House panel eyes 401(k) for military

House panel eyes 401(k) for military
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The House Armed Services Committee will seek to reform the military's retirement system in its 2016 defense policy bill by adopting recommendations from a special compensation commission.

If the full committee agrees to the changes, the retirement system would be changed to a 401(k)-like investment plan that would allow more troops to walk away with benefits.

The plan would also lower the yearly amount that military retirees who serve at least 20 years receive, from 50 percent of their pay to 40 percent of their pay. However, it would give retirees the option of receiving a lump sum instead of monthly payments.


In addition, the proposal would allow those serving 12 years to receive "continuation pay" either in a lump sum, or over four years, if they agree to serve four more years.

The plan would also mandate that troops would receive financial literacy training at certain points in their career.

The changes would apply to troops who begin serving after Oct. 1, 2017, though troops already serving would be allowed to make the switch.

The plan is likely to be controversial among troops and some veterans groups who fear it could impact the military's ability to keep service members for at least 20 years. Some veterans groups have endorsed the plan, however.

The existing retirement system only pays out benefits to people who serve at least 20 years in the military.

The Armed Services Committee rejected a recommendation to also reform the military's healthcare system, which would have allowed troops to continue to receive care at military treatment facilities but moved family members, reservists and some retirees onto commercial insurance plans.

The House's defense policy bill will have to be reconciled with the Senate's version later in the year, and the Pentagon has not yet weighed in on the recommendations.

The House panel is set to begin marking up the bill this week, with a final vote expected on April 29. The Obama administration is due to submit its views and recommendations on April 30.

"We can obviously make adjustments as seem to make sense, taking into account their concerns," House Armed Services Committee Chairman Mac Thornberry (R-Texas) said.

Defense Secretary Ashton Carter signaled support for reforming retirement benefits during a visit with troops to Fort Drum in New York last month.

"I'm looking very hard right now at blended retirement plans that would be similar to the 401(k) mechanism that is widespread in civil society," Carter said. "Because 80 percent of our troops leave service before 20 years are up [and] in the current system, if they leave before 20 years, they leave with nothing.”

"So we want to look at that and see if we can create a choice that ... allows us to be more similar to other institutions and therefore competitive with them in getting people to join us and stick with us," he added.

The commission that reviewed at the military's retirement compensation system was created by Congress in 2013.

The committee's draft proposal also called for a pay increase for troops of 2.3 percent, versus the 1.3 percent proposed by the Pentagon.

Faced with nearly $1 trillion in defense cuts over a decade under the 2011 Budget Control Act, the Pentagon has tried to trim its budget, eyeing personnel costs that have grown since the 9/11 attacks.

In the past several years, the Pentagon has proposed saving money by increasing healthcare fees, slowing the growth of pay raises and housