Tight Budgets Force DoD to Reconsider 20-Year Military Retirement Plan

The life span of an American male has increased by at least a decade since the current military retirement system was adopted in 1948. This fact could cost the Defense Department $20 billion more than expected in order to cover future pension payments.

Due to this overwhelming potential for deficit, Pentagon officials are once again re-examining the military's Bottom of Form
20-Year "Cliff Vesting" and lifetime checks system.

The DoD spends about $13 billion a year on pensions, about 7 percent of its entire personnel budget. Unless changes are made, military leaders may have to choose between the current pension system and major weapons programs, said Richard Spencer, a businessman who leads the Defense Business Board's review of the military retirement system.

HOW RETIREMENT PLAN CHANGES WILL BE CONSIDERED

When deciding how to change the military retirement system, one major consideration will be the results of generous increases in military pay and non-cash compensation such as housing allowances.

According to Spencer, non-cash allowances have raised the overall income of military service members on par with, and sometimes above, civilians with similar education levels.

PROPOSED CHANGES TO MILITARY RETIREMENT SYSTEM

Several changes to the military retirement system have been discussed in the sixth and tenth Quadrennial Reviews of Military Compensation, released in 1988 and 2008. Proposed changes include delay in pension checks, ending of the 20-year vesting, two-tiered annuity, contributions of annual base pay to retirement fund, and gate pays.

Delayed Pension Payments
Delay pension checks would hold off pension checks from military service members until they reach a set retirement age.

To replace the "20-Year Vesting" model, pension checks would be based on the number of years served, allowing military service members to leave the service earlier and still qualify for lesser pension benefits.

Two Tiered Annuities
Enacting a Two-tiered Annuity Option lets retiring troops choose between a pension pay level available immediately after retirement, or a larger monthly check if they postpone drawing their pension until age 62.

Gate Pays
Gate Pays would be issued to military service members at specified service time milestones. Gate Pays would also provide service members with an effective retention and force management tool.