Skip to comments.MILITARY UPDATE: Luring current force to ‘reform’ its own retirement
Posted on 05/17/2014 8:30:06 AM PDT by SandRat
Current military members and retirees are to be grandfathered from any retirement changes that the Military Compensation and Retirement Modernization Commission recommends to Congress next February.
Current force members shouldnt let that dampen their interest in the work of the commission or its final recommendations, because any retirement reforms proposed almost certainly will include an opt-in feature.
Many currently serving members will get the chance to choose to switch to a more modern, less generous retirement plan. Who would do that?
If past behavior is a reliable guide, thousands will.
Economists use the term personal discount rates. More simply, its how the promise of cash-in-hand affects you versus larger future rewards.
Its pretty clear, though, that current members, if they choose, will be able to stay under the High-3 retirement with its immediate annuities after 20 years of service set to equal 50 percent of average basic pay for their highest three earning years. Why?
The Joint Chiefs of Staff are insisting on it. The Obama administration has made retroactive retirement protection part of its guidance to the commission. And the likelihood Congress will buck those promises is slim given the lashes Rep. Paul Ryan (R-Wis.) and Sen. Patty Murray (D-Wash.), House and Senate budget committee chairmen, felt when their budget deal last December included a cap on military retiree cost-of-living adjustments.
Before the ink dried on that deal, Congress voted to replace the COLA cap with alternative budget savings it still might regret: lengthening the impact of sequestration on future defense budgets by another year.
So to borrow a phrase from recent popular culture: If you like your current plan, you can keep it. But youll have something new to consider.
Department of Defense pay experts gave the commission two concepts for reforming retirement. They also advised that a lot more money would be saved for taxpayers if, in adopting either of these ideas, the commission also endorses an opt in feature for those in service.
Steady state savings from any one of the new retirement concepts if adopted only for new entrants would range from $1.7 billion to $3.9 billion annually, officials told the commission.
However, if currently serving members were permitted to participate which DoD believes should be an option, savings to the Department and the Treasury would emerge more quickly. The greater the number of members who opt-in, the faster the full savings of the change would be realized.
Current military retirement is a defined benefit that pays an immediate annuity after 20 or more years. The value of the annuity climbs by 2.5 percent of basic pay for each year served. However, only 15 percent of all members who serve stay long enough to quality.
Both of the new concepts shown the commission is a hybrid plan, combining a reduced defined benefit with two new tools. One is a defined contribution feature, the government making regular payments on a members behalf into a Thrift Savings Plan (TSP), similar to a 401(k) account. The contributions would be invested and made portable for members to take with them even if they leave before 20 years. They would be fully vested in these accounts after six years service.
A third element of the hybrid concept is supplemental pay to give the services greater flexibility to shape force structure and to retain select skills or pay grades. These pays could ease transition to civilian life for careerists no longer needed, or be made continuation pays to entice members to served years longer until the defined retirement benefit is within reach.
Being able to pocket benefits sooner can be a powerful inducement to forfeit more valuable benefits. As Defense officials advised the commission:
Because service members on average value deferred benefits less than the actual cost to the government to provide these benefits, it is possible to generate savings and sustain retention by altering the mix of current and deferred benefits.
Defense officials have seen this work with the $30,000 Career Status Bonus (CSB) offered for over the last decade to careerists in their 15th year. In return for that extra cash, to pay off credit cards or buy a new car or put a down payment on a home, careerists are still opting back into Redux with its reduced annuities and smaller cost-of-living adjustments to retired pay.
Congress conceived the CSB for one purpose: to dampen the cost of repealing that cheaper retirement plan, which Congress had imposed on any member entering service after July 31, 1986. When the Joint Chiefs complained about the impact on career retention from a cheaper retirement offering, Congress repealed Redux. But it also created the $30,000 bonus to entice at least some careerist to opt back in.
Though CSB has been frozen at $30,000 more than a decade, steadily losing purchasing power, it continues to induce about three percent of officers and 15 percent of enlisted into a cheaper retirement. Wartime tax breaks on deployment increased its attractiveness.
As of 2012, more than 34,800 enlisted and 925 officers had retired under Redux rather than under the High-3 plan. Because of that choice, the Defense Department, in setting aside funds to pay future retirement benefits, needs to contribute about $600 million less annually.
Defense officials and outside analysts who shaped the new retirement concepts would bristle at any comparison of their complex plans to the maligned CSB. Their hybrids, they say, address the unfairness of allowing most members to separate with no benefits toward retirement. The hybrids also give force managers greater flexibility to shape a cost-effective force.
But like the CSB, their plans also save a lot of money by moving retirement cash forward where many members will decide it has greater value than in the long run.
When will the Government reform the Civil Service pensions which dwarf the military pensions?
I ould bet NEVER.
“When will the Government reform the Civil Service pensions which dwarf the military pensions?”
The same day Congress, the President, and congressional staff go on Obamacare and pay for it out of their own pockets.
They already did. It’s called FERS.
The far more generous program, CSRS, was replaced by FERS. CSRS retirees were unaffected by the change I believe.
FERS uses a 401K style plan called TSP for the lion’s share of its benefits. Federal employees contribute to their own retirements and can receive matching contributions from the government up to, I think, 5%. In addition to TSP, they receive 1% per year served if they serve until retirement age, but TSP is the most important component by far.
This is the trial run. If they can get by with gutting military retirement, socialization of civilian retirement will be easy.
After the 2014 elections, or the election of Hillary in 2016, expect serious “reform” of Social Security and private sector retirement. After the next stock market crash expect the $16 trillion in 401K and IRA money in private hands to be swept into social security and “invested” in government bonds for “safekeeping”. Of course this new money will initially be personal savings accounts placed in a “lockbox” by the government. Give them another five years and the individual Social Security accounts will be combined into a single pool for the common good and the disbursements will be means tested to ensure fairness.
