The Department of Defense could save billions of dollars and expand benefits coverage if it adopted a hybrid retirement plan, according to a Rand Corp. study.
As part of an ongoing DOD review of military compensation and retention issues, Rand researchers found that because of a 20-year vesting requirement, only 34% of officers and 14% of the enlisted personnel serve long enough to benefit from the current defined benefit system, which has been in place for 70 years.
Switching to a hybrid plan that has a defined contribution plan and a reduced defined benefit component could save between $1.8 billion and $4.4 billion each year and improve retention by covering more people.
“A hybrid plan can increase efficiency and enable the services to flexibly manage the force via decisions about how the defined benefit element is computed, how retirement eligibility criteria are defined, and when payouts are made,” said the study, “Toward Meaningful Compensation Reform: Research in Support of DOD's Review of Military Compensation,” released Wednesday.
DOD officials are also waiting for recommendations from the Military Compensation and Retirement Modernization Commission, which are expected in early 2015.