April 24, 2015

The House Armed Services Personnel Subcommittee (HASC-P) embraced controversial changes to military retirement in its version of the FY 2016 defense bill along with several other recommendations of the Military Compensation and Retirement Modernization Commission (MCRMC).

The retirement overhaul combines the existing defined benefit, cliff-vesting retirement plan, with a transportable defined contribution plan. Servicemembers will contribute to a portable Thrift Savings Plan (TSP) account, with a government-matching and government-contribution program.

To pay for the increased costs of a transportable career device for more troops, the proposal slashes the existing military retirement annuity by 20 percent. Although MOAA supports providing a transportable career device for those serving less than 20 years of service, it should not come at the expense of those who stay.

The bill seeks to overhaul the military retirement system by October 2017. Current servicemembers will have the option to opt-in to the new system. Existing retirees will not be affected.

Of the MCRMC’s 15 proposed recommendations, the subcommittee addressed 11 of them, including:

• Modernizing the current military retirement system by blending the existing defined benefit with a defined contribution plan.
• Requiring the Secretary of Defense and the Secretary of Veterans Affairs to establish a joint uniform formulary.
• Consolidating the current number of Reserve Component status category authorities under which Reserve Component members may be called to duty from 30 to 6 starting in October 2017.

What was not included in the subcommittee mark were several other sweeping recommendations made by the MCRMC, including phasing-out the TRICARE health system in favor of subsidized commercial insurance plans, an additional expensive option for survivors benefits, and the merging of commissary and exchange services.

After speaking at MOAA’s Council Presidents’ dinner, HASC Chairman Rep. Mac Thornberry (R-Texas) said, “People are our most important thing. We want to get it right.”

HASC-P Chair Rep. Joe Heck (R-Nev.) echoed Thornberry’s thoughts. “We couldn’t do [TRICARE] justice with only a three-month review.”

The Dangers of Retirement Reform

Defined contribution plans are unpredictable and contingent on variables like fund choice, rates of return, member contributions, inflation, cost-of-living increases, and other economic factors. The success of the commission’s proposal is completely dependent on the financial literacy of the force.

Unfortunately, the MCRMC found that only 12 percent of servicemembers surveyed said that they received financial information from their command or installation.

The subcommittee’s embrace of the new retirement proposal came as a surprise to observers. The administration has yet to release its perspective on the MCRMC report, but is expected to respond by the end of April.

MOAA and 21 other associations expressed caution and concern about retirement changes since the MCRMC’s report release in January. This kind of major reform requires further study and analysis because of the potential impact a blended system could have on the retention of the mid-grade officer and NCO corps.

“There is some silver lining to this news. The HASC-P rejected the MCRMC’s recommendation to stop contributions after 20 years of service. Even so, we are very concerned that this proposal will not retain the skilled, mid-grade NCOs and officers our country needs in the long-run,” said MOAA Director of Government Relations Col. Mike Hayden, USAF (Ret).

Senate Armed Services Committee Chairman John McCain (R-Ariz.) looks poised to accept the House’s version of retirement reform. “We've been working closely" with the House, McCain said. "We're basing our plan on the recommendations of the commission and we feel comfortable with that."

This is just the beginning of the FY 2016 defense bill legislative process. MOAA will continue to work with Congress as the process moves to the Senate.