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Pentagon Backs 401(K)-Like Plan in Military Retirement Overhaul
The U.S. Defense Department supports overhauling the decades-old military retirement system with a new 401(K)-like plan that troops could take with them after they leave the service.
The Pentagon on Wednesday released details of the proposal, which mirrors one of the most controversial recommendations earlier this year from the independent Military Compensation and Retirement Modernization Commission.
"The department considered all elements of current and potential retirement plans and built a blended system that -- in the military judgment of the Department of Defense -- best enables us to maintain the readiness of the all-volunteer force," Pentagon spokesman Army Col. Steve Warren said in a release.
Like the commission's proposal, the new retirement system would for the first time offer a 401(k)-like defined-contribution plan to the vast majority of troops -- more than eight in 10 -- who leave before the 20-year mark and don't receive any retirement pay.
The Defense Department said troops enrolled in the new Thrift Savings Plan would initially receive matching contributions from the department of 1 percent of his or her basic pay. They would be fully vested after two years of service and eligible for additional matching contributions of up to 5 percent after four years of service. The commission had proposed a similar plan.
The Pentagon also said troops would also be eligible for a bonus, or continuation pay, after eight to 16 years of service, depending on their branch of service, which would have the flexibility to set the rate. The commission had proposed that active-duty service members would be eligible for a lump-sum continuation payment equal to 2.5 months of basic pay after 12 years – provided they agree to stay in the military for another four years.
While the Defense Department described its proposal as a "blended defined benefit and defined contribution," it didn't offer details on how it would change the existing pension.
Navy Lt. Cmdr. Nate Christensen, a Defense Department spokesman, only said that future service members would receive 80 percent of the current pension if they serve 20 years, and would have the opportunity to achieve nearly equivalent or better retirement benefits when they reach retirement age.
Under the existing defined-benefit plan, most officers and enlisted personnel who serve 20 years receive annual retirement pay equal to half of their average basic pay over their last three years of service. Legislation proposed in Congress would support the commission's recommendation to reduce that figure from 50 percent to 40 percent.
President Obama said he wants more time to review proposals that would overhaul troop pay and benefits, including retirement.
His administration "fully supports" the underlying objectives of recommendations made in January by the congressionally appointed panel, according to a letter he sent lawmakers in late April. Indeed, the president supports 10 of the panel's 15 proposals designed to save $12 billion a year in personnel costs by 2040.
But the White House wants to better understand the most controversial proposals, including offering troops 401(k)-like retirement plans before they reach 20 years of service, replacing the existing Tricare program with a choice of commercial health insurance options, and consolidating commissary and exchange stores on bases, among others.
"With respect to the remaining recommendations, given their complexity and our solemn responsibility to ensure that any changes further the objectives above, we will continue working with the Commission to understand how the following proposals would affect the All-Volunteer Force," he wrote.
-- Brendan McGarry can be reached at [login to see]
© Copyright 2015 Military.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
The U.S. Defense Department supports overhauling the decades-old military retirement system with a new 401(K)-like plan that troops could take with them after they leave the service.
The Pentagon on Wednesday released details of the proposal, which mirrors one of the most controversial recommendations earlier this year from the independent Military Compensation and Retirement Modernization Commission.
"The department considered all elements of current and potential retirement plans and built a blended system that -- in the military judgment of the Department of Defense -- best enables us to maintain the readiness of the all-volunteer force," Pentagon spokesman Army Col. Steve Warren said in a release.
Like the commission's proposal, the new retirement system would for the first time offer a 401(k)-like defined-contribution plan to the vast majority of troops -- more than eight in 10 -- who leave before the 20-year mark and don't receive any retirement pay.
The Defense Department said troops enrolled in the new Thrift Savings Plan would initially receive matching contributions from the department of 1 percent of his or her basic pay. They would be fully vested after two years of service and eligible for additional matching contributions of up to 5 percent after four years of service. The commission had proposed a similar plan.
The Pentagon also said troops would also be eligible for a bonus, or continuation pay, after eight to 16 years of service, depending on their branch of service, which would have the flexibility to set the rate. The commission had proposed that active-duty service members would be eligible for a lump-sum continuation payment equal to 2.5 months of basic pay after 12 years – provided they agree to stay in the military for another four years.
While the Defense Department described its proposal as a "blended defined benefit and defined contribution," it didn't offer details on how it would change the existing pension.
Navy Lt. Cmdr. Nate Christensen, a Defense Department spokesman, only said that future service members would receive 80 percent of the current pension if they serve 20 years, and would have the opportunity to achieve nearly equivalent or better retirement benefits when they reach retirement age.
Under the existing defined-benefit plan, most officers and enlisted personnel who serve 20 years receive annual retirement pay equal to half of their average basic pay over their last three years of service. Legislation proposed in Congress would support the commission's recommendation to reduce that figure from 50 percent to 40 percent.
President Obama said he wants more time to review proposals that would overhaul troop pay and benefits, including retirement.
His administration "fully supports" the underlying objectives of recommendations made in January by the congressionally appointed panel, according to a letter he sent lawmakers in late April. Indeed, the president supports 10 of the panel's 15 proposals designed to save $12 billion a year in personnel costs by 2040.
But the White House wants to better understand the most controversial proposals, including offering troops 401(k)-like retirement plans before they reach 20 years of service, replacing the existing Tricare program with a choice of commercial health insurance options, and consolidating commissary and exchange stores on bases, among others.
"With respect to the remaining recommendations, given their complexity and our solemn responsibility to ensure that any changes further the objectives above, we will continue working with the Commission to understand how the following proposals would affect the All-Volunteer Force," he wrote.
-- Brendan McGarry can be reached at [login to see]
© Copyright 2015 Military.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Posted in these groups: 
Retirement
Retirement
Posted >1 y ago
Responses: 10
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It's good that those who leave after 6 or 10 years may be able to take something with them... however I smell a rat when it comes to continuation pay, and reducing retirement pay. A 20% reduction in retirement pay would have already cost me 48K and I'm only 50 years old... somehow I doubt those bonuses will hold a candle to that.
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Messing with military benefits is the "third rail" when it comes to budget time. I'm going to say some things people won't like but it's reality.
First be careful. Much of the civilian population has no retirement, hence griping will be perceived as a negative on the outside. We're lucky to be in a good public mood so if tinkering is going to happen, now is good of a time as any. Just think how much more the hammer could drop otherwise.
Second, it's going to happen, hence you need to manage it. If you put 5-10% into retirement and TSP does the 5% match and you follow through investing in retirement after military service, your 401 will be worth more than $1 Million. Add to that annuities you pick up along the way and perhaps some tax free disability, you'll do OK. Having a nice 401 is smart especially if it means you can defer Social Security until 70. You'll want to burn the 401 down so mandatory distribution taxes don't whack you too hard. This presumes Social Security won't get messed with soon but who knows?
Third, you don't have some bills in retirement others do, e.g. TRICARE. Again not a good idea to rub civilian noses in it who are getting their wallets drained by Obamacare.
You will hit a point where you don't want to or can't work. Prepare early and put money in steady and you'll get there.
The military retirement looks like it will mirror more of the FERS plan the civilian Federal employees have. Again careful how you gripe about it. Remember you can't tap the TSP/401 side until you're 60.
So is it a reduction? If you do nothing and don't invest in yourself, yes. If you make lemonade out of the lemons, it's an opportunity.
First be careful. Much of the civilian population has no retirement, hence griping will be perceived as a negative on the outside. We're lucky to be in a good public mood so if tinkering is going to happen, now is good of a time as any. Just think how much more the hammer could drop otherwise.
Second, it's going to happen, hence you need to manage it. If you put 5-10% into retirement and TSP does the 5% match and you follow through investing in retirement after military service, your 401 will be worth more than $1 Million. Add to that annuities you pick up along the way and perhaps some tax free disability, you'll do OK. Having a nice 401 is smart especially if it means you can defer Social Security until 70. You'll want to burn the 401 down so mandatory distribution taxes don't whack you too hard. This presumes Social Security won't get messed with soon but who knows?
Third, you don't have some bills in retirement others do, e.g. TRICARE. Again not a good idea to rub civilian noses in it who are getting their wallets drained by Obamacare.
You will hit a point where you don't want to or can't work. Prepare early and put money in steady and you'll get there.
The military retirement looks like it will mirror more of the FERS plan the civilian Federal employees have. Again careful how you gripe about it. Remember you can't tap the TSP/401 side until you're 60.
So is it a reduction? If you do nothing and don't invest in yourself, yes. If you make lemonade out of the lemons, it's an opportunity.
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It's the typical give and take, WE give and THEY take. Keep cutting benefits and you'll face the dilemma of, "Why should I serve my country, the pay and benefits are better everywhere else."
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