Supporters of a 401(k)-style savings plan for the military told lawmakers this week that moves to change the 20-year-or-nothing retirement system are long overdue and should happen sooner rather than later, according to militarytimes.com.
"We have to change from this rigged system where there is an 83-percent chance they'll receive nothing for their service," Brendon Gehrke, senior legislative associate for Veterans of Foreign Wars, told the House Armed Services Committee.
Under existing policy, service members earn a pension for life after serving 20 years in the military, which they can begin to draw immediately after retiring, regardless of age.
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But only 17 percent of service members stay for 20 years, meaning the vast majority receive no pension whatsoever.
A non-commissioned officer that enlisted at age 18 and retires at age 38 may live until the age of 90, making him or her eligible for 52 years of pension payments in exchange for 20 years of service. Critics of the existing system say that is inefficient and unfair.
But younger enlistees that may have served multiple combat tours in recent years, and then left the military before serving 20 years, walk away with nothing towards retirement.
Veterans of the wars in Iraq and Afghanistan find that troubling.
"We have a fundamental belief that it's unfair for someone to serve 10 years, maybe with five deployments, and leave with no retirement benefit at all," said Chris Neiweem, a legislative associate for Iraq and Afghanistan Veterans of America.
In 2013, Congress authorized the Military Compensation and Retirement Modernization Commission to research alternatives to retirement and other forms of military compensation.
About 2 million military retirees are currently drawing pensions. In 2012, the Department of Defense's Office of the Actuary estimated payments from the military retirement fund to be $51.7 billion. Retirement outlays are expected to increase to $55 billion by 2017, and $59 billion by 2022, according to the Congressional Budget Office.
Nearly one-third of the Defense Department's budget goes to personnel spending. Updating retirement benefits structures could free more cash for weapons, research and development, and other costs, say proponents of change.
The commission has recommended a 401(k)-style savings plan, to be offered along with a pared-back pension, for all future military members. The government would offer a 5 percent annual match.
Current members of the military and retired veterans would not be affected.
Still, several veterans groups aired their concerns before the Armed Services Committee.
"The system now is extremely predictable," said Michael Hayden, director of government relations for the Military Officers Association of America. "You can see exactly what your retirement paycheck is going to be. With this (401k) proposal, your payouts depend on many different variables."
"You have to ask whether that will encourage more people to leave or stay," Hayden said, as reported by militarytimes.com.
Representatives from the American Legion and National Military Family Association testified that even modest changes to retirement benefits could dramatically change the face of the force.
Lawmakers on both sides of the aisle have proven how hard it can be to agree on even modest adjustments to military benefits.
Last December, congressional negotiations stalled over a proposed increase in co-pays to the Tricare health system, which gives military members, veterans and their families access to the health care system outside of the Veterans Administration's health care network.
The proposed increase amounted to a $3 increase in annual co-pays.
Correction: An earlier version of this article incorrectly reported the annual cost of pensions for about 2 million military retirees.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
