A major revamping of the military retirement system could finally become a reality as the Pentagon comes under increasing pressure to save money and attract new recruits.
Implementing a retirement model that emphasizes defined contribution savings was one of 15 recommendations made in a Jan. 29 report by the Military Compensation and Retirement Modernization Commission. The commission, whose nine members include several former congressmen and high-ranking military officers, spent several years studying the challenges of military compensation programs.
One of the biggest obstacles they found, in terms of cost and recruitment or retention, was the current pension system's 20-year vesting requirement, which leaves 83% of enlisted personnel and 51% of officers with no retirement savings. Mindful of protecting the benefits of current military members, the commission's report called for trimming the pension benefit to 40% of final pay from the current 50%, while also offering an enhanced defined contribution plan.
The centerpiece of the plan, which would save the government an estimated $4.7 billion each year, is mandatory enrollment of new members in the $439.6 billion Federal Thrift Savings Plan. New participants would contribute 3% of pay and the government employer would contribute 1% for the first two years, then match the employee contribution 100% up to 5% of pay after that. Employees could opt out, but they would be automatically re-enrolled at 3% each year.
Current military members, who already may enroll in the TSP but without an employer match, would also be eligible for the match.
New participants, should their military career last 20 years, still would receive benefits under the DB plan.
The commission also calls for allowing members in the new program to have the option of choosing partial or full lump-sum distributions instead of monthly benefit payments, and making survivor benefits more affordable than under the current system.