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Reforms to military retirement will pay off for troops and taxpayers

With good news a rarity in a gridlocked Washington these days, you may have overlooked a positive development at the end of last year when Congress passed a historic overhaul of the outdated military retirement system.

Included in the 2016 National Defense Authorization Act signed by the president, the retirement overhaul represents a modernization of the existing unsustainable and inequitable system. Military personnel and taxpayers should welcome these changes, which will open more retirement savings options to more military personnel while saving tax dollars at the same time.  

{mosads}The problems with the current military retirement system are numerous. Most troubling, the existing system only provides pension benefits for those with 20 years of service. That’s an outdated and inequitable standard, since the overwhelming majority of service members don’t serve that long. Currently, 83 percent of service personnel separate from the military in less than 20 years, according to data published earlier this year by the Military Compensation and Retirement Modernization Commission (MCRMC).

That number includes most combat veterans, many of whom served multiple tours of duty in Iraq and Afghanistan. Yet they find themselves ineligible for military retirement benefits because they don’t meet the arbitrary 20-year standard. By the time they enter the private sector workforce, they may be years behind their civilian peers when it comes to retirement savings.

In addition to failing the fairness test, the existing system is growing more expensive. According to a 2014 analysis by the Bipartisan Policy Center and American Enterprise Institute, the cost for military retirement benefits more than doubled from 2001-2012, growing by 107 percent. Coupled with exploding costs for military health care (up by 74 percent over the same period), the price of these benefits is becoming unsustainable.

The new military retirement plan, as laid out in the NDAA, would correct these failings by creating a new “blended” system for retirement compensation. Beginning in 2018, all new recruits will enroll in a defined-contribution retirement plan, similar to a private sector 401(k) plan, with matching contributions from the government.

That’s a portable benefit, so when they separate from service, they can roll over their accumulated retirement savings into a civilian plan, giving them a solid foundation for their financial future. It also could help recruitment, since it creates a valuable benefit for recruits who may not be seeking a long-term military career.

The MCRMC estimates this change will extend retirement benefits to more than one million current active-duty personnel. Meanwhile, participants in the existing defined-benefit pension system for military retirees will keep their current benefits, if they elect to stay in the current system. Additionally, a defined benefit pension with a smaller annuity and more flexible payout options will be preserved for future troops who serve more than 20 years – keeping an important incentive for service members to make the military a long-term career.

Taken together, these reforms, when fully implemented, are estimated to save the Pentagon billions of dollars every year.

As sensible as these reforms sound, they weren’t easily achieved. My organization, Concerned Veterans for America, advocated for changes to the military retirement system for the last several years, knowing it was an uphill battle. Credit goes to the members of Congress, along with those in the Defense Department and the MCRMC, who helped build the case for these much-needed reforms.

As with any major reform, we should watch closely to ensure it’s implemented properly and that the troops understand the changes. The Defense Department should lead an effort to educate military personnel about the advantages of the new system. That’s a critical challenge—a 2014 survey of active-duty troops conducted by The Military Times found a majority to be skeptical of proposed changes to military retirement. That skepticism may be understandable, but it’s misguided. Pentagon leaders begin educating service members now to foster a better understanding of the new system’s benefits.

The United States spends more on defense than any other country in the world. However, a large and growing portion of that spending goes not toward training or equipment but instead towards retirement and health care costs. The Pentagon is slowly becoming a health care provider that also fights wars.

That’s why the military retirement overhaul is an important achievement. It represents an innovative approach to a pressing challenge that the military has faced for decades. Such achievements have been lacking in the Washington in recent years, where both parties are too often wedded to the hidebound thinking of the past.

Congress still has much work to do to tackle the challenge of military health care costs, which former Defense Secretary Robert Gates warned in 2010 are “eating the Defense Department alive.” Let’s be clear: military health care reform will likely be more difficult to tackle. But the retirement reforms should serve as an example of how Congress and the Pentagon can work together to achieve a solution.

In the meantime, we should cheer the positive news of the military retirement overhaul. It’s an overdue reform that does right by the men and women who serve our nation in uniform.

Caldwell is the legislative and political director of Concerned Veterans for America. A U.S Marine infantry veteran he served in Iraq with the 1st Marine Division.


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