Military Retirement Reform Moves Forward

In recent weeks, the congressional armed services committees voted to make major alterations to the U.S. military’s retirement system, as the Pentagon seeks to control personnel costs that threaten to crowd out future spending on modernization and readiness.

Military pay and benefits — including retirement pay for veterans — eat up about one-third of the Defense Department budget. In fiscal 2013, it spent $54 billion on retirement pay alone.

The costly retirement system currently in place provides hefty pensions for those who serve 20 years or more, but no money at all to those who leave before they reach that benchmark. As it stands, 83 percent of troops leave the military without any retirement savings. Many officials and outside observers view the system as unfair, and lawmakers are moving to change it.

The House and Senate versions of the fiscal 2016 National Defense Authorization Act would create a 401(k)-like savings program for all troops who serve more than two years, while leaving in place a more modest pension plan for those who reach the 20-year mark. The changes would be grandfathered in, although those who joined under the current system would have the option of opting into the new retirement plan.

The Military Compensation and Retirement Modernization Commission, which recommended the reforms in a report released earlier this year, estimated that moving to a hybrid system would save the Defense Department $1.9 billion each year once fully implemented.

However, lawmakers rejected another commission proposal that could have potentially saved the Pentagon billions of dollars annually.

The cost of military health care has more than doubled since 2001, according to the Defense Department. The commission recommended modifying the military’s TRICARE system to induce military families and retirees to use private health care plans. It estimated that doing so would save the department $6.7 billion per year after full implementation.

But the politically sensitive cost-cutting proposal isn’t gaining traction in Congress, at least for now. “Something like health care is complicated and we didn’t think we could jump to where the commission did for the TRICARE changes,” Rep. Mac Thornberry, R-Texas, the chairman of the House Armed Services Committee, said at a conference on Capitol Hill.

The Pentagon and the White House also declined to endorse the commission’s sweeping TRICARE proposal, expressing support for more modest changes.

Topics: Defense Department, DOD Budget