Then there are the growing costs. This year the government contribution to the military retirement plan will be $46 billion, which does not include $64.1 billion in unfunded liability for the plan. According to the board, if the system is not changed, “future liability will grow from $1.3 trillion (of which only $385 billion is funded) to $2.7 trillion by fiscal 2034,” and it could be larger as life expectancy increases.
The board states that this retirement plan “was designed for an era when life spans were shorter,” military pay “was not competitive with civilian pay” and second careers for former service members “were rare since military skills did not transition easily to the private sector.”
The Pentagon is considering a controversial plan to replace traditional military pensions with a 401(k)-style plan, ultimately saving $250 billion dollars over the next two decades. (Aug. 15)
Today, according to the board, the Defense Department on average “pays retirees 40 years of retirement benefits for 20 years of service.” Because military skills are in demand in the private sector, “second careers are now common for those retiring in their 40s.” As a result, retention by the services of those with 20 years experience “remains difficult — 76 percent leave between years 20 and 25,” according to the board.
The tentative answer, according to the board’s initial presentation, is to expand “the existing Uniformed Military Personnel Thrift Savings Plan (TSP), [where individuals can put aside retirement funds that grow tax free] but with the government providing annual contributions.” There could be a doubled contribution to those in combat or other bonuses for those undertaking high-risk jobs or serving on hardship tours.
As with many private plans, funds would vest after three or five years, be transferable upon leaving the service and be payable at age 60 or 65.
While Panetta insists he has made no decisions, he has clearly been influenced by the board presentation. As he said to Pentagon reporters eight days ago, “The question that is at least legitimate to ask is, ‘Is there a way for those future volunteers to shape this that might give them better protection to be able to have some retirement and take it with them?’ ”
Andrew J. Bacevich, a retired Army officer and military analyst, wrote in The Washington Post on Aug. 22 that the effect of the board’s proposed solution “would be to transform profession into trade, reducing long-serving officers and noncommissioned officers to the status of employees, valued as long as they are needed, expendable when they are not, forgotten the day they leave.”
Noting that the volunteer force “costs a bundle,” Bacevich concedes: “Trimming retirement outlays appears to offer one way to keep that force fiscally viable.”