Friday, March 10, 2006
The Bleak Future of Military Retirement
I've been hearing rumors about this for quite a while, and now it looks like the effort change the military retirement package is picking up steam. A friend of mine sent me the article below. Not sure of the source, but it looks like it came from The Hill.
If the military is concerned about retention and recruitment, this is not the way to go.
No More 20-year Retirement?
The Pentagon's Defense Advisory Committee on Military Compensation (DACMC) used its final public hearing on Feb. 28 to announce preliminary recommendations for sweeping changes to the military compensation system.
The DACMC is supporting a complete revamping of the current military retirement system. The committee's view is that the current 20-year "cliff-vested" system is outdated, overly "generous," inflexible, and inequitable (with no retirement eligibility before 20 years and no incentive to serve beyond 30 years).
DACMC's recommended changes (most of which DACMC envisions as applying only to future service entrants) include:
* Eliminating the immediate annuity upon retirement and delaying payment until age 60
* Providing additional retired pay credit (and basic pay increases) through 40 years of service
* Initiating government contributions to a Thrift Savings Plan or 401K-like plan of 5 to 10% of basic pay
* Vesting of members between 5 years and 10 years of service
* Creating a "gate pay" system to provide lump sum payment incentives at specific points of service
* Vesting in retirement health care benefit at completion of 20 years of service
* Raising single housing allowances to the "with dependents" rates
Although the committee's recommended changes wouldn't be imposed on the current force, the DACMC proposes offering current members the option of participating in the new retirement system.
Under Secretary of Defense David Chu has indicated the DACMC's recommendations will be turned over to the Tenth Quadrennial Review of Military Compensation (QRMC), which is due to convene shortly. Chu has said he plans to send Congress at least one of the DACMC's recommendations separately - extending the pay table to 40 years of service.
MOAA's perspective is that most of these proposals have been reviewed or recommended by any number of military compensation reform panels over the last 40 years. The practical reality is that proposals to apply civilian-style retirement systems to the military haven't been adopted or haven't worked because military service conditions are so much more severe than civilian working conditions.
The 20-year retirement (and 20-year vesting) system was enacted in the belief that there has to be a significant "carrot" to draw highly capable people to serve for at least two decades under conditions that most Americans want to avoid even for a short time. Conditions like the present high-deployment environment sometimes put that system to a severe test.
Congress previously changed the law in 1986 to reduce 20-year retired pay for new entrants in 1986 (that also was touted as "encouraging longer service"). But the change had to be repealed in 1999 after the Joint Chiefs of Staff complained it was hurting retention.
If today's 10-year servicemembers facing a third Iraq deployment were under the DACMC-proposed system, they would be mulling between (a) separating and taking a significant chunk of their retirement with them or (b) waiting until age 60 to get an annuity if they continued serving. We suspect that situation would generate some ugly retention figures. We'll be very interested to see what the QRMC does with this recommendation.
posted by El Capitan at 11:11 AM
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