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Military pension reforms considered

By Jennie L. Phipps · Bankrate.com
Thursday, December 11, 2014
Posted: 3 pm ET

As Congress struggles to pass a budget before it adjourns for the holidays, the expensive military retirement system is again front and center.

© kasha_malasha/Shutterstock.com

The current retirement scheme is an old-fashioned, defined-benefit plan that vests military personnel at 20 years of service. At that point, active-duty veterans are eligible to receive an immediate annuity based on a formula equal to 2.5 percent of their three highest years of basic pay -- known in military parlance as "high-3 pay" -- times their number of years of service. Reservists must wait until they are 60 to claim.

The current plan was devised shortly after World War II. While this system might have appeared affordable 60 years ago, times have changed. The current plan is not only expensive, it also fails to adequately serve the majority of military employees.

Most get no benefits

Some 86 percent of enlisted personnel and 66 percent of officers receive no retirement benefits because they don't stay in the service for 20 years. And other retirement savings plans aren't as robust as employees in the private sector might find. Members of the military can, for example, participate in the Thrift Savings Plan for federal employees, but there is no government match.

A Department of Defense-commissioned study of retirement plan options released to the public this week offers reform options. The proposals would provide some retirement benefits after about a dozen years of service and could generate cost savings of between $1.8 billion and $4.4 billion a year, according to the study.

First Command Financial Services, a financial planning service for military families, surveyed mid-level military personnel and found that about half are in favor of at least one of the Defense Department's proposed reform plans. Among senior non-commissioned officers and commissioned officers in pay grades E-6 and above with household incomes of at least $50,000, some 46 percent told First Command they support plans that feature smaller monthly retirement checks, plus a lump-sum transition payment immediately upon retirement.

'Other employees don't get shot at'

Many military families don’t understand the impact of the proposed changes, says Scott Spiker, CEO of First Command. "These proposed plans are only as good as the self-discipline people have. They take their retirement money and spend it on houses and cars and then where are they going to be?"

Spiker believes that some kind of reform is inevitable because the current military retirement plan is too expensive. "The military is facing the same problem as the rest of society. We are over-living compared to a time when people didn’t live as long," Spiker says. "The cost of supporting retirees is eclipsing the cost of military active duty."

But he believes the retirement picture is different for military personnel and their families than it is for others. "Other employees don't get shot at. They don't spend nine months away at sea. Most jobs don't put the same arduous demands on spouses and families as the military does."

No matter what reform looks like, Spiker thinks the most critical issue is timing. "Do only the new guys get this or is it all of the people who have been in fewer than 10 years or is everybody affected?"

Reform will set a precedent

Where this decision falls is particularly important, he says, because it will set a precedent for other federal employees and ultimately have an affect on private sector employees -- especially, if promised benefits are reduced.

"Once you pierce that veil for the military, will anybody anywhere be able to count on guarantees?" he asks.

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88 Comments
Charlennag
May 02, 2015 at 12:50 pm

This would be a dream come true! Otherwise, it's like indentured servitude...they won't pay you zip unless you have served 20 years?! 2 decades can see allot of action in them and that GREATLY lessens the chances for anyone to survive that long for it.

Patrick Moran
March 22, 2015 at 6:05 pm

If Congress really wants to save taxpayers millions of dollars maybe they should look into their own retirement system. Start by telling the American public how much this cost us, remind us that benefits begin in their first term, and just for fun, do a report about how many convicted felons are receiving lifetime pensions and medical benefits. Last but not least, the next time they need millons of dollars to fund one of their SPECIAL projects, they can take their pension money instead of raiding Social Security

Barak
March 12, 2015 at 12:42 pm

What we can not afford is not keeping promises. Most of today's retirees were serving when they and their families were eligible to receive food stamps because they were getting paid about the same as prisoners in federal prisons. Those who serve are denied free speech, get shot at, and brave such things as road side bombs. During a twenty year service almost half is spent in hazardous duty tours. During their twenty year service even their families were exposed to terrorism directed towards our country (Germany bombing in family housing in the 1970-80s.) How about taking the money paid to the parasites and illegal aliens in our country and putting it towards paying those who have spent their lives in the mud, snow and deserts protecting us and our way of life. Any politician that votes to weaken military retirement pay can kiss their career in politics goodbye. We have had enough!

Susan Springer
February 07, 2015 at 5:26 pm

I realize that we are looking to cut taxes and spending as a nation however this is an area that is not unlike taking Grandma's social security and lowering her standard of living to utter impoverishment. When did we get to the shameful place of making promises to our military personnel we don't expect to keep and raising taxes on the backs of our elderly men and women, let alone our warriors and their families. Good grief. We need leadership with common sense and a return to the true nature of public service without gouging the public. I think that tonight I will get on my knees and ask Almighty God to Bless our Nation and to protect those who are in harms way to preserve our freedom. Politicians are not my heros, the common guy at war is my hero. Let's protect his/her benefits!

Nathan Thompson SFC Ret.
January 27, 2015 at 10:24 pm

It is an outrage for congress to take away benefits from those who served and sacrificed for this country when most of you never served and are cutting benefits for us while continuing to add benefits for yourselves. You get full time pay for part time work and don't accomplish anything when in session. You should have term limits. You are quick to send us in harms way time after time and and are very slow to act on health, medical and financial burdens for the service member and their families. Military benefits should be the very last thing cut from the budget. Look into your own wallets.

Margie
January 19, 2015 at 3:32 am

This has the potential to affect those who took voluntary early retirement during force reduction under Clinton. That might not go over well, since most folks have their Tricare and Delta Dental premiums deducted from their retiree pay to begin with.

If Congress REALLY wants to demonstrate some leadership, then don't give anyone who serves in Congress less than two terms lifetime perks. Give 'em two years of COBRA then cut 'em loose. Start there first. Jerks.

Ruth
January 15, 2015 at 12:23 pm

This is criminal, I wish they had to go fight for their own freedom!
They'd want some type of retirement after 19 and 20 years of doing that!

chris
December 29, 2014 at 8:41 pm

I have never been in the military retired female. This is criminal. Make all Congress and Senate jobs PART TIME, NO PENSIONS NO $1000 a MONTH CAR ALLOWANCE THEY JUST VOTED THEMSELVES NO LIFETIME HEALTHCARE BENEFITS NO WEEKLY ROUNDTRIP PLANE RIDES HOME MAKE THEM GIVE UP THEIR $154 PER DIEM FOR FOOD AND EATING OUT WHILE IN DC. ALL VETS NEED TO WRITE PISS ANT PAUL RYAN SND COMPLAINE!!!!!!!!