Pentagon Supports Retirement Changes

June 12, 2015

After months of delays, Pentagon officials came out in support of changes to the military retirement system. Their endorsement sets the stage for major reforms later this year.  

House and Senate lawmakers already introduced retirement reform proposals earlier this year. Their proposals are currently being negotiated as part of this year's defense bill.    

Pentagon officials are asking Congress to make changes to their retirement proposals. Sharing the same concerns that MOAA has raised with lawmakers over the past year, they are asking Congress to make changes to disability retirement, the length of government contributions to retirement accounts, lump-sum proposals, and COLA reducing measures.   

One of MOAA's earliest concerns with retirement reform proposals was their effect on disabled retirees. Changing the multiplier used to calculate military retirement could diminish a disabled retiree's pension. Defense officials asked Congress to grandfather disabled retirees under the current system. "This prevents more senior members from receiving less in a disability retirement annuity than the current system," according to DoD.  

Defense planners agreed with MOAA that Congress continue contributions to retirement accounts throughout military service. The Senate's retirement proposal stops government matching at 20 years. MOAA thinks ending government contributions at 20 years will dis-incentivize continued service.  

The Pentagon also agreed with MOAA's criticisms on potential lump-sum retirement benefits. This option provides a discounted, small lump sum while forgoing significant lifetime annuity payments. In its memo to Congress, Pentagon officials said that a lump-sum payment at retirement is a "smart financial decision in very limited circumstances." MOAA took a stronger stance, equating the payments to unscrupulous payday lending practices.   

In exchange for comprehensive retirement reform, DoD also asked Congress to eliminate an unfair penalty on working age military retirees. Under current law, military entrants who joined after Jan. 1, 2016 will have their future COLAs reduced by one percentage point until age 62. The military said that even by restoring full COLAs, the Defense Department could achieve savings with the new retirement system.  

"Thankfully, the Pentagon provided its recommendations in time for House and Senate leaders to consider when they conference later this year," said MOAA's Director of Government Relations, Col. Mike Hayden, USAF (Ret).

Though the Pentagon addressed some of our concerns, MOAA still worries that a 20 percent reduction in retired pay will fail to draw members to 20 years of service and beyond.