The Military Guide


DoD panel proposes new retirement system


By now many of you have seen the scary headlines:
“Dump the Military Retirement System?”
“No more 20-year rule?”
“DoD panel calls for radical retirement overhaul”

In my opinion these headlines are the military equivalent of the same scare tactics you can get from the financial media.

Imagine if CNBC or the Wall Street Journal or SmartMoney came out with a civilian headline:
“Congress to radically change 401(k) retirement laws!!!”

Panicked readers would overwhelm websites, buy all the papers & magazines off the newsstand, and glue themselves to the daily TV shows. Then the talking heads would start dragging senators & representatives onto the sets to defend our traditional retirement standards and our American way of life.

But upon further reading you’d learn that what really happened was a press release on the steps of the Capitol by an Ameriprise lobbyist about an obscure think tank proposing lowering 401(k) matches, letting fund companies charge higher fees, and raising the minimum age for distributions. Then you’d find out that the panel was funded by the major 401(k) fund-management companies. You’d know immediately that nobody would vote for such a blatantly self-serving proposal.


It’s the same fear & uncertainty in these military headlines, only this time it’s intended to motivate servicemembers, families, and veterans to write their elected representatives. (Just look at the reader comments on the linked articles above.) The media want to get your attention so that you’ll subscribe to their publications. The benefits websites want you to click on their ads. Even the veteran’s support organizations can use your membership dollars.

DoD has been ordered to cut a few hundred billion dollars from the budget, and they’d rather not cut fuel or ammunition. They’ve already raised Tricare premiums, and doctor’s reimbursement rates are once again scheduled to be cut. There’s scuttlebutt about scrapping (let alone postponing) the Navy’s latest aircraft carrier, the USS KENNEDY (CVN79). Aircraft programs are being cut way back, Army weapons systems development is grinding into low gear, and once again the Marine Corps is getting eyed by the other services like the honorary guest sheep at a wolf’s club banquet. I’m not holding out much hope for accelerated submarine construction, either.

One way to accomplish these budget cuts is to have “independent authorities” (preferably bipartisan blue-ribbon panels filled with retired officers and experienced defense consultants) turn their staffs loose to brainstorm various creative proposals. Some of the groups were started by previous administrations, others are projects of the service heads, and a few are legitimate think tanks like RAND. They float the trial balloons to their bill-paying customer: DoD. DoD passes them over to Congress to show that they’re taking a “hard look” at every possible cost reduction. Congress shoots them down (“Support our troops!”), or the President vetoes them. The next panel looks at the issues, and the cycle starts anew.

A similar system tried to raise Tricare premiums for over 15 years. Nearly every year DoD would propose a premium hike, and every year Congress would vote it down. The reality is that the think tanks, lobbyists, and DoD failed to make the case to Congress for raising Tricare premiums. It was actually accomplished with the support of the veteran’s organizations, and only because they could see that they would eventually lose this battle of attrition. They reluctantly supported a premium hike in exchange for controlling the rate at which future increases could happen.

The last major change to the military retirement system was a miserable failure.  It took decades to pass the military’s 1986 REDUX retirement system. It did not affect anyone already in the service– only new recruits. Yet just 13 years later their retention had plunged so low (perhaps aided by the Internet gold rush) that the Joint Chiefs of Staff actually appealed to Congress to restore the previous retirement system. Congress compromised with a combination of High Three (which is more popular) and the REDUX Career Status Bonus (which is being allowed to shrink through inflation erosion).

In 2004 DoD radically overhauled its civilian personnel employee rules with the National Security Personnel System. Only four years later it was substantially amended.  This was a program covering just 180,000 civilians and it still hasn’t been fully implemented. The military is nearly an order of magnitude larger.

The last major change to the military retirement system actually allowed senior enlisted and senior officers (E-9s, flag officers) to collect pension multiples up to 40 years of service instead of 30. Pensions at those stratospheric ranks used to top out at 75% of base pay and can now go to 100%. But at that level of leadership, it was never about the money. It also doesn’t affect the rank and file, except for those exceptional performers who will someday make the top ranks.

The military’s coming budget cuts (and the personnel drawdown) will be bad enough. However the retirement system will not change anytime soon. It might not even change this decade. One harbinger of the change will be matching TSP contributions, which will eventually help Congress agree to support pension cutbacks. Even when the change arrives, servicemembers will be able to stay under the current system or volunteer for the new system.

Personally I think it’ll be decades before Congress ever changes the 20-year system, and troops may still vote with their feet.

Next time you see a scary headline about military retirement, figure out who’s proposing the idea– and who’s paying them. Then you can decide how credible their plan is, and whether it will survive Congressional debate. Even then it’ll probably require the support of a coalition of veteran’s organizations.

Until then, keep pursuing financial independence. If the system does change, then you want to have your own choices!

Related articles:
Will Congress change military retirement?

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