By that time the Obamacare medical panels will have decided it serves no purpose to society to provide life extending healthcare to senior citizens over age 75 except the few members of the elites who benefit society. Give them another five years and we’ll have compulsory euthanasia for common citizens over age 70 in order to reduce the environmental impact of human beings, who no longer produce, on the planet.
All of this is coming from the party that routinely beats up Republicans for hating the poor and wanting to destroy social security so the elderly can starve. It is simply amazing.
They will give you a choice, if you choose the old system, there will be a reduction in force, and guess who will be on the list.
I have no idea, but I suspect the cost of military retirees is pittance compared to non-military, gov't retirees.
Government employee retired benefits continue to grow by leaps and bounds, while military retirees are constantly under the knife. IMO!
BTW I know they are under different accounting structures...doesn't change the facts, just provides an excuse.
Get ready to be screwed. soetoro will see to it.
Military retirement is based on a 20 year term. Unless you get out under a special program you get nothing. The article says only 15% of servicemembers get that far. At 20 years you get 50% of your base pay. Base pay is a majority if your pay, but far from a vast majority. I would imagine it would be about 30% of your total compensation including housing and subsistence allowances. Additionally, you go from free healthcare to a very low premium healthcare. One of the expensive parts is that you draw your retirement right away, no matter how young you are. Somebody who enlists at 18 can retire at 38 and then draw that retirement for the next 35 years if they make it to the current life expectancy.
Federal retirement is a different type of beast. I went from the miltary to federal service and I don't know very many people who quit once they have a more than a few years in. The ones I have seen quit were other pilots, who can make more money on the outside. So you have a huge percentage of employees who are staying until retirement. You are also vested after 5 years, so even if you quit you will eventually start drawing something. The four rent fed retirement is a three component deal. A defined annuity, a 401k type account, and Social Security. The annuity is 1% x total number of years x highest three total salaries. that means about 30% for most career employees. Law enforcement has a higher rate than that because of a mandatory retirement age. One thing fed retirement does have is minimum ages to retire so of you don't see people retiring at 40. Retired fed employees still get medical at the same premium structure they had while working until they are Medicare eligible. Fed employees also contribute some of their pay to the defined portion, a small percentage compared to the government. Their 401k is matched up to 5%, but it seams most employees put about 10% of their pay into that.
Both systems are expensive, but most people don't begrudge miltary retirees their retirement. Fed employees are reviled, regardless of what they do. There are too many of us. I think a 15% RIF would be a good start.
Sorry about the typing errors. Auto correct is crushing me on my iPad.
This might be a good option for people who are not sure if they want to stay the full 20 years or not. The problem is that many don’t make up their minds until they are 6-8 years in. And then it’s too late.
Active Duty/Retiree ping.
Just out of curiosity I looked at an LES from shortly before I retired. On deployment, base pay was 58% of my total pay, 62% upon return and losing HFP/IDP and FSA. More than I thought, but still quite a bit less than union public employees who are getting pensions based on their entire pay at retirement.
When I retired from the Air Force, my retirement pay was a whopping $761 a month. I thought I could get rich on that. s/
Where you tend to see the very high retirements is with the state and local agencies. I lived in a state where a 30 year teacher got 90% of their high 3, plus medical.
Las Vegas Fire was investigating a scheme wear their management was approving excessive over time for managers close to retirement to pad their payouts. With the large amount of overtime available to some public safety employees and contract rules using overtime as part of the retirement calculation, that is a chronic problem.
Where=wear. Freakin autocorrect
You are spot on. There is a HUGE disparity between Federal and military retirements vs. local and state retirements.
I retired from the armed forces - and my retirement was based on 50% of my base salary. Years ago, Congress broke down your pay into several categories: housing, subsistence, allowances, and base pay.
They did this so they would only have to pay you 50% on one portion of your pay, thus making your retirement check much, much smaller.
Federal retirements are much, much less than most state, municipality, and county retirements.
Six figure isn't the trend on some states, it is becoming the norm.
There is no less stressful, taxing, and dangerous job in American than the US military.
And though you are vested at 20 years (and now they want to change THAT), it is a much less generous retirement than cops, teachers, and administrative workers for the states.
The same can be said by extension with the federal retirement system. The planned payouts aren't as high, but the federal government as a whole has been running deficit for a long time. In general we can't afford our current government outlays. Part of that is employee costs.
The greatest expenditures at the Federal level are Social Security, Medicare, Medicaid, (add ObamaCare now as well) and some 70 means tested welfare programs.
None of those are ever touched in any significant way.
In the last couple of years, Federal and Military pensions have come under massive assault by the House Republicans (i.e. Paul Ryan), but none of that will stop the fiscal insanity because entitlements are not touched. Likewise, the pay freezes endured by Federal civilians have contributed Billions towards deficit reduction, but those dollars were spent by Obama on giveaway programs before they even went back into the Treasury.
Federal employment is something that could be solved quite quickly. Another sequester where furloughs go more than 26 weeks kicks in an automatic RIF. To do it more slowly you simply don’t hire to fill retirements. The federal service is made up of a lot of older people. My office only has 25% of the office that is in their 30’s. Nobody is in their twenties. We have 20% of the office that is mandatory in the next 5 years. We need to stop hiring replacements, and stop the rampant wage/grade inflation. SES numbers have exploded in the past decade. Unionized groups have negotiated grade increases that take away incentives to try for promotion and overpay for employees that enter service with no special skills.