselves. There are many reasons for this, to include: lack of a vocabulary in the civilian world, non-transferable (though still applicable) training certifications, lack of education regarding opportunities, and a general reluctance to "toot our own horns." Additionally, many transitioning service members (myself included) have to take a step back in terms of responsibility and pay rate because there is a lack of understanding in the civilian world about the scope of responsibilities that relatively young service members have in relation to their civilian counterparts. If that is not understood and accepted by people before they leave the service it can lead to a very difficult job search.
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Capt Whitney Davis
There is a lot of fat in the budget, no doubt. That said, my argument regarding the military's pension system addresses concerns beyond the basic expense of it. It provides no benefit to the vast majority of service members and can present some perverse incentives for people who should get out to stay in (thanks to the "tenure system").
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SSG Gerhard S.
MAJ Carl Ballinger Great points sir. Providing for the Common defense IS a Constitutional mandate, though much of the military budget is questionable Constitutionally speaking, but that's an argument for another thread. The basic fact IS that the government should pay for the military. It was my contention above to take the arbitrariness of political whims out of the retirement equation. Capt Whitney Davis It makes little sense to tell recruits what a great retirement they have to look forward to when only 16-17% of military members actually make it to retirement with the average person in the Military serving only 7 years. So even those who serve for 19 years leave with absolutely nothing in the form of retirement. If the political aspects of funding retirements can be removed through TSP or a non-governmental system, those who leave, or are forced to leave early will still have something to show for their average of 7 years of service, or more, and those who actually make it to retirement should receive their Federal pension as well as their (non-military) contributions and growth. My opinion.
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Capt Whitney Davis
From my experience, in the Marine Corps, once an officer made O-4 or an enlisted member made E-7 they did not have to be promoted again to make 20 years. That may have changed, but it was what I was referring to.
From what I've seen, military to civilian pay is pretty darn comparable. The monthly dollar figure of base pay may seem a bit low, but BAH and other allowances more than make up for what a civilian with similar years of experience and responsibility makes.
From what I've seen, military to civilian pay is pretty darn comparable. The monthly dollar figure of base pay may seem a bit low, but BAH and other allowances more than make up for what a civilian with similar years of experience and responsibility makes.
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SSG, the TSP is vitrually a 401(k). As a matter of fact, it's BETTER than a 401(k). And I was under the impression that contributions made to the TSP may be transfered to another retirement plan upon separation from federal employ.
So, what I'm saying is, you can still serve only 10 years, and have the contributions you've made to the TSP (which is the federal government's version of a 401(k)) transfered over to a 401(k) once you find a new job that is non-federal.
So, what I'm saying is, you can still serve only 10 years, and have the contributions you've made to the TSP (which is the federal government's version of a 401(k)) transfered over to a 401(k) once you find a new job that is non-federal.
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Capt Whitney Davis
The largest difference between a 401(K) and the TSP, PFC Dydasco, is that for most 401(K)'s there is some percentage of contribution that the employer matches.
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SSG Gerhard S.
Indeed Cpt. Davis. TSP does have matching funds for Federal employees, Non military, apparently. TSP wasn't an option when I was active duty. The way things are going Pensions will someday be a thing of the past PFC Dydasco, at least in most sectors of the economy. And though I applaud your 27 years of service (I have 22 myself), a career in the military isn't for everybody, and some are forced out due to force reductions from time to time. Wouldn't it make more sense to have a Portable 401K with a degree of matching funds? Those who stick around longer will end up with heftier retirements as a result of their greater contributions over a longer period of time anyway.
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Capt (Join to see)
Spc dydasco part of a service member's compensation is "taken away" because they will be well compensated IF they make it to retirement. You should think of it as the expected value of retirement or the value of the retirement times the probability of making it to retirement. Therefore if they don't make it to retirement they don't get that money and are not "fully compensated" for their service regardless of their tsp contributions.
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I think that could be feasible as long as the grandfathering was in place for the prior SMs that had already retired. Although I am a little biased on the fact that I did 27 and don't feel that anyone who fails to do at least 20 with the exception to medical should really be entitled to any type of retirement whether it be traditional or 401k as the main purpose is for making a career out of the military not doing 5,10,15 and then getting out. You receive special or extra benefits for dedicating your life to the service, pension, medical, access to commissary/PX/BX/NEX, discounted things on post, etc., So again I am a little biased in that aspect.
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SSG Gerhard S.
