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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WHAT I DO: I help you reach financial independence. For free.

I retired in 2002 after 20 years in the Navy’s submarine force. I wrote “The Military Guide to Financial Independence and Retirement” to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

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  4. Reply
    Ben August 12, 2011 at 7:33 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 6:33 PM

      Well said. I think that the DBB’s proposal will cause many to remind Congress of what happened with REDUX.

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  6. Reply
    Doug Nordman August 10, 2011 at 4:38 AM

    Thanks for pointing out the budget’s million/billion typo. That’s been corrected. You’re the first reader to notice that error, and I appreciate the scrub.

    I think DoD has always expected that military veterans will “complement” their service with bridge careers, even if it involves Wal-Mart. That’s why we wrote the book– to show how most servicemembers can achieve financial independence without having to tackle a bridge career. The “walking out the door” scenario you describe is exactly what DoD expects Reservists and National Guard retirees to do now. When servicemembers become financially independent before leaving the military then Wal-Mart is an option, not a mandate. I hope you can continue to serve on your terms, but if the military doesn’t cooperate then I hope the book and the blog will help you to retire on your terms.

    I agree that military specialties don’t compare to civilian jobs, and the DoD’s last couple of retirement experiments in that area (REDUX and NSPS) didn’t work out very well. The 10 August post presents more info from the DBB brief. If it still leaves you feeling that there’s more to be covered then let me know what you’d like to see in a future post.

  7. Reply
    Al Lorentz August 10, 2011 at 12:42 AM

    [Portions of this comment have been edited to remove personal content, and words in brackets have been added to keep it readable.]

    Your article incorrectly says that DOD was told to cut a few hundred million dollars. In fact, it was ordered to find 350 billion in cuts and is being threatened that the number could go higher if a budget deal can not be reached.

    The plan [would] be retro-active, a breach of contract. Service members who have spent the last 10 years fighting in the wars [would see] their retirement move another 20 to 30 years away instead of upon 20 years of service which is what we were promised. I’m eligible for retirement now, the Army wants me to stay longer and serve another tour down range; I want to stay, to continue to serve. If they move to enact this legislation, I will retire immediately, I would be stupid not to.

    Are [servicemembers] supposed to walk out the door at age 40 or 45 and go to work as a Wal Mart greeter and wait until their retirement checks start arriving at age 60? [Military jobs are not] transferrable to the civilian sector.

    [The Defense Business Board is] comparing military service to civilian jobs, believing that so long as pay is “equivalent” to the civilian sector, the military will be able to recruit sufficient personnel. As soon as private Joe Snuffy realizes that his job entails digging fighting positions, sleeping in them, deploying to war, moving his family involuntarily every three years, standing night watch and living a brutally tough life and that it pays exactly the same as a job at Wal Mart, he will be gone. He may stay exactly long enough to get his education benefits but this lowest possible deal [the DBB is] offering will attract the lowest possible level of retention material.

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