Will Troops Accept New Retirement Reforms?

June 5, 2015

As momentum to overhaul the military retirement system gains speed on Capitol Hill, a new report by the Congressional Budget Office (CBO) provided predictions on if currently serving troops would convert to the new system. 

House and Senate lawmakers are proposing overhauls to military retirement by combining the existing defined benefit with a portable retirement device. In exchange for cutting military retirement by 20 percent, lawmakers would provide government-matched contributions to 401(k) accounts. 

The House proposal provides a government match up to 5 percent and continues the match throughout an entire career. The Senate proposal provides only a 4 percent match (after two years of service) and stops government contributions at 20 years of service. 

Neither proposal requires currently serving troops to participate in the plan. Troops would have the option to opt in to the program. Once adopted, new servicemembers would be automatically enrolled in the new system. 

Proponents of the plans say both proposals offer a better deal for the 83 percent of troops who do not serve until eligible for a military retirement, and currently receive no retirement benefits from the government. 

For a much smaller portion of the force - the mid-grade officers and non-commissioned officers planning to serve a full career - the benefits of a blended system are more complex.

 Members with more than 12 years of service would have little or no incentive to switch to the new plan. CBO estimates that none of those members would make the switch. 

The report estimates that about 50 percent of servicemembers with 12 years of service or less during the opt-in period would make the switch to the new system. 

Both proposals offer continuation pay at the 12-year point in a career. However, what the report fails to mention is that servicemembers are unable to invest their continuation pay back into their TSP accounts. 

"Troops at this stage in their careers face a very tough decision," said MOAA's Deputy Director of Government Relations, Col. Mike Barron, USA (Ret.). "They won't be able to make up the difference in lost TSP contributions by twenty years of service." 

In a recent virtual town hall , Air Force Chief of Staff Gen. Mark Welsh told concerned airmen, "Those of you who aren't sure, stick with the old plan. You know what you got." 

The CBO report also estimated that the number of servicemembers that will opt-in to the new plan would increase for those with fewer years of service, so that 100 percent of servicemembers with only one or two years of service would choose to switch. 

Though there are significant differences between the House and Senate proposals, the CBO report did not find any statistical differences in opt-in rates of servicemembers. 

DoD is expected to provide its take on the military retirement reform proposals over the next month. 

Before Congress rushes to overhaul the retirement system, MOAA believes these proposals require further study.