The Pentagon just approved a major plan to reform the military
retirement system by reducing current pension size by 20 percent. That
plan is now in the hands of Congress.
Defense officials sent along a
six-page whitepaper with the bill in an effort to help explain the policies,
Military Times reports.
A blended system maintains the current, though downsized pension
system, and adds individual retirement accounts for personnel, called
Thrift Savings Plans (TSP). Government contributions equivalent to 1
percent of basic pay accrue to the account and cannot be withdrawn
before the veteran is 59 and a half.
Contributions from personnel are automatically set at 3 percent.
Opting out is possible, but personnel will first have to receive
training in financial literacy. After four years of service, the
government will match individual contributions to the account up to the
equivalent of 5 percent of basic pay. If individuals kick in 5 percent
of their pay to the account, the government will also add 6 percent of
basic pay.
Back in March, President Barack Obama hinted at support for the
reform recommendation stemming from the Military Compensation and
Retirement Modernization Commission’s two-year study which came out
earlier this year.
(RELATED: Obama Hints At Support For Downsizing Military Pensions By 20 Percent)
For the longest time, the Pentagon avoided taking a concrete
position, but approval from top DOD officials means one more obstacle
out of the way in moving the proposals through to law.
With the new change in place, some amount of retirement benefits
would be available for the vast majority of personnel who exit before
they reach 20 years of service—the time it takes to be approved for the
normal pension system.
Individual retirement accounts is a concept supported both by a
Republican-dominated Congress and many veterans’ advocates, though with
some qualifications.
“While IAVA is still reviewing the details of the recommendations, we
support an update to this system to allow for more options for service
members, particularly those who serve fewer than 20 years,” Mark
Szymanski, chief communications officer at Iraq and Afghanistan Veterans
of America (IAVA), told The Daily Caller News Foundation.
“Our position is driven by IAVA’s members, who have voiced support
for reforming the military retirement system to include non-careerists.
In our 2014 Member Survey, of those supporting reform, 67 percent
favored a 401k-style benefit for non-careerists, 33 percent favored
increasing the overall value of the current retirement benefits, and 59
percent favored a partial early retirement benefit for 10 or 15 years of
service. For our members, it is clear that they want to see a system
where all service is eligible.”
Other groups were more specific, highlighting the incentive structure
as an element of the new system that could go awry if not carefully
observed.
“One of The American Legion’s concerns was that the new plan would
reduce the incentive for enlistments or re-enlistments, so if the new
plan is approved and implemented, and they find that they’re losing
ground as far as encouraging people to join the military goes, then
they’ll have to go back and relook at the system,” Joe Grassi, director
of the national security division for The American Legion, told TheDCNF.
Grassi noted that the plan includes a grandfather clause, meaning
that currently serving military personnel will have two years to decide
whether they’d like to opt in to the new system or continue with the old
system.
The Military Officers Association of America (MOAA) is decidedly more skeptical. President and CEO of MOAA Norb Ryan
told Government Executive
that “the current system provides great predictability and the TSP’s
rate of return is at the whim of market fluctuation. We still have
concerns that the 20-percent reduction in a service member’s retired pay
will fail to draw members to 20 years of service and beyond.”
The total value of the benefits under the new system, defense
officials maintain, is equivalent to the old system, though there is
room for variance because of the element of individual choice in
contributions.
With the new system in place, estimates place the amount saved for taxpayers at $1 billion dollars annually.
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