Pentagon Gets Recommendations for Beefed up 401(k) Plan

March 6, 2006 (PLANSPONSOR.com) - At a time when numerous public and private employers are rethinking their retirement plan programs, the US Defense Department is also considering needed pension changes for the nation's military personnel.

In fact, a Pentagon study commission recently recommended that defense officials consider wholesale changes that effectively mimic a major ongoing retirement trend – the migration from a traditional defined benefit pension to a 401(k)-type plan, the Stars and Stripes newspaper reported.

The recommendations came from t he Defense Advisory Committee on Military Compensation , a panel of compensation experts chartered by the Defense Department.

As is frequently the case with employers making the DB to DC shift, the Defense Department plan calls for the existing pension to be retained and for the Thrift Savings Plan (TSP) or another DC plan to be offered as an alternative to current military workers, the news report said. The TSP is eventually intended to be the only program used by new Pentagon hires. In many cases, the DB plan is frozen when the employer implements the change.

Under the study committee proposal:

  • the new plan would feature a government employer match of the TSP contributions made by members, not to exceed 10% of basic pay
  • full TSP vesting could occur after only five years of service
  • full vesting in a retirement benefit would occur after 10 years of service. The current annuity formula, of 2.5% of basic pay for each year served, would apply. So a 10-year retiree would get 25% of retired pay.
  • retirement pay would not start until age 60.

The plan is expected to be seen as fairer to the many members who now leave service short of 20 years with no retirement. That’s the experience of 85% of enlisted recruits and 50% of officers, according to the Stars and Stripes report.

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