SGM (Join to see), What about those who DO want to serve for 20 years and are not allowed to because of drawdowns, or as this following excerpt from the TREA (The Retired Enlisted Association) Newsletter suggests, removed from the rolls of the military because they HAVE served nearly 20 years and will soon be getting a retirement check.
"The Army has cut 22,000 soldiers from its ranks this year with plans to trim 20,000 more next year.
Cuts had largely come through attrition and reductions in recruiting, which mostly affected low-ranking enlisted soldiers. But this summer, the cuts began to affect officers as well, including 1,188 captains and 550 majors. Some of those officers found out they would have to leave the service while they were deployed to Afghanistan, even if they were intending on making a career of the military. All must be out by April.
Initially, before they took place, the Army announced that the officer cuts would target officers with evidence of poor performance or misconduct.
But an internal Army briefing disclosed by a military website in September obtained by The New York Times showed the majority of captains being forced out had no blemishes on their records. Instead, it found that officers who had joined the Army as enlisted soldiers were three times as likely as captains who graduated from West Point to be forced to retire.
It is believed that officers who were prior enlisted are being pushed out because they are entitled to more pay and are eligible for retirement earlier, since they have more time in service than other commissioned officers."
"The Army has cut 22,000 soldiers from its ranks this year with plans to trim 20,000 more next year.
Cuts had largely come through attrition and reductions in recruiting, which mostly affected low-ranking enlisted soldiers. But this summer, the cuts began to affect officers as well, including 1,188 captains and 550 majors. Some of those officers found out they would have to leave the service while they were deployed to Afghanistan, even if they were intending on making a career of the military. All must be out by April.
Initially, before they took place, the Army announced that the officer cuts would target officers with evidence of poor performance or misconduct.
But an internal Army briefing disclosed by a military website in September obtained by The New York Times showed the majority of captains being forced out had no blemishes on their records. Instead, it found that officers who had joined the Army as enlisted soldiers were three times as likely as captains who graduated from West Point to be forced to retire.
It is believed that officers who were prior enlisted are being pushed out because they are entitled to more pay and are eligible for retirement earlier, since they have more time in service than other commissioned officers."
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SGM (Join to see)
I understand Soldiers that get separated early due to drawdowns. What I am against are some saying they should have benefits at the 10 year mark. I get aggravated when I hear a senior NCO tell me "Oh I want to retire but I am going to stay in for another year till I drop my packet". The way I see it the moment you have decided to retire you should step to the side. The Army is full of hungry Leaders that want the chance to prove themselves and if someone had decided to ride the train for another year or two they should step away from their job and find something to occupy their time with.
There are a bunch of factors that go into the cuts like records, TIS, MOS strength, PME, etc. We all know we have to be competitive to remain in the military. If they are getting cut due to the drawdown then there should be some type of formula for compensation.
While we are on that subject my frustration is having a Soldier get chaptered out for ABCP but being given a severance package. Why should a Soldier that can't meet height and weight standards get a paycheck to leave when other more deserving Soldiers aren't getting anything? Messed up priorities in my thinking.
There are a bunch of factors that go into the cuts like records, TIS, MOS strength, PME, etc. We all know we have to be competitive to remain in the military. If they are getting cut due to the drawdown then there should be some type of formula for compensation.
While we are on that subject my frustration is having a Soldier get chaptered out for ABCP but being given a severance package. Why should a Soldier that can't meet height and weight standards get a paycheck to leave when other more deserving Soldiers aren't getting anything? Messed up priorities in my thinking.
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SSG Gerhard S.
I agree with your contentions above, but I find it difficult to reconcile the idea that one can commit one's life to the Military with every intention of retiring, and then be forced out because of budget constraints with NOTHING. This is precisely why a TSP/401K based system makes perfect sense. Those service members would then have made contributions with matching ones from the Government, and would be able to take those contributions and gains with them to their next job, or roll it over into an IRA. Such a program protects people from the arbitrary whims of politicians by taking the money out of their hands and putting it into the hands of those who have served and saved.
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Lt Col (Join to see)
It isn't always the service member's choice to get to 20. I know several who have been forced out for various reasons, usually not due to performance or disciplinary issues.
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Capt Whitney Davis
Great points
I was in the army guard and coming up on 9 years in and trying to decide whether to reenlist or get out.
So I did what ever shoulder does , when the and talked to the Shirt. Here was his advice.
"If you are below 10 years TIS then go ahead and get out but if you are at 10 yrs or more TIS stick it out and get the retirement. "
I took his advice and ended up doin another 16 years.
