New retirement proposal is worthy of more study - Air Force Community - Air Force Times

New retirement proposal is worthy of more study

For generations, the military retirement system, with its promise of a lifetime, inflation-adjusted annuity in return for 20 years of service, has been an awesome deal.

For the 17 percent of service members who actually make it to 20 years, that is. For the other 83 percent who walk away empty-handed, not so much.

Past proposals to overhaul the system have foundered on the rocks of stiff opposition from veterans groups, who see any call for change as a frontal assault on their service and sacrifice.

But the Defense Business Board, an influential Pentagon advisory group, has come up with a plan that, on its face, is worthy of consideration.

The board suggests abolishing the 20-year cliff vesting model and moving to corporate-style, 401(k) retirement investment accounts, modeled on the federal Thrift Savings Plan.

All service members, from their first month of active duty, would receive government contributions into their accounts. Payments would be a percentage of a member’s monthly basic pay — 16.5 percent is the baseline suggested by the board, although that figure could be adjusted upward as an incentive.

Under this proposal, the average officer who now leaves after 10 years of service with nothing would walk away with a nest egg of almost $93,000, while the average enlisted member with 10 years would leave with more than $48,000.

The board would provide for a phase-in period in which people already serving when its plan took effect would immediately begin receiving monthly government contributions to their accounts, the same as new recruits. But they would also get a portion of the old retirement annuity based on their years of service at the time the plan took effect — provided they stay in for at least 20 years.

For example, someone with 10 years of service — half the time needed to retire under today’s system — who then stayed for 20 years would get 25 percent of his basic pay over his three highest- earning years in uniform as a lifetime annuity, exactly half what he would have gotten under the old system.

There is no question that the lifetime value of the retirement package would be far less for those serving beyond 20 years, though the board suggests that enhanced contributions to members’ retirement accounts could be used as a means to shape the force.

But that is unlikely to be enough to stave off deep resentment from those who lose the most. There is a real risk of serious negative repercussions as a result of steep benefits cuts, and the last thing the military needs is a repeat of the late 1990s, when troops were leaving in droves because their pay had fallen behind civilian wages and their retirement benefits had been reduced.

It took a concerted effort from the Pentagon and Congress, plus a surge of patriotism following 9/11, to reverse that trend.

Now, however, with the nation’s finances close to a meltdown, it’s prudent to ask whether an all-or-nothing retirement system that benefits only a small slice of the force is worth its $46 billion annual cost. Add to that another $64 billion in future unfunded liabilities, and it’s reasonable to wonder if such a system is sustainable in the long term.

This plan may not be the final answer to the military’s quandary. But it is a serious effort to address a system that ultimately rewards only a small part of the force. It deserves further scrutiny.