Panel will propose new military retirement system

Discussion in 'Academy/Military News' started by tankercaptain, Jan 28, 2015.

  1. tankercaptain

    tankercaptain Member

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    Panel will propose new military retirement system
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    A report to be released Thursday is expected to call for major changes to all forms of military pay and compensation, including health care and retirement plans. less
    The long-awaited report on military compensation set to drop Thursday will propose fundamental changes to military retirement and health care benefits, according to several people familiar with the report.

    The Military Compensation and Retirement Modernization Commission will propose detailed legislation to phase out the current 20-year cliff-vesting pension payable immediately upon leaving service, according to people who have been briefed on the report but requested anonymity before discussing its recommendations.

    The plan calls for Congress to create a hybrid system that includes a smaller defined-benefit pension along with more cash-based benefits and lump-sum payments. A significant portion of troops' retirement benefits would come in the form of government contributions to 401(k)-style investment accounts, those familiar with the report told Military Times.

    Specifically, the proposal calls for automatically enrolling each service member in the federal government's Thrift Savings Plan, or TSP, an investment account that accrues savings. Individual troops will be responsible for managing their accounts, and the money is typically not available for withdrawal without penalty until age 59.5.

    The government contributions likely would be a percentage of basic pay and could vary depending on years of service and/or deployment status. Full ownership of the TSP account would come only after troops have completed several years of service.

    By allowing many troops to keep their TSP government contributions after separation, the new proposal would give limited retirement benefits to the vast majority who leave the military before hitting the traditional retirement milestone of 20 years of service, most of them enlisted members who do four, six or eight years, then leave.

    That's a big potential change from a system that now offers retirement benefits to about only 17 percent of the force — many of them officers — who serve 20 years.

    Any change to military retirement would require Congress to pass changes in law.

    A grandfather clause would shield today's service members from any retirement changes; a new retirement system would apply only to future recruits.

    However, the commission is proposing some changes in health care benefits that could affect troops now on active duty.

    Many experts say Congress is unlikely to summon the political will to take action on the controversial issue of military compensation. Nevertheless, the report is likely to trigger a new battle in that arena.

    Congress created the commission two years ago as pressure mounted on the Pentagon to cut costs after defense spending peaked in 2010. Top military officials increasingly make the argument that the current military compensation system is unsustainable, and personnel costs, if not reined in, will threaten the military's ability to pay for weapons modernization and high-tech research.

    A spokesman for the commission, Jamie Graybeal, declined to discuss the details of the new proposal prior to Thursday's official release.

    In addition to the 401(k)-style benefits for troops serving fewer than 20 years, the commission will suggest promising a defined-benefit pension to troops who serve a long-term career. That pension would be more modest than the one military retirees receive today, according to one defense official briefed on the plan.

    Unlike the current system, this pension would not begin paying out immediately after individuals leave service; instead, those payment checks would begin at a more traditional retirement age, such as 60 or older, according to the official.

    The commission's recommendations are based in part on an extensive survey of thousands of active-duty troops conducted last year to identify which types of compensation troops most prefer.

    The commission will unveil a proposal to fundamentally change how health care benefits are provided to military families and retirees: Those now served by Tricare could move into the health care coverage provided to federal employees, according to several people familiar with the report.

    The proposal calls for a new health care allowance for troops that would be designed to cover some expenses, such as doctor-visit co-pays and eyeglasses.

    The plan also calls for the Pentagon to create a new four-star medical command to oversee the Pentagon's sprawling health care system. Consolidation of the military system has been discussed for many years and would mark a significant break from the tradition of allowing each individual service to operate its own health care command.

    Sources said the commission also will recommend keeping intact current commissary benefits, to include continuing to sell products at cost plus 5 percent surcharge. That runs counter to a separate DoD budget proposal that is expected to call for increasing prices to fully cover the costs of operating commissaries.

    The commission also is expected to recommend consolidating the commissary and exchange systems. Initially, they would keep their separate branding — Navy Exchange, Defense Commissary Agency, etc. — but eventually would be combined.

    Another morale, welfare and recreation aspect of the commission plan reportedly will call for building more brick-and-mortar child development centers on military bases, subject to the base commanders' discretion. Military families have long complained of a lack of sufficient child care on many military installations.

    Still unknown is how heavy the commission's impact may be. Many experts say real change is unlikely in part because the commission's proposals will not get fast-tracked to an up-or-down vote but will instead move through Congress' normal arcane procedures.

    Yet some veterans' advocates say Congress may be spurred to action by several factors, including budget pressures created by the across-the-board spending cuts known as sequestration. And it may prove easier politically to tackle this sensitive topic now that far fewer troops are deployed in combat zones overseas than just a few years ago.

    "You have this appetite for change just as long as it saves money. This has created this opportunity, if you could call it that, to give something like this ... little scrutiny and quick implementation," said Mike Hayden, the director of government relations for the Military Officer Association of America, which opposes curtailing military benefits.

    One criticism that will swiftly emerge is that moving troops' retirement into individual investment accounts will saddle them with new responsibilities for managing money, with many lacking the requisite skills.

    "They are going to have to have a certain amount of financial literacy, which is hard to achieve. Maybe some people will say that is unfair," said one defense official familiar with the plan.

    Inside the Pentagon, some top officials say the vigorous debate about compensation should be expanded to include the entire military personnel system.

    Vice Adm. William Moran, chief of naval personnel, worries that the "closed loop" system in today's military is inefficient compared to corporate America.

    "We know our recruiting, training, and career management systems have not evolved anywhere near the pace of change in the civilian market," Moran wrote last year in an op-ed published in The Hill newspaper.

    Moran pointed to laws that govern military promotions based on time served in paygrades and suggested that today's force is losing some of its best and brightest future leaders because the youngest service members are frustrated with stovepiped career fields and inflexible career tracks.

    "They watch their corporate peers rising past others based on merit, not merely when they joined the firm. Or they see opportunities to master a profession without worrying about an 'up or out' system which assumes everyone must be groomed for the highest possible rank," Moran wrote.

    "They wonder why they can't do the same, in service to their country."

    The commission's report is hardly the first proposed overhaul of the military retirement system.

    In 2011, the Defense Business Board, a Pentagon advisory group, published a detailed proposal that would have replaced monthly pension checks with 401(k)-style investment accounts. That suggested the government contributions should be at least 16.5 percent of basic pay, with higher rates for deployed service members or high-demand career fields.

    That plan went nowhere after it was criticized by service members, disavowed by the Pentagon leadership and landed with a thud on Capitol Hill.

    Last March, the Pentagon's personnel and readiness office broke its long silence on the topic and offered several detailed and complex alternatives to the current system: hybrid options that included both a TSP with government contributions as well as the promise of smaller, partial pension checks before traditional retirement age.

    That plan also included some lump-sum payments for troops staying at least 20 years, offering a "transition pay" equal to as much as three years' basic pay.

    Staff writer Karen Jowers contributed to this report.
     
  2. Jcleppe

    Jcleppe Member

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  3. kinnem

    kinnem Moderator

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    Thanks for the link. I can't speak to the healthcare changes only because I'm not familiar with either system but the retirement changes seem reasonable on the surface and about what I expected or even hoped for.

    I've never seen a reason why you only saw any retirement benefits if you did your full twenty. Hell, that's the same plan the Roman's had a couple thousand years ago. About time for some changes.
     
  4. billyb

    billyb Member

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    At least on the officer side, I think that the retirement benefits kicking in after 20 years kept many late stage Captains and Majors in for the long haul. If I have already served 12 years, why would I leave if I only have 8 years until retirement kicks in?
     
  5. LineInTheSand

    LineInTheSand USCGA 2006

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    Very true. I believe the most often heard phase was "might as well make it to 20." Not entirely the reasoning you want for your "older" officers.
     
  6. LineInTheSand

    LineInTheSand USCGA 2006

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    Whoa..... LITs is looking pretty smart, eh?
     
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  7. USMCGrunt

    USMCGrunt Member

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    or lucky! ;)
     
  8. LineInTheSand

    LineInTheSand USCGA 2006

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    Or maybe SAF is the uncited source for the plan!
     
  9. MedB

    MedB Parent

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    I'm just glad the plan calls out numerous opportunities to consolidate and standardize between branches. That would seem to be fertile ground for finding savings/efficiency without impacting capability. More of that first.... then cuts.
     
  10. Jcleppe

    Jcleppe Member

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    After just a quick read, it doesn't seem to get rid of the 20 year retirement, but just lower it to 40% and have it as an option to the 401K type retirement. Adding the one time payout is interesting, I can see a lot that take that option turning out like a lot of lotto winners, blowing it all in the first few years.

    Bases will need to have quite a few investment counselors on hand for what will be a very long line of soldiers, airmen, sailors, marines, and coastguardsmen with glazed over eyes asking the question...WTF do I do.

    No doubt there is going to be a lot of debate about this, although I don't see that discussion heating up until after the 2016 election.

    To be honest it all looked like a good start.
     
  11. kinnem

    kinnem Moderator

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    You may be right but I sort of doubt it. It seems to be in line with the corporate world where many take the one-time payout to simply roll it over into another tax free account... and people will choke on the tax payments necessary with a one time payout without rolling it over. I also expect they're going to leave folks on their own for making their financial decisions... so no long lines. It will be interesting to see how it does turn out though.

    I'm going to be busy pondering what to advise the kid while also wondering where he will fall since he'll be somewhere on the cusp of this.
     
  12. Jcleppe

    Jcleppe Member

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    In the long run I would agree, but now that there seems to be options and the plan will run through the current TSP, there are going to be a lot of military members with a lot of questions. Once they get signed up I can see them more on their own.
     
  13. Jcleppe

    Jcleppe Member

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    I agree that those that opt for the 401K option will most likely just roll it to a new account. I was referring more to the option they talked about where they would offer a one time pay out valued at their retirement from the date they retire to age 62, instead of the monthly retirement option after 20 years.
     
  14. kinnem

    kinnem Moderator

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    I agree that it sounds more likely that will lead them to trouble... but isn't there still the issue with taxes?
     
  15. Jcleppe

    Jcleppe Member

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    I would imagine there would have to be a pretty big tax hit.

    I also wonder just how many would actually put that 12th year Continuation Bonus directly into their TSP, they should but I bet many will find another use for it. Of course that would be their mistake, the option is there to help their retirement.
     
  16. goaliedad

    goaliedad Parent

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    Personally, I can't imagine that we want our deployed personnel worrying about how the market is doing with their variable component. And while they are home for that matter, I'd rather see them focused on preparation for deployment than day-trading...

    Consolidation of healthcare with the civilian federal plan for retirees makes plenty of sense though.
     
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  17. kp2001

    kp2001 USMMA Alumnus

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    This is going to bring about a HUGE issue if completed: how do you train your military physicians? Okay, some will say send them all to train in the civilian world....that has it's plusses and minuses....one immediate downside is you get less "military" into your physician when they don't train in the military. They don't understand the background of the "why" or "how" the military works sometimes. This can be a real detriment when trying to counsel a CO or similar on medical issues they may face when sending troops down range.

    Okay, so now you've sent all your trainees into the civilian world: great, where are they going to go? there already aren't enough training positions in the US to train them. Who pays them while in training? the military? the hospital they train at? oh boy, can-o-worms.

    So now you don't have retirees or families in the military medical system, well no need for those large hospitals state-side anymore.....oh wait, what do you do when you have hundreds of troops returning from war who need someplace to be treated? So do we hang on to large hospitals with under-utilized staff for the vast majority of the time?

    There are so many issues with that one proposal that it will be very interesting to see what happens.

    Now from the article:
    "some expenses"...... so now husband/wife/kids have to pay copays no matter what...no more Prime option? How's that going to sit with everyone??? What if I use up all my "cover some expenses" amount and didn't budget well and now I can't pay a medical bill? Is that something we want our troops worried about?

    Please for the love of God and Nation: NO! I joined the Navy for a reason, I didn't join the Army and I didn't join the Air Force. I've been hearing this mentioned for several years now, probably close to 10-12 at this point and I really hope it doesn't come to fruition.
     
  18. LineInTheSand

    LineInTheSand USCGA 2006

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    A HS warrant friend of mine from the Coast Guard says they've already started consolidating…. she has a bit of a drive now, to a joint command…. and it's not just sea services.
     
  19. MabryPsyD

    MabryPsyD Dr. G.

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    I heard this back in 2004. We've been threatened with the "purple" umbrella for years. I doubt it will happen.
     
  20. USAF-RETIRED

    USAF-RETIRED Member

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    Purple Military Medical Service works well in San Antonio



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