Panel Recommends Scrapping Current Military Pension System

Staff Sgt. Andrew Smith / Defense Department file photo

The generous pension system in place for military retirees with at least 20 years of service would be dismantled, in addition to several other compensation changes proposed by a nine-member panel that has studied the issue for the last year and a half.

The highly-anticipated recommendations from the congressionally-mandated Military Compensation and Retirement Modernization Commission range from restructuring the military retirement benefits system to moving family members and some retirees out of TRICARE and onto health insurance plans in the private sector, similar to the menu of choices civilian federal employees have under the coverage.

There were no proposals that would change military pay.

“We believe we have taken the most comprehensive and holistic view of the pay and compensation programs, and looked at them in a way that has not been done before,” said panel Chairman Alphonso Maldon Jr., during a Thursday press conference discussing the recommendations. Maldon said the commission traveled extensively, visiting more than 55 military installations around the world and soliciting feedback from more than 1.5 million service members and retirees, and talking with military advocacy organizations.

More flexibility and greater freedom of choice regarding pay and benefits emerged as the dominant theme among service members, the commissioners said. Maldon said the panel was unanimous in its belief that the recommendations will ensure the “long-term viability of the all-volunteer force.” The panel estimated that the 15 proposals would save the Defense Department billions over the next several decades.

The report calls on the Defense Department to phase out its 20-year cliff-vesting retirement system and replace it with one providing some defined benefits to all service members regardless of their tenure. The proposal calls for a blended retirement plan, composed of a defined benefit and greater participation in the Thrift Savings Plan, the government’s 401(k)-type program -- resulting in a better mix of benefits and retention rates, the panel said.

“The conclusion reached was that the current force profile could be maintained with a retirement plan comprised of a majority of the current DB (defined benefit), a new DC (defined contribution) plan for all service members, and additional continuation pay to provide midcareer retention incentives,” the report said. Now, personnel who serve less than 20 years—about 83 percent—do not receive a defined benefit, which some believe is unfair given their multiple deployments during the wars in Iraq and Afghanistan. Those who do spend a career in the military can hit the 20-year mark relatively early, retire from service in their 40s or 50s, draw a pension and work elsewhere for a while. About 17 percent serve 20 years or more in the military.

The panel’s proposal to change the retirement system would not affect current military service members or retirees. However, if individuals in those two groups wanted to opt into the new system, they could. New service members would be auto-enrolled into the TSP at 3 percent of their pay, and receive a matching contribution from the government, similar to the way it works for federal civilian employees. Military members currently can contribute to the TSP, but are not enrolled automatically and do not receive a matching contribution.

Another major change the panel recommended involves replacing TRICARE, the military’s health care system, with a “selection of commercial insurance plans” for family members, reserves and retirees not enrolled in TRICARE for Life. Active duty service members would remain in the current health care system. Service members would receive a basic health care allowance in their paychecks to help pay for their dependents’ health insurance coverage. Family members would still have access to care in military treatment facilities, but the idea is to shift a large chunk of beneficiaries from TRICARE to the private health insurance market.

“Since its creation, TRICARE has deteriorated relative to the goals of this commission,” the report said. “The quality of TRICARE benefits as experienced by service members and their families has decreased, and fiscal sustainability of the program has declined.” The report cited complaints from service members and families about the quality and access to health care under TRICARE.

Other recommendations included:

  • Consolidating military commissaries and exchanges. The panel did not call for cuts to those programs, which are popular with service members and their families.
  • Improving collaboration between Defense and the Veterans Affairs departments by enforcing coordination on electronic medical records, among other things.
  • Improving access to child care on military bases by ensuring Defense “has the information and budgeting tools to provide child care within 90 days of need.”
  • Creating a new command dedicated to overseeing joint military readiness.
  • Providing more education to service members on better managing their personal finances.

The Concerned Veterans for America said it supported the panel’s “overall recommendations to overhaul the military’s retirement and health care system.” The group said the reforms “will provide more choice and flexibility” to service members, families and retirees, “while preserving incentives for re-enlistment and a defined benefit retirement option for service members who serve more than 20 years.”

The Military Officers Association of America “welcomed” the release of the report, but did not endorse any recommendations. “We’ll have to evaluate the 15 MCRMC recommendations to determine what recommendations we can support and which ones require greater scrutiny, such as retirement and health care changes,” said retired Navy Vice Adm. Norb Ryan, president and CEO of MOAA, in a statement. “The devil’s in the details. Our concern is the health and welfare of the all-volunteer force. The most important element of the all-volunteer force is the retention of the experienced, high-quality mid-grade NCO [non-commissioned officer] and officer.”

Defense officials and observers have complained during the past few years about rising and unsustainable personnel costs. President Obama and the Pentagon have proposed -- without much success -- cuts and reforms to various sacred cows within the military during the last few budget cycles: TRICARE (the military’s health care system), housing allowances, pensions and military commissaries, to name a few. Lawmakers have been loath to make any significant changes to military compensation after more than a decade of war, dogged by the political fear of being viewed as breaking faith with troops.

The Pentagon annually spends more than $100 billion on salaries and allowances, which does not include health care costs or retirement benefits. Those expenses tack on another $75 billion or so each year. All told, military compensation eats up about one-third of the department’s budget.

On Thursday, Obama released a statement thanking the panel for its “comprehensive and thorough review.” He said the report “includes a number of specific proposals that I will review closely over the coming weeks, in consultation with our senior civilian and military leadership. I look forward to hearing their views and working with Congress to strengthen and modernize our military compensation and retirement systems.”

It’s unclear whether sequestration, which returns in full effect in fiscal 2016, will cause lawmakers to give the proposals a more serious look this time around. Maldon said the sooner the proposals are implemented the better, but he declined to predict what will happen on Capitol Hill. “We don’t have a clue what Congress would do.”

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