Plan would allow earlier retirement

By Tom Philpott: Military Update

Today’s military members serve under the traditional 20-years-or-bust retirement plan, which has been prized by generations of retirees.

That plan isn’t going away for the current force. But a new plan might be offered as a voluntary option, promising at least some retirement benefits to many members who don’t expect to serve 20 years.

The Defense Advisory Committee on Military Compensation, a panel of compensation experts chartered by the Defense Department, unveiled the framework of the new retirement scheme at its final public meeting Feb. 28

The committee described the plan as more flexible, more efficient. Though designed to become the sole retirement plan of new entrants, it also would be offered as an alternative to current members.

“Absolutely, that would be the transition plan,” said retired Adm. Donald L. Pilling, who chaired the advisory committee.

Most likely to be attracted to the plan are younger troops who don’t yet feel the powerful pull of immediate annuities after just 20 years.

Under the current system, active duty members must serve at least 20 years to qualify for regular retirement. They get an annuity equal to 2.5 percent of basic pay for each year served. That means 50 percent of basic pay for a 20-year career and a maximum of 75 percent of basic pay for 30 years or more. Annuities are increased yearly to keep pace with inflation.

Features of the new plan include government matching of Thrift Savings Plan contributions made by members, not to exceed 10 percent of basic pay. Full vesting in these 401k-like accounts could occur after only five years of service.

The plan also would offer full vesting in a retirement benefit after just 10 years of service. The current annuity formula, of 2.5 percent of basic pay for each year served, would apply. So a 10-year retiree would get 25 percent of retired pay. The catch, and it’s a big one, is that retired pay wouldn’t start until age 60.

Careers as long as 40 years would be allowed, and a 40-year retiree would draw 100 percent of basic pay. But ending for future generations of service members would be immediate annuities after 20 or more years. To entice enough members to serve 20, 30 or 40 years, the plan calls for special “gate pays,” extra income at strategic points along a member’s career path.

Pilling agreed the plan is “very radical” from traditional retirement, and service leaders are uneasy over the possible impact. They are particularly nervous that the current force, as it fights a war, will view the plan mistakenly as a threat to their own hard-earned benefits.

“There are people in uniform today who think, ‘Hey, I’m at the nine-year point and these guys are screwing around with my retirement?’ We want to grandfather that so we don’t cause that angst. We want to do no harm,” said Pilling.

The plan, he said, would be fairer to the many members who now leave service short of 20 years with no retirement. That’s the experience of 85 percent of enlisted recruits and 50 percent of officers.

Importantly, the plan would give force managers more modern, cost-efficient tools to shape the force, the committee said.

Pilling said a weakness of the current system is that once members serve 12 or 13 years, the services are reluctant to separate them, even if their skills aren’t needed. To do so would leave them with no retirement. That rigidity is seen as driving up costs and handcuffing force managers.

Tom Philpott can be contacted at Military Update, P.O. Box 231111, Centreville, Va. 20120-1111, or by e-mail at:
milupdate@aol.com