I guess I said all this to make one point.
Yes the retirement system is expensive, but when you considering the small amount of military that actually retire, not that expensive.
And then even you really want to get in the weeds, the guard retirement is really jacked up.
I retired at 44 years old and have to wait until I am 60 to start drawing money.
Well my rant is done
Great points
I was in the army guard and coming up on 9 years in and trying to decide whether to reenlist or get out.
So I did what ever shoulder does , when the and talked to the Shirt. Here was his advice.
"If you are below 10 years TIS then go ahead and get out but if you are at 10 yrs or more TIS stick it out and get the retirement. "
I took his advice and ended up doin another 16 years.
I guess I said all this to make one point.
Yes the retirement system is expensive, but when you considering the small amount of military that actually retire, not that expensive.
And then even you really want to get in the weeds, the guard retirement is really jacked up.
I retired at 44 years old and have to wait until I am 60 to start drawing money.
Well my rant is done
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Capt Whitney Davis
MSgt Keith Hebert, thank you. You are right, it is a great incentive to stay in. I just think there has to be a way to keep the incentive without excluding everyone that serves less than 20 years. Thank you for your perspective, though. It's an angle I hadn't looked at this from.
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I would leave the retirement system as is. I think if you change to a 401K type system if it going to effect the retention rates.
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SSG Gerhard S.
SFC (Join to see) , Respectfully, aren't the retention rates already low? only 16-17% of ALL who join the Military make it to Retirement. Clearly, there are some that shouldn't make it to retirement, the question is, should those who serve less than 20 years leave with only the contributions they make into a TSP account (with no matching contributions), or should their service and savings be rewarded even if they only serve the average of 7 years, or even as many as 19 years? Most Civilian jobs have 401k, or 403b systems, often with matching employer contributions that can be taken with the employee when they move on to bigger and better things.... With the Military there is no such option other than the TSP (with NO matching funds). Many might argue that such a plan could enhance retention. Just a thought.
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SFC (Join to see)
What I am talking about is if we already have 16-17 percent that make it to 20 years. Many people that make it to the 10-12 year point finish out the rest of their time to get the retirement. If you give the option to leave at that point we are going to loose a lot of experience, as they would choose to leave early and get some money rather than staying in to get a full retirement as it is now.
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MSG John Wirts
With the way our leaderless fear and Congress are misbehaving, I say at least offer 401K with government matching deposits. Make sure the 401K is inaccessible by the government, look what has happened to Social Security, the government embezzles every dime it can, now it is rapidly going broke.
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SFC Pete Meyer
No 401k ... Government pension... 401k's can lose money if the stock market falls.. And Since the SM is a scam.... Hell no!!!!!
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Capt Whitney Davis
SFC Pete Meyer, you can mitigate the risks that are inherent with stocks by investing in bonds of various types. Federal bonds, for instance, are remarkably safe. Of course, with the safer investments your return is typically smaller as well.
Why do you think the stock market is a sham? I'm not necessarily disagreeing or agreeing, but I'm curious to hear how you came to that conclusion.
Why do you think the stock market is a sham? I'm not necessarily disagreeing or agreeing, but I'm curious to hear how you came to that conclusion.
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As Long as the retired personnel and current Americans that are still serving are grandfathered in! My worries is that they yank it like they did with the retirement cola not using the grandfather clause. In my opinion the 401K is garbage and is only as good as the market! This would be just another slap in the face in the dwindling benefits the military is dealing with for career service members. But if they choose this route will it be worth the 20? or will Americans serve less? We shall see
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SSG Gerhard S.
SFC Porter, I agree that those closer to retirement should be grandfathered, while those further from retirement could be "bonused" in based on actuarial data. Regarding your point on the market, there is little rational dispute that, in the long term, markets go UP. Most people would likely do far better in the marketplace than in a pension or through SOCIAL security "contributions". And as many are finding out, Pensions are NOT guaranteed either. they are dependent on the fiscal solvency and responsibility of the Corporation that manages it, or upon the political whims of whichever government entity is the employer, and upon its fiscal position as well.
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SSG Gerhard S.
Also, a 401K or TSP account is in your own name, and can be taken with you as you move along in life, either after retirement, or when you ETS and get a new job. Lastly, there are pension options that allow for them to continue for your spouse or dependents if you predecease them, but doing so means taking a lower monthly payment. A 401K is there as an asset to be willed to your spouse or dependents.
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401K is good but believe me if the market crashes or we go into a recession 401K's will be worthless
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