Panel Expected to Call For Major Changes to Military Retirement and Health Benefits

A two-year independent panel is recommending major changes to the pay and benefits of service members and military retirees, according to news reports.

The Military Compensation and Retirement Modernization Commission is calling for a new retirement system for service members that combines smaller pensions with greater participation in the Thrift Savings Plan, the government’s 401(k)-type program, the Military Times reported on Jan. 27. The nine-member panel is proposing that the Defense Department phase out its 20-year cliff-vesting retirement system and replace it with one providing some benefits to all service members regardless of their tenure.

Personnel who serve less than 20 years—about 83 percent—do not receive a retirement 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 reportedly will recommend waiting until service members turn 60 before paying out a pension, which would be less generous than the defined benefit retirees receive now.

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.

The commission also will propose changes to health care, which could include moving those under TRICARE to civilian federal employees’ health care plan -- the Federal Employees Health Benefits Program – according to the Military Times report.

The panel would carve out a more prominent role for the TSP in augmenting service members’ retirement benefits. Since 2001, military personnel have been able to participate in the TSP, though they must make their own paycheck-deducted contribution like any federal employee. Unlike civilian federal employees, however, not all service members receive matching agency contributions. About 40 percent of uniformed personnel participate in the current system.

Many of the reported recommendations for military compensation reform expected in the report are not new. 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.