A controversial retirement overhaul is one of 15 recommendations from the congressionally mandated Military Compensation and Retirement Modernization Commission. In January, after nearly two years of review, the commission released the proposals designed to give troops, retirees and their families more benefits options while saving the Defense Department $12 billion a year in personnel costs by 2040.
Organizations that represent U.S. combat veterans, including the Veterans of Foreign Wars of the United States and the Iraq and Afghanistan Veterans of America, are getting behind a the proposal that would offer troops a 401(k)-style retirement plan.
Under the existing defined-benefit plan, most officers and enlisted personnel who serve 20 years receive annual retirement pay equal to half of their average basic pay over their last three years of service. The panel proposed cutting that figure from 50 percent to 40 percent, in part to fund a 401(k)-like defined-contribution plan for the more than eight in 10 service members who leave the military without getting any retirement benefit.
Chris Neiweem, a legislative associate for IAVA, said “It is fundamentally unfair that one could serve 10 or 12 years, with three, four, five or more deployments, and leave the military with absolutely no retirement benefit at all, yet a careerist who possibly never even deployed could be entitled to a full benefit package.”
Offering troops a 401(K)-style retirement plan, with matching contributions of up to 5 percent and full vesting after just two years, “will dramatically improve the current retirement system,” said Brendon Gehrke, senior legislative associate for the Veterans of Foreign Wars.
Not all veterans organizations are on board with the proposal, however.
Mike Hayden, director of government relations for the Military Officers Association of America, the largest officers’ association, warned lawmakers the new retirement option would be far less predictable than the current model and include, for example, assumptions about investment returns.