Military retirement: the latest overhaul

 

I usually have a half-dozen posts in draft for this blog, and I schedule them about a week in advance. (No, seriously, this time I really mean it!) When Monday morning rolls around, the hopper’s filled through at least Thursday.  But today we’re going to interrupt the schedule with breaking news.

An “alert reader” just brought this to my attention: the preliminary slides used by the Defense Business Board to brief DoD (and Congress) on their latest radical overhaul of the military retirement system.  (The final version of the brief is expected to be available this month.) In case DBB’s server is unavailable, I’ve archived another copy (DBB_Military_Retirement_August2011_Presentation) and embedded the presentation below this paragraph. I’ve noticed more than a few typos in the brief, so I think it was prepared in haste to get the board through a deadline. It’s possible that some of these ideas are already being revised or reconsidered.

 

Let’s be blunt: DBB’s mission is to be the sacrificial messenger. It’s their job to propose the ideas that no one else could career bring up. They float the trial balloons that are relentlessly machine-gunned by national veteran’s organizations. DBB gets to not only throw the hand grenades, but they’re expected to leap on them– to protect the rest of DoD and Congress from the inevitable public backlash.

After a few years of such outlandish public behavior, all three groups can work together in private to draft compromise proposals that seem positively mild and conservative by comparison. At some point the veteran’s organizations will join in, if for no other reason to attempt to exert some sort of guidance over the discussion before it accidentally gets accepted as gospel.

This is roughly the process that brought us the REDUX retirement system and the latest Tricare premium hikes. But maybe this time it’s different.

I’m going to let you digest the slides on your own, and hopefully you’ll share your comments here or on a discussion board like Early-Retirement.org. I’ll distill the commentary into a future post.

Here’s some data points to get us started:

Page 5: “Military retirement funds are not able to be invested in higher yielding equities and bonds.” If they were invested in other assets, how far would the higher returns go to resolve the perceived shortfall? We don’t have to privatize the funds, but I’ve heard that Treasury yields have recently shot up.

Page 6: “DoD pays retirees 40 years of retirement benefits for 20 years of service.” My calculations show that DoD expects to pay pensions until we’re at least 77 years old. How’s that compare to the life expectancy of the military retiree/veteran demographic? To be excruciatingly and actuarially thorough this study should include wounded veterans, servicemembers who are medically retired shortly before they die (usually of severe wounds), and servicemembers killed before reaching retirement eligibility.

Page 7: “It will be very difficult to release personnel with 15 or more years of service, yet these age groups are a likely target for downsizing.” Uhm, guys, did you note my three TERA applications from 1996-97? How’d that program work out for DoD? Could we see a study of the costs & savings?

Page 7: “The current system does not compensate for those in high-risk situations or extenuating circumstances (e.g., combat duty)…” I’m not sure a higher retirement benefit would motivate me to volunteer for an extra combat tour, and I’d sure hate to serve combat duty alongside someone who’s motivated by that. Is this really a retirement problem, or is it adequately compensated by combat pay?

Page 8: “There is no difference in retirement benefits between those who have served in high risk and low risk positions.” What risk category would this plan have assigned to those on shore duty in the Pentagon on 11 September 2001? Is it “low risk” only if nothing bad happens?

My spouse, who was excluded by Congress from combat zones for the first 10 years of her career, has a few pithy personal opinions on this “low risk” issue. Her retirement benefits were also reduced quite a bit by being shut out from her community’s male promotion opportunities. Let’s just say that her highly public visibility in uniform made her much more of a target than my years of “run silent, run deep” submarine sea duty. Yet who got all the sea pay & sub pay? How does the DBB plan offer equal opportunity to women who are still banned from certain military specialties?  In an apparently related coincidence, my spouse was also one of the 7% who transitioned to the Reserves between their 15th and 20th years of service (page 11).

Page 13: “Establish a mandatory TSP program for all military service personnel.” I think mandatory TSP enrollment should be enacted tomorrow. Why wait?

I’ll be fair. For those of us already in the service (or who’ve left it), on page 14 the DBB brief says:

  • “No impact on existing retired population”,
  • “Fully disabled veterans not affected by new plan”, and on page 22,
  • “For those with less than 20 years– proportional benefit under “old plan” if they stay for 20+ years”.

In other words, if you’re under 10 years of service then you presumably don’t care about retirement benefits (page 7) and if you’re over 10 years then you’ll preserve a healthy proportion of the existing system.

Let’s read your comments!

Related articles:
DoD panel proposes new retirement system
Will Congress change military retirement?
Will Congress change military pay?
“Present value” estimate of a military pension

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16 Comments
  1. […] because they’re going to change many times before the “final” vote. (Remember the 2011 “Defense Business Board” proposal? Yeah, I didn’t either– and I wrote that post.) For the next few months I’m just […]

  2. […] contractors, defense think tanks, and even public opinion. One of the most notorious examples is the July 2011 Defense Business Board proposal to overhaul military pay. Page 161 of the QRMC says that study was sent to the DoD’s Retirement Reform Review Group, […]

  3. […] drop could come from a briefing released by the Defense Business Board last July.  The DBB’s proposal has been shelved by the new Secretary of Defense, but it could be […]

  4. […] I’ve been discussing, researching, and thinking about military pensions ever since the Defense Business Board released their draft study on retirement.  Although the data used for the study was reasonable, their conclusions were provocative and the […]

  5. Reply Doug Nordman October 17, 2011 at 5:19 AM

    From the comments of DoD and Congress, I think there’s a commitment to preserve the current system for those who are serving. Benefits changes would only affect those who join the service after they’re implemented.

    I’m also beginning to think that the DBB study will not be supported by the new SECDEF, although it certainly started a discussion.

    The TSP aspect of the proposal would shift military retirement from a defined benefits pension (which, like Social Security, DoD can only invest in government securities) to a defined contributions system (the TSP, which servicemembers can invest in other assets). This would allow retirees to control their own funds (through the TSP) for a hypothetical higher return. But most significantly of all, it would also reduce DoD’s pension obligations.

    I think most servicemembers would much rather choose a bigger TSP after their service obligation rather than wait for a 20-year pension vesting. It’s quite possible that DoD would offer new servicemembers (and perhaps even those currently serving) a choice between a much bigger TSP or the current defined benefits pension.

    It’s a logical extension of the existing Career Status Bonus/REDUX system, which offers a tempting choice but which we all know is not such a good deal for the servicemember. It’s also similar to the civil-service retirement system.

    How would that proposal affect everybody’s retention decision?

  6. […] next potential cut came from the Defense Business Board’s draft proposal to overhaul military retirement.  This study was scheduled to be completed in August but has still not been released– perhaps […]

  7. […] other 140 posts. The top three posts  “Will Congress change military retirement?”, “Military retirement: the latest overhaul”, and “DoD panel proposes new retirement system”  are over 25% of the blog’s […]

  8. Reply Ben August 12, 2011 at 6:48 AM

    I have talked to many Soldiers, NCO’s and fellow Officers and one of the big concerns is our contract. Every Soldier today signed a contract with the US Army with an agreement for a retirement at 20 years. If the government can make this change and turn around and tell the Soldiers to just deal with it, then what is next. What else will they change in our contract and then turn around and say we are the government deal with it, what’s the point of the contract.

    The proposal mentions several times a comparison between the Military and the Civilian work force. Well, show me a Civilian job in which the worker is gone training for up to 3 to 6 months total throughout the year and then when complete with training deploys for up to a year, not to mention during that year deployment there is a large group of people trying as hard as they can to kill you. Then God willing the member makes it home after the deployment, and 70% of the time must pack up his/her family and move them somewhere else. The constant PCS moves every two to three years for a Soldier is extremely hard on the family, the children must move schools and make new friends, the spouse must attempt to find a new job which in itself is difficult due to the employer knowing he or she will be leaving within two to three years. This type of constant movement for the Service member makes it almost impossible for a spouse to generate any type of retirement.

    A Service member after 20 years of service is most of the time completely broken, they have bad knees, backs, ankles and hearing loss to mention a few. All of these problems are due to 20 years of dealing with Combat, explosions, shooting weapons, foot marches, jumping out of airplanes, and daily running and other physical activities. After a 20 year Service obligation the average 40 year old Soldiers body is worn down and more closely related to a 65 year old Civilian.

    The proposal makes a statement that a Soldier E-1 thru E-4 under the new plan can make up to $20,000 if they invest 16.5% of their pay for four years. I have been a Company Commander for 33 months and I do not know one E-1 thru E-4 who can afford to deposit 16.5% of their pay and still be able to survive financially. The proposal also states that the old plan is unfair to all who do not retire because they receive nothing. Like I said earlier all Soldiers voluntarily sign a contract and understand what they are getting into. But, when it comes down to it, a Soldier receives many things, the Soldier receives to mention a few, discipline, an understanding of self worth, team work, equal opportunity training, sexual harassment training, job experience, respect from the community, credibility from civilian companies, and the military GI Bill for future education. Any person who joins the military and leaves under honorable conditions, leaves as a better person and will be a great contributor to the Civilian community and work force.

    To say that anyone leaving the military before 20 years gets nothing is not only wrong but an uneducated statement. The US Service member is a Professional and the 20 year retirement is not just deserved but owed due to the contract we signed. A professional athlete provides entertainment to the public and they make millions, a Service member is a professional and provides protection and freedom to the public and we make pennies but we do not complain. If they take away our retirement they take away any incentive for the career Soldier to stay and they take away what all Service members have worked for, planned for, fought for, and many others have died for. Why would anyone join the Military as a Career when they can join a safer Civilian job with the same benefits? The US Armed Forces is 1% of the US population, I’m sure we can find, and save, several Trillion dollars if we tap into the other 99% who earned their freedom thru the Military’s sacrifice.

    • Reply Doug Nordman August 12, 2011 at 6:46 PM

      Again, it’ll be interesting to see if this makes it into the final version of the DBB proposal.

    • Reply Pete August 19, 2011 at 8:12 PM

      I’ve read the slides, I think you misunderstand the comment that someone leaving before 20 years gets nothing…that’s related to a retirement benefit. If you’ve got to leave at year 19 for some reason, get nada for retirement. At least under this proposal you will have accumulated 19 years worth of government contributions into a TSP you own and can take with you. Also the 16.5% is paid by the government on top of pay, this is not a reduction in pay. Do you still have the same reaction or is there any merit to the idea?

      • Reply Jenn October 17, 2011 at 3:33 AM

        If you think that by giving something to everyone who serves some time isn’t going to seriously affect the benefits for those who serve their entire contract you are sorely mistaken. The whole point of this overhaul is to cut spending, which means everyone gets something, but no one gets what they were promised. My husband is right at the 10 year point and we had recently made the decision to stay in and go for 20 years. Now, we find out that if this goes through then those 20 years of sacrifice, deployments, dangers, missed anniversaries, births, and birthdays means no more to the government than 20 years of working for the post office or as a clerk in a federal office. My husband earns his pay and his retirement through late nights, constant deployments and TDYs, frequent PCSs, and post-deployment nightmares.

        Here’s a novel idea: why don’t we first take a look at the real entitlement programs where the beneficiaries, while having their own struggles, to be sure, are not risking their lives for the safety of the country in order to provide for their families. I promise that if this change goes through, we and many of our friends will seriously reconsider our commitment to the service, since the nation seems not to care much about its commitment to us.

  9. Reply Jan August 11, 2011 at 7:04 PM

    Ahhhh- you are beginning to see the light.
    I listen to lots of news- there is a lot there that does not shine in the sunlight. I think those of us who are retired should be very concerned. We have written our congressman about it. The reply was “entitlements need to be cut”. Suddenly, pension is an entitlement….What happens if COLA disappears- for the rest of your life? Commissaries are definitely on the block as going private (just like housing).
    Yup- going to be very interesting.

    • Reply Doug Nordman August 12, 2011 at 6:37 PM

      I think the veteran’s organizations (which need all the support we can offer) will help Congress understand the impact of these considerations. Until these proposals actually make it into legislation voted on by the Armed Services Committees, I think they’re just that: proposals.

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  11. Reply Doug Nordman August 10, 2011 at 3:23 PM

    You raise an interesting point– I wonder if the assignment officer could play hardball with the 14-17-year servicemembers. It might be easier to vote with your feet for the Reserves/National Guard.

    But again, it’s good to be financially independent before getting to those critical decisions!

  12. Reply majorjdw August 10, 2011 at 6:39 AM

    Can you imagine being in the 10-15 yr range and they transition to a “proportional benefit?” I could see a mass exodus. Interesting the relative small percentage of people that actually stay til retirement. There is little incentive to stay past 20 unless you get promoted around that time. Then its not 1 or 2 more years it seems to work out to be 5 or so. And for what? More staff tours more deployments?

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