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DoD Panel Calls for Sweeping Overhaul of Military Retirement System
Jul 25th, 2011 | 9 responses
The Air Force Times is reporting today on a sweeping proposal by the Defense Business Board—“the wellspring for many cost-saving initiatives adopted by the Defense Department in recent years”—that would drastically overhaul the military retirement system and could affect today’s troops.
The new plan “would give some benefits to all troops and phase out the 20-year cliff vesting system that has defined military careers for generations.” It calls for “a corporate-style benefits program that would contribute money to troops’ retirement savings account rather than the promise of a future monthly pension.”
All troops would receive the yearly retirement contributions, regardless of whether they stay for 20 years. Those contributions might amount to about 16.5 percent of a member’s annual pay and would be deposited into a mandatory version of the Thrift Savings Plan, the military’s existing 401(k)-style account that now does not include government matching contributions.
The plan would also adjust those contributions “to give more money to troops who deploy frequently, accept hardship assignments or serve in high-demand jobs. It would also give the services a new lever to incentivize some troops to leave or stay on active duty longer.”
The new retirement plan would “mark the biggest change in military retirement in more than 60 years and require approval from Congress” according to The Times, but would have no effect on current retirees or disabled veterans.
However,
Unlike other proposals to overhaul military retirement that would grandfather current troops, the board suggests that DoD could make an “immediate” transition to the new system, which would affect current troops quite differently depending on their years of service.
Finally,
The far-reaching proposal comes at a time of immense pressure on the military to cut spending and help reduce the national debt. President Obama has talked about cutting $400 billion over the next 12 years, while some proposals gaining support on Capitol Hill would call for cutting more than $800 billion over the same period.
For more specific details on the proposal, please click here.
9 Responses to “DoD Panel Calls for Sweeping Overhaul of Military Retirement System”
More like an employee than a military retirement. So what happens when they are about to retire and the market is depressed? Same old story. You pay in with your money while business gets to play with it, making money for themselves off of it, with no guarantee that they will succeed for you. All the while they pay no tax, but the military, as usual, pay with their lives. Soon, I predict that infantry platoons will have pay deductions to afford medics. The creators of this plan must be Republican.
We are gradually getting to our future Corporate Republic. Of business, by business, and, for business. Government by consent of the board of directors.
At what point does this country become not worth defending?
Reform is long overdue. DOD people have admitted the retirement system is killing the budget. Ignore the sacred-cow defensiveness.
Thanks for your comments, Allen. In my post I have tried to stay neutral and objective on this issue, but now I can say that I tend to agree with you.
First, any changes to the military retirement system will not affect me, thus I have no personal “sacred cow in this fight.”
Having said this, it is my personal opinion that our promises, support and commitment to those who risk their lives for us is, yes, “sacred.”
If defense expenditures are “killing the budget,” perhaps we should start with eliminating/reducing the number of elective wars we get our country in. That in itself will tremendously reduce our defense budget, both in terms of weapons, weapon systems, and, yes, number of troops we need and subsequently have to pay for their retirement.
Just my two-cents worth.
No, the retirement system is killing the defense budget, according to DOD members in the past. Be clear (and correct). Gates has expressed concern about — no surprise — pension and health care costs, as have others at the DOD.
http://www.npr.org/2011/06/07/137009416/u-s-military-has-new-threat-health-care-costs
It’s a completely separate issue than unnecessary wars and extensive and excessive overseas commitments of all kinds. Right-sizing the military is long overdue, as is, for example (as I’ve said more than once) procurement reform.
Military pay has unsurprisingly become a subject for possible reform.
http://www.navytimes.com/news/2011/06/budget-talks-address-military-retired-pay-cuts-biden-061711/
As for health care, I’m surprised TRICARE hasn’t been incorporated into Medicare for decades now. Just make vets a new group of people currently eligible for Medicare, rather than have a separate military program from the civilian federal program. (Bureaucratic fiefdom creation at work!)
I say again:
If defense expenditures are “killing the budget,” perhaps we should start with eliminating/reducing the number of elective wars we get our country in. That in itself will tremendously reduce our defense budget, both in terms of weapons, weapon systems, and, yes, number of troops we need and subsequently have to pay for their retirement.
To put how the military retirement system “is killing the defense budget” and how the proposed changes to the system would “tremendously” reduce the budget:
FY 2012 Defense Budget Request:
Total: Approx $700 billion
Personnel Costs $250 billion
Retired Pay Accrual $25 billion* (Tricare excluded)
One proposed change would “save up to $24 billion over 10 years” or a whopping $2.4 billion a year—almost a whole 0.5 percent of the defense budget.
On the second proposal:
“The Defense Department has not provided an estimate of how much this might save, but the immediate effect would be very small because current service members would be exempt. The only immediate impact would be a small change in the contribution made by the services into the military retirement trust fund.”
Furthermore:
To-date cost of Iraq-Afghanistan wars: 1.22 Trillion, or sufficient to pay for more than 40 years of retirement costs (I know, in the 1.22 trillion, are included personnel, equipment costs, etc.)
BTW, to be fair, one good feature of the proposed plan is that it offers “significant retirement benefits to the roughly 83 percent of troops who leave service before reaching 20 years.”
* An accrual accounting explanation:
“Accrual accounting could greatly improve management of military manpower by making retirement costs more obvious. For example, the 5.3 percent across-the-board pay raise recommended by the Administration will increase the retirement pay for all those retiring in 1982 and beyond. But retirement costs in the 1982 budget are hardly affected at all by this special raise. Under an accrual accounting system, the future liabilities caused by the 5.3 percent raise would be recognized immediately because the amount that would have to be set aside in 1982 to fund future retirement costs would increase by about $650 million. Similarly, under accrual accounting, any savings from changes in retirement benefits–such as those discussed above–would be immediately visible in the federal budget. This should improve the debate over changes in retirement.
Implementation of accrual accounting could cause some onetime shifts in the defense budget. Pending receipt of the details of the Administration’s accrual accounting proposals, CBO has not estimated the size of these changes. But it is likely that budget authority and outlays in the defense budget would increase, since the budget would reflect not only the liabilities that are building up because of today’s military employees but also the costs of paying off the unfunded liability for past employees. Such a one-time shift in the defense budget might be a small price to pay for the management improvements that could stem from making the full costs of military retirement visible in the budget.”
http://www.cbo.gov/doc.cfm?index=6522&type=0
I am not sure if this is in addition to or includes the outlay paid annually to retirees
Still researching, but the basic premise remains
Added: The FY 2011 Federal funding for military retirement is about $55 billion
You notice I’ve been in favor of avoiding unneeded wars and reducing our commitments overseas. No need to feel defensive.
As to your remark about accounting, note the problems there aren’t limited to the military (wonderful bureaucracy and political fiefdom that it is), but are true with the entire federal government. Where is true, honest GAAP (Generally Accepted Accounting Principles) that is applied to our federal government? Where’s a truthful balance sheet and income statement?
(The Budget of the U. S. Government is invaluable, but is not the same.)
DORIAN DE WIND-
I tend to agree with you also. However I do believe that RIF,(reduction in force), can apply to the military as it does to the rest of government when attrition is not enough.
The “privatization” of the military is totally and emphatically unacceptable.
As soon as we start disentangling ourselves from our wars of choice and end the “good wars,” if any, we can certainly have some significant RIF’s.
Those RIf’s in themselves—and by themselves—may make significant reductions in our future “retirement system [that]is [supposedly] killing the defense budget.”