DoD weighs in on new retirement system
Chock Block sends us a link to the Marine Corps Times which reports that the Department of Defense has written a six-page report on what they want the new retirement system for members of the military to look like.
The Pentagon is officially backing a “blended” system that would shrink the size of the current pension by about 20 percent yet supplement that benefit by offering government contributions to individual retirement investment accounts.
The proposed system would provide for the first time a modest retirement benefit for the vast majority of service members who leave the military before reaching 20 years of service to qualify for the traditional pension.
The Defense Department’s recommendations are mostly similar to the legislation that is gaining steam on Capitol Hill and comes at a time when lawmakers are hammering out the details of their annual defense policy bill.
The Defense Department and members of Congress are being disingenuous about this thing. The “modest retirement benefit” for folks leaving before twenty years, isn’t helpful at all. It’s only the Thrift Savings Program, you know, that 401k thing that would trigger a penalty from the IRS if the money was used before the age of 59 1/2, along with any tax due on the amount withdrawn. In total, it would cost about half of the amount in the account. It’s only a real benefit if the service member leaves the money alone until they reach retirement age. Odds are that wouldn’t happen among enlisted members, especially if there’s no education process involved.
The DoD should look at the current participation rate among service members in the TSP. I suspect that it’s pretty low. I know my own son didn’t understand it until I sat him down and explained it to him.
On top of that, the government wants to wait to start matching contribution (5%) until after four years of service. That’s cheating service members out of four years of growth of that money which could be significant over time.
The Pentagon recommends a new retirement system taking effect in January 2018 and giving current troops at that time two years to decide whether to opt into the new system and begin accruing money in a TSP or to exercise the grandfather clause and remain under the current system.
Yeah, that will be the real test – if they explain the system to the troops, instead of sell it to them.
Either way, I hope the DoD is as prepared to deal with the hit they’re going to take to retention and enlistment and I hope they’re as excited about that as they are about saving money on the backs of the troops.
Category: Big Pentagon
Was kind of waiting for this to happen once they introduced TSP to us a few years ago. I took full advantage of it especially on my deployments. However, it was a hard sell to the troops even when I explained it to them one on one. New Harley Davidson at ~$3k discount or a tax free retirement account they can’t touch till 59.5….tough choice for some.
I don’t need those two years to decide, I’m exercising the grandfather clause and remaining under the current system. Fuck the new retirement proposal.
What it doesn’t say is that the Pentagon was TOLD to recommend/support the commission findings – ALL of them. There are a couple that are still vehemently opposed in the building, but ‘leadership’ has been directed to find a way to get to ‘yes’ regardless.
Now, THAT doesn’t surprise me. At all.
Can you say “REDUX – part II”?
Sure. I knew you could.
The phrase “went over like a fart in church” comes to mind for the former REDUX system. I’m guessing it will be the same for this proposal if adopted.
The amount of people who still take that travesty is astounding…..
Originally posted by Hondo: Can you say “REDUX — part II”? Sure. I knew you could. The phrase “went over like a fart in church” comes to mind for the former REDUX system. I’m guessing it will be the same for this proposal if adopted. I remember those times. Service Members had no qualms about leaving the service at the 16 year mark, as the reduced retirement pay wasn’t enough in their minds to overcome the BS, sacrifice, deployments/family separations, etc. The mere thought that their service was only worth 40% at 20 years with reduced annual increases were seen as a “smack in the face.” A lot of service members mentioned REDUX as a major reason for not remaining in the military. Discipline in the military has continued to erode since the late 1990s, with our winding down with Afghanistan, and going back to garrison mode, troop moral is already beginning to follow. This new system makes it easier for service members to leave the military and to grow their retirement elsewhere without having to go through what one has to go through while in the military. Build retirement without leaving family? Without leaving the US to do something stupid for the State Department? That arrangement will make it easier for for profit organizations to recruit from the military. Yup, we made things easier for civilian recruiters, and upped the challenge for military career counselors. This new retirement proposal, when adopted, may not have much of an immediate impact. But, when the new service members start realizing what their retirement is going to be like, relative to those still serving but who came in before a certain time, we’ll be getting more impact indicators… in the form of the sound of feet making their way to the doors. It’s like what someone indicated in another reply here… we’re flirting with the need to bring the draft back in the future. Because of the changes in the military that happened since the Cold War, we’re looking at a future draft pool being larger and including people who’d think that they… Read more »
Interestingly enough I work in color science related to the printing industry. When you blend too many different colors you don’t get a magical new color, you get black…a really, really, expensive black that nobody wants to use because it’s unpredictable.
That’s much like this blended approach.
They are using the term “blended” Instead of be honest and saying the military is reducing benefits and the only way for to get to the level of the current benefit is to save it yourself which doesn’t sound nearly as interesting.
I sort of ranted about this the other day…1% or slightly less serving…benefits dropped, insurance costs for tri-care rising, multiple deployments even past your separation date thanks to stop/loss, lower pay if some of these assclowns have their way…etc, etc, etc.
I know I didn’t join for the benefits, I turned down two different scholarships to join the infantry. But many kids join because they expect to receive a tangible benefit for their indentured servitude. Take that benefit away or reduce it to the point where it doesn’t make the servitude worthwhile and guess what? That 1% drops to a .5% or .25% and there is no longer a mission capable force.
Maybe that’s the end game, make it so unattractive they have to reinstitute the draft.
So its basically going to be 30% of your base pay at 20 years? Then wait around another 20 or so years to be able to draw without penalty on your 401K?
40% JaOD – not 30%. A 20% reduction of 50% of high-3 average at 20 YOS is 40% of high-3 average.
Details of the proposal are contained here. Essentially, under the proposal the 2.5% per year of service is reduced to 2% per year of service.
http://ec.militarytimes.com/static/pdfs/Retirement-Reform-Info-Paper.pdf
It may be a decent thing for those (the vast majority) who don’t do 20. For those who stay until full retirement not so much…
Correct. I don’t see it impacting initial enlistment numbers since a large number of teenagers are looking t be employed in the near term, not necessarily looking for a job that will last longer than their entire existence up to that point. Deciding to stay in and make it a lifestyle generally happens later down the road which is where this will eventually have a negative impact – mid-career NCOs/Officers that decide to take what they have, roll it into a 401K or IRA in a civilian job rather than try to peg out at 20 or longer. Any time the government gives you the opportunity to ‘opt-in’ it most likely benefits THEM at YOUR expense.
Under the Pentagon’s recommendation, there wouldn’t be a match until after year 4 on active duty, at which point 60% of initial service members exit anyway.
True – I’d missed the delay in start date of matching. Thanks for bringing that up.
Yeah, those POOOOR Congressscum and their meager retirement benefits, it looks like we need to sacrifice so they can keep theirs and the welfare flunkies & illegal aliens get to keep their hard-earned benfits too…
Actually, PI – the new proposal is somewhat more generous than what current Congressmen have today regarding basic pension. The Congressional pension for anyone first elected since 1984 is 1.7% of high-3 average for the first 20 years, followed by 1% per year of service thereafter. (Congressional TSP match is about the same, but Members can contribute more w/o match to the TSP than this proposal allows those in uniform to contribute.)
I’ve done the math previously. A member of Congress who retires after 20 years of service in Congress (and who has no other Federal civilian or military service for which they’ve paid the required deposit to count same for pension purposes) gets about the same pension as an LTC who retires from active duty at 23 years. And if they want medical insurance, it’s not free – it costs them the same as it costs any other Federal retiree, and possibly more (ObamaCare may have screwed them on that score). Out of pocket costs can easily top $5k per year for a middle-of-the-road health insurance plan.
Not defending Congress, but I do hate to see people misled by deliberate misinformation.
My gripe is not necessarily with congress but with the gov’t workers. The military is taking it in the shorts so the govvies don’t have to worry about their pensions and bennies.
Um, not exactly. Current Federal civilian pensions are substantially less generous than those for military reitrees – e.g., 1% of high-three average with minimum of 30 YOS required, and minimum age for retirement of 55 or higher. That goes up to 1.1% per year of service at age 62 with more than 20 years of service.
A GS-15 – e.g., the highest non-Senior Executie grade, and considered protocol-equivalent to an O6 – who is receiving max pay (just short of $159k per year) who isn’t LE or ATC and who retires with 35 years of service under current FERS rules ends up with roughly the same pension as an LTC who retires with about 21 years of service. And their medical care isn’t free, either – either before or after retirement. Like I said above, a good healthcare plan can easily run $5k out-of-pocket annually.
There is an older, more generous system – but not that many current Federal employees are under it any more. No one first hired as a civilian after 1983 is eligible.
There is much misinformation being spread out there about federal civilian salaries and bennies, too.
But, you are not including the matching contribution the government makes to the civilian’s TSP account. That adds up and is something the military member does not get.
Arby: That is true. Its also irrelevant.
I’ll go out on a limb here and say that 5% match (which is the max permitted) has considerably less overall financial value than getting over 2x the pension based on years of service, even when the tax-deferred gains in the TSP are considered. That’s true without considering being able to retire on full pension substantially earlier or non-taxable financial allowances received while on active duty.
I’ll also observe that under the new proposal here for military pension changes, uniformed personnel opting for or falling under the new system will indeed get that same match – up to 5% of base salary, starting after 4 years of service.
If you doubt my above comment about the relative value, ask any civilian employee covered under the current Federal retirement system, FERS, if they’d change to CSRS if allowed. CSRS had zero match for TSP, and could contribute less to the TSP than could those under FERS. But it had what worked out to nearly double the pension that FERS has.
I think you’ll find that most would opt to change to CSRS and forgo the FERS TSP match in a heartbeat. If they could, that is.
There was a very good reason that the option to transfer from CSRS to FERS offered to CSRS employees when FERS was implemented back in the early/mid 1980s was both one-way and irrevocable.
I’m not arguing that this proposed military pension change is a good one. But I do hate to see people make apples-to-oranges comparisons, then claim someone is “getting over” – when in reality they themselves actually have at least as good a deal, and in some respects a better one.
(Edited to add the items in italics.)
My complaint is that Congress critters get ANY sort of retirement. They ought to be restricted to two terms in either the house or senate, or one in each, then given a nice little plaque and sent home to find real work.
I’m also of the opinion that those folks ought to be paid the same rate as an O-6, with the same housing, rations, and medical benefits while they are in office.
Give them a car and driver for the length of their stay in office. Give them an office and 5 staffers. Anything more comes out of their own pocket.
Let them get free travel (Space “A”) on any military aircraft headed where they need to go. Just them, no staffers or family, etc. Give them a free R/T coach ticket from their home of record to Washington at the beginning and end of each term of Congress. Everything else they either catch a hop or pay for it themselves.
Congress isn’t supposed to be a lifetime job. It isn’t supposed to be a career. It is supposed to be made up a citizens doing their patriotic duty to represent their fellow citizens back home, and it’s important that fresh blood gets put into the system on a regular basis.
Anyway, that’s my thoughts on the issue. I realize that others mileage may vary, but that’s how I see things.
respects,
I would be far more interested in “blended” pension plans for Congress.
See above. Congress already has such a “blended” plan, as do other Federal civilian employees (the Congressional plan is somewhat more generous than that for most – but not all – other Federal civilians).
Congressional pensions are hardly as generous as some with an agenda would mislead you to think. They do not retire on “full pay after one term in office”, or have “free medical care for life” as some crap bandied about on the Internet tries to make people believe.
Not defending Congress, but lies – and liars – bother me.
“Take Kay Hagan, the North Carolina senator who lost her bid for a second term, for example. After finishing just one six-year term in the Senate, Hagan, who will turn 62 in 2015, will be eligible for a pension of nearly $16,000, according to calculations done by the conservative National Taxpayers Union”. $16K a year for 6 years and no PT or danger. Not a bad deal. I’m sure more people would like that deal.
I’m sure they would. All they have to do is get elected.
I’m equally sure Hagan would prefer to still be in Congress. Those folks aren’t generally there for the money; almost all of them could make far more than $174k annually in business. They’re there because they crave being in a position of power and influence.
The pay of congress is nothing compared to what they get through kickbacks and lobbyist.
Look how Pelosi steered contracts to her Hubby.
Well, if you’re willing to accept graft and/or engage in corruption – yeah. But that’s true whether an individual is an elected official, in the militiary, a government civilian, or is in private industry.
Not just that, look at how many have lavishly profited from insider information and contacts, Senator Feinschwein is a fine example, the real estate outfit owned by her husband has made millions selling off surplus USG buildings.
IMHO the vast majority of politicians are self-serving backstabbing lowlives.
How many military retirees are there on average at any time? And how does the expenditures for those retirees compare to other benefit programs?
I am truly curious and I may be biased, but I think it probably isn’t half as much as, say, the food stamp program.
Just sayin’.
In Sep 2012 (latest numbers I can find easily), there were 2,066,861 retired military personnel. This includes USCG retirees.
DoD was at the time paying just short of $52.5 billion annually in retired pay to those individuals. This includes SBP payments, but does not appear to include USCG retires paid out of DHS accounts. Not sure of that amount.
See pages 25 and 26 of
http://actuary.defense.gov/Portals/15/Documents/statbook12.pdf
Yes, the SNAP program (AKA food stamps) currently spends more. But the total of military retired pay is in the same general ballpark (10s of $billions).
Addendum: found the May 2014 (FY13) report. Numbers in Sep 2013 were 2,086,179 military retires and DoD retirement pay costs of just over $53.9 billion for the year.
That $53.9 billion does not appear to include what DHS paid to the 39,498 USCG retirees for which DHS pays retired pay. Assuming those USCG retirees as a group received the DoD average for retired pay, that adds somewhat over another $1 billion to the total.
http://actuary.defense.gov/Portals/15/Documents/statbook13.pdf
OK, so here we go, this amounts to a pay CUT for the SSA&M. This sounds a lot like the guy with his pocket full of C-notes who refused to tip his valet because he had nothing smaller.
Dude, Uncle Sam hasn’t had a full wallet in decades. He’s been flat broke for years, and has been maintaining appearances via smoke and mirrors alone.
I’m trying to understand this part:
‘a “blended” system that would shrink the size of the current pension by about 20 percent yet supplement that benefit by offering government contributions to individual retirement investment accounts.’
If this is aimed at some kind of budgetary savings, how is it going to save a dime? It seems to me this is exchanging one expensive system for another.
I know what employer-matching is, because I benefited from that in my 401K at work for 18 years. (Was it THAT long? Man! Time flew.) And I did have a Roth IRA. On my retiring, my 401K went to a rollover IRA, which was available then. Don’t know if it is now, but it was a real benefit. Now that has all changed, probably because the taxes that were expected from IRA withdrawals didn’t materialize. It’s easy enough to find a way around the tax requirements.
But back to my question: how does this funds-matching program result in cost savings for the Grubbymitts? It just looks like shifting stuff from one program to another and the cost is the same.
And what’s next? Eliminate pension plans altogether? Yeah, that’ll keep people coming, won’t it?
I, too, think that this may be aimed at reinstating the draft, so that the military returns to its status as a temp job where you gain work experience and maybe a little discipline. Well, maybe not discipline, but you know what I mean.
Easy, Ex-PH2.
Match is 5% max of base pay and is a one-time cost. And that doesn’t start until the individual completes 4 years of service; many leave at or before that point.
Retirement is a recurring cost averaging 50+% of high-three average and lasting 30 years or more. And it grows with each inflation adjustment.
It doesn’t take much of a reduction in the latter to offset the costs of the former.
That’s precisely why the Federal civilian workforce had a similar program imposed on them over 30+ years ago, when the Federal civilian retirement changed from CSRS to FERS. The latter is a “blended” plan substantially less generous that this one proposed for the military.
(Edited to add items in italics above.)
“so that the military returns to its status as a temp job where you gain work experience and maybe a little discipline. Well, maybe not discipline, but you know what I mean.” Wouldn’t it be nice if Congress was a temp job? (Anyone old enough to remember when Howard Baker proposed making Congress and senior executive jobs unpaid , since it was pretty much all rich folks anyway?)
David: yes, it would. Unfortunately, the Founding Fathers didn’t include term limits on Federal elected officials in the Constitution when it was drafted – the only Constitutional term limit is on the POTUS, and that was added via an Amendment. The courts have ruled that that omission precludes states placing term limits on Federal offices via state law.
I remember Howard Baker, but not that proposal. Now you’ve got me curious, and I’ll have to look that up.
“To the dismay of some constituents, Mr. Foley, who represents a district in eastern Washington, filed a lawsuit in Federal District Court in Seattle last month to overturn the term-limits law that Washington voters approved last fall. Similar measures have passed in 14 other states, although their impact will not be fully felt until there is a court review.”
http://www.nytimes.com/1993/07/29/us/house-speaker-and-ex-attorney-general-dueling-over-term-limits.html
In a 5-4 vote, theSupreme Court ruled that states can’t place limits on the length of time members of congress can serve. The ruling strikes down an Arkansas term-limit law and similar measures passed by 21 other states. It is likely to slow the populist rush for such limits, at least for a while. Writing for the majority, Justice John Paul Stevens said that the Constitution prohibits states from imposing qualifications upon candidates beyond minimum age, residency and citizenship –the ones explicitly stated in its text. Justice Clarence Thomas dissented, saying the Constitution is simply silent on the issue. Speaker of the House Newt Gingrich said today’s decision demonstrated the need for a constitutional amendment to limit congressional terms. Such an amendment failed in the House earlier this year, but Sen. Fred Thompson (R-Tenn.) pledged to bring a Senate version to the floor “at the earliest possible date.”
http://content.time.com/time/nation/article/0,8599,3896,00.html
Nearly half of the States voted FOR term limits, so Congress-critters sued their own constituents – all the way to the Supreme Court. Yep, that’s Representative Democracy right there.
It was also arguably an example of the courts correctly saying to the states: “Um, the Constitution doesn’t say that – and the Constitution, not state law, defines eligibility to hold Federal elective office. You cannot unilaterally modify the Constitutional requirements for holding Federal elective office via state law.”
I think term limits would be a good thing. But since the Constitution doesn’t specify term limitations for Congress (as it does for the POTUS), it will require a Constitutional amendment. If/when 3/4 of the states want it, we’ll get it.
Maybe somebody can explain why elected officials receive a pension in the first place? As for the thrift savings for military, yeah this is a great idea pushed by wall street to require take military pension funds be placed in the casino where the game is rigged against the little guys. Naturally all these changes are proposed by politicians who never had the balls to serve themselves either.
Well, I for one think the current “all or nothing” system is badly in need of revamping. It’s great for those who serve 20+ years but not so great for those who don’t.
The “all or nothing” retirement system has the pernicious effect that we’ve all seen of ROAD (Retired On Active Duty) loafers doing just enough to get by as they mark time until they hit their 20. A more flexible retirement system would encourage them to take their skills elsewhere and open up those senior NCO slots for hard-chargers who really want them.
The ROAD is a leadership problem. It can be easily fixed. Leave alone my retirement.
I still got 10 more years to go, and is looking bad right now.
I can imagine the discussions in Congress going something like this:
We can loot a lot of money out of the military retirement system and still look like we’re helping veterans in a few simple steps.
1. We tell them that EVERYBODY is going to get a retirement account. Yeah it’s TSP but less than 10% (making that # up) actually use it.
2. We tell them that the government will match up to 5%. But only AFTER they’ve done 4 years. 73% (made up another #) get out at 4 years so we save on the matching.
3. Only 17% stay for 20 years so we’ll just reduce the percentage they collect. What are they going to do, they’ve already invested 10~15 years in the military, we’ve got them by the balls.
4. They can’t touch TSP until they’re 60. If they do, we’ll get our money back in taxes and penalties.
5. And finally between now and the time they’re 60 we can figure out a way to reduce how much they can contribute, how much we’ll match and a way to seize it or tax it for “deficit reduction”
Sound about right?
And the average 18 y/o Joe/Josephine isn’t exactly financially experienced no matter how much annual training and counseling the get.
Stacy0311: yep. You’re being sarcastic, of course – but you may be fairly close to the mark.
I’m guessing pretty much the same type of discussions took place regarding the change in Federal civilian retirement systems during the early 1980s, too. That system when from one that effectively paid about 1.875% per year of service over a 30-year career to one that paid 1% per year of service over the same 30-year career – with the difference “made up” by the combo of TSP savings/match/earnings and Social Security.
Yeah, right. Ask anyone under that “new system” if they’d prefer to be under the “old system” instead. In most cases, they’d be a damn fool to say yes.
So, basically the Pentagon is “supporting” the plan that was “recommended” by a Panel implemented by the White House?
You can’t see it, but this is my shocked face….
Fuck them, fuck them right in the ass….