The Military Compensation and Retirement Modernization Commission issued a report of recommendations for changing retirement and health benefits for military personnel.
The panel says the Uniformed Services retirement system should be modified to provide retirement benefits to many more service members and maintain the value of retirement benefits for current members. It notes that 83% of personnel will be ineligible to receive the pension for which 20 years of service is required. It recommends that Uniformed Services implement a blended retirement system that offers both defined benefit (DB) and defined contribution (DC) elements.
The panel contends that implementing a defined contribution plan for all service members is more equitable than the current defined-benefit-only system. “A DC plan would promote savings and financial knowledge throughout the force, as well as ease service members’ transition to civilian life by giving them experience with the type of retirement system they would likely have with private-sector employers after separation from service,” the report says.
The panel suggests that active and reserve service members should continue to vest for the defined benefit plan after 20 qualifying years of service. However, it recommends a new calculation for benefits. DB retirement annuities would be computed as the retired pay base multiplied by 2% multiplied by years of service; the multiplier is currently 2.5%.
The panel suggests that current service members be allowed to opt in to the new blended retirement system.
With the new defined contribution plan, each service member would be enrolled automatically, with the military contributing 1% of each service member’s basic pay into his account and each service member deferring 3% of his basic pay into his account. The report says those who opt out would be re-enrolled each January.
The plan would include a match contribution up to 5% of basic pay. A period of two years of service should be required before a service member could vest in the matching contributions, the panel suggests. It said this is due to the high attrition that occurs during the first two years of service—approximately 25% for enlisted personnel and 9% for officers.
The panel also suggests a new continuation pay should be authorized and paid at 12 years of service to all members who are willing and able to commit to remain in service for an additional four years. The continuation pay would equal 2.5 times service members’ monthly basic pay, and it would be recommended, but not mandated, that a service member put this continuation pay into the DC plan.
According to the report, the combination of an adjusted defined benefit plan, a new defined contribution plan and continuation pay would maintain the value of retirement assets for service members who serve for at least 20 years.
The panel also recommends allowing service members to choose full or partial lump-sum payments of their DB benefits, to allow them flexibility to receive retirement benefits based on their individual life circumstances. Full monthly retirement annuity payments should resume for all service members at the full retirement age for Social Security benefits to ensure they have a stable, regular income during normal retirement years.
The report from the Military Compensation and Retirement Modernization Commission is here.
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