It’s unfair to our veterans, doesn’t give the Pentagon the flexibility it needs to manage the volunteer armed forces and is increasingly unaffordable. Congress’ Military Compensation and Retirement Modernization Commission last week laid out a detailed plan to modernize the system and address these problems.
The panel recommended that virtually all U.S. veterans receive some retirement benefits. Currently, more than four out of five receive none at all. To ensure retirement benefits, the panel proposes giving all servicemembers a 401k-style plan with both automatic and matching government contributions, vesting after two years of service. Now it’s time for U.S. politicians to listen.
The current military pension system is fundamentally a two-track retirement benefit. Those who serve more than 20 years on active duty receive generous benefits: at least 50 percent of their pay for life, starting immediately after they leave the military, plus inexpensive health insurance for themselves and their families.
The catch is that 83 percent of service-members who serve less than 20 years — even those in uniform for 19 years — get zilch. No contributions to a 401k-type plan. Nothing.
This all-or-nothing approach excludes the majority of U.S. servicemembers — particularly ground combat troops. Fewer than 10 percent of the soldiers and Marines who have borne the brunt of combat in Iraq and Afghanistan are likely to serve a full 20 years.
The current system also overwhelmingly favors officers over enlisted soldiers. Slightly more than one in 10 enlisted service members will serve long enough to retire, compared to more than half of all officers. These officers, who are well paid, receive far more generous retirement benefits than enlisted service members.
Yet officers, who are generally more highly educated, also have a better chance of working in a well-paying field after leaving the armed forces. Enlisted service members are at greater risk of poverty after they leave the armed forces.
The current plan also favors active-duty servicemembers over reservists. Active- duty members can draw a pension immediately on retirement. Reservists, whose units have played a major combat role in Iraq and Afghanistan, must wait until age 60.
This rigid 20-years-or-nothing approach isn’t just bad for the majority of service-members — who may never see a dime of retirement benefits. Denying the Pentagon tools to make sure it has the right number of troops with the right experience in the right roles hurts the U.S. armed forces and U.S. national security.
The 20-year cliff means that service members regularly stay in just long enough to earn the benefits, then retire as soon as they are eligible — even if they could have had longer productive careers. Consider: About 40 percent of military personnel who qualify leave right after the 20-year mark. But between service members’ 15th and 20th year of service, only 7 percent retire.
In addition, service members in ground combat roles frequently leave after their first tour of duty, including about 75 percent of Marines. The rigid formula also means that the Pentagon can’t offer greater retirement benefits for those serving in combat zones or in critical specialties.
This unfair, inflexible system is also increasingly unaffordable. Though only 17 percent of service members will ever see retirement benefits, the costs of the military retirement system will nearly double over the next 20 years, to more than $200 billion each year.
The commission’s report makes smart recommendations. People who make the military a career would still receive a defined-benefit pension, payable after 20 years of service. It would be available as either a traditional pension or in a lump sum on retirement. This pension benefit would be slightly less generous than the current pension, but government and individual contributions to the Thrift Savings Plan, a federal 401k-type program, and 20 years of investment returns mean retirees could actually end up ahead.
For those who want to serve their country in uniform without committing to a 20-year career, the government contributions to the 401k-style plan would vest after just two years of service. Current service members would be grandfathered into the old plan, but could choose to opt into the 401k-style plan.
These changes would ensure that the Pentagon contributes to the retirement of nearly all service members — not just the 17 percent who serve a full 20 years in uniform.
The real question is whether Congress will listen. These recommendations are just the latest in a long line of smart reforms to the military retirement, healthcare and personnel systems that have been proposed by the Pentagon and independent commissions — then resolutely ignored by politicians.
With the nation facing growing budget pressures, maybe this time will be different. It’s past time to change a system that leaves most of our combat veterans out in the cold.
(By Lawrence Korb and Katherine Blakeley; CNN)