March 14, 2014

 

On March 7, DoD unveiled a detailed set of concepts for fundamental and far-reaching changes to the current military retirement system.

The proposal maintains the 20 year vesting for the traditional military retirement benefit, but it would decrease monthly payments in order to establish new forms of compensation prior to reaching career status.

The new models would offer three new forms of compensation in addition to the 20 year retirement:

 

• a 401k-style benefit for all service members who serve at least six years;
• a retention bonus at around 12 to 16 years of service; and
• a lump-sum payment provided upon retirement to those who serve 20 years or more.

Also discussed are several possible changes to the reserve compensation and retirement system. One concept would allow members to draw a partial annuity prior to age 60, but at the cost of revising the computation of drilling points downward.

Overall the proposals distribute pay over a wider swath of a military career, but likely reduce total compensation. Depending on the option, career servicemembers could see a 10 percent reduction in purchasing power over the course of their lifetime.

A day after the concepts were made public, Secretary of Defense Chuck Hagel made it clear that he wants to wait until next year before asking Congress to make fundamental changes to the current retirement system.

The changes are detailed in a white paper report sent to Congress and to the Military Compensation and Retirement Modernization Commission (MCRMC), which is conducting a detailed study of military pay and benefits and will report their findings and recommendations in February 2015.

These retirement proposals are not formal recommendations, and are not included in the Pentagon’s FY 2015 budget proposal.

“These are the department’s views on the potential options for modernizing retirement,” said a senior defense official who helped write the report.

Defense officials acknowledge that the total savings from the new proposals would be modest, especially in light of the Pentagon’s current budget environment that emphasizes large-scale cost reductions to meet near-term spending caps imposed by Congress.

On a positive note, the concept paper does recognize the need to fix three areas of great concern to MOAA:

 

• the Survivor Benefit Plan (SBP)/Dependency and Indemnity Compensation (DIC) offset;
• concurrent receipt of military retired pay and VA disability compensation; and
• the Integrated Disability Evaluation System.

Even though the white paper addresses these areas, the devil is in the details. For example, DoD’s concept to eliminate the SBP/DIC offset would significantly alter and devalue the benefit by decreasing the SBP annuity while increasing the premium retirees would pay.

Any changes to military retirement would require the approval of Congress, and lawmakers are unlikely to take any action until after the MCRMC submits its final report – a prudent step MOAA supports.

At the release of the proposal, DoD senior leadership reiterated its strong support for grandfathering all currently serving troops and retirees under the current system.

MOAA will continue to monitor these proposals and initiatives regarding military retirement and will stay engaged with the MCRMC, DoD, and Congress throughout the process.