DOD panel mulls 10-year retirement plan
Stars and Stripes March 3, 2006
Today’s military members serve under the traditional 20-years-or-bust retirement plan, which has been prized by generations of retirees.
That plan isn’t going away for the current force. But a new plan might be offered as a voluntary option for those in now, promising at least some retirement benefits to many members who don’t expect to serve 20 years.
The Defense Advisory Committee on Military Compensation, a panel of compensation experts chartered by the Defense Department, unveiled the framework of the new retirement scheme at its final public meeting Tuesday.
The committee described the plan as more flexible and more efficient. Though designed to become the sole retirement plan of new entrants, it also would be offered as an alternative to current members.
“Absolutely, that would be the transition plan,” said retired Adm. Donald L. Pilling, who chaired the advisory committee.
Most likely to be attracted to the plan are younger troops who don’t yet feel the powerful pull of immediate annuities after just 20 years.
Under the current system, active-duty members must serve at least 20 years to qualify for regular retirement. They get an annuity equal to 2.5 percent of basic pay for each year served. That means 50 percent of basic pay for a 20-year career and a maximum of 75 percent of basic pay for 30 years or more. Annuities are increased yearly to keep pace with inflation.
Features of the new plan include government matching of Thrift Savings Plan contributions made by members, not to exceed 10 percent of basic pay. Full vesting in these 401(k)-like accounts could occur after only five years of service.
The plan also would offer full vesting in a retirement benefit after just 10 years of service. The current annuity formula, of 2.5 percent of basic pay for each year served, would apply. So a 10-year retiree would get 25 percent of retired pay. The catch — and it’s a big one — is that retired pay, for everyone, wouldn’t start until age 60.
Careers as long as 40 years would be allowed, and a 40-year retiree would draw 100 percent of basic pay. But ending for future generations of servicemembers would be immediate annuities after 20 or more years — that is, starting when the servicemember retires. To entice enough members to serve 20, 30 or 40 years, the plan calls for special “gate pays,” extra income at strategic points along a member’s career path.
Pilling agreed the plan is “very radical” from traditional retirement, and service leaders are uneasy over the possible impact. They are particularly nervous that the current force, as it fights a war, will view the plan mistakenly as a threat to their own hard-earned benefits.
“There are people in uniform today who think, ‘Hey, I’m at the 9-year point and these guys are screwing around with my retirement?’ We want to grandfather that so we don’t cause that angst. We want to do no harm,” said Pilling.
The plan, he said, would be fairer to the many members who now leave service short of 20 years with no retirement. That’s the experience of 85 percent of enlisted recruits and 50 percent of officers.
Importantly, the plan would give force managers more modern, cost-efficient tools to shape the force, the committee said.
Pilling said a weakness of the current system is that once members serve 12 or 13 years, the services are reluctant to separate them, even if their skills aren’t needed. To do so would leave them with no retirement. That rigidity is seen as driving up costs and handcuffing force managers.
Retired Air Force Gen. Lester L. Lyles, one of the seven committee members, said service leaders complain often about a lack of flexibility but they “don’t lock in on [20-year retirement] as being the problem.”
Yet it is “a key element,” said Lyles.
The committee used a computer model developed by Rand Corporation to apply features of the proposed retirement plan to the Army’s force structure to learn how profile might change.
“We found that under this retirement plan retention improves in the Army, the number of people [staying] five to 10 years increases and [recruit] accession demand goes down. So that encourages us to think that there really is something here,” Pilling said.
Committee member Dr. John P. White, former deputy defense secretary, said the new plan, if it were already in place, could ease the kinds of “stresses and strains” now being felt by an all-volunteer force at war.
“Wouldn’t you rather have a force today, all other things being equal, that has more second-term people and fewer first-term people?” White asked. “Suppose I was able to reduce my Army [recruiting] need by 20 percent. It would make a significant difference, right?”
Government matching of thrift savings contributions and earlier vesting in retirement benefits would deliver such results, White said.
Each service could set its own “gate pays” to meet specific retention needs, the committee said. Pilling noted, for example, that to keep a young, vigorous force, the Marine Corps wants a lot of first-term Marines but a small career force. The Air Force, on the other hand, which spends millions of dollars more on high-tech training, wants a far more experienced force.
Dr. David Chu, undersecretary of defense for personnel and readiness, told a Senate panel March 1 that the advisory committee’s recommendations will be the “starting point” for the Pentagon’s 10th Quadrennial Review of Military Compensation, a study mandated by law.
Chu also revealed that the Defense Department will send to Congress soon a proposal to extend the military pay chart out to 40 years of service. Under the current pay chart, longevity pay raises stop at 26 years.
To comment, write Military Update, P.O. Box 231111, Centreville, VA, 20120-1111, e-mail email@example.com or visit www.militaryupdate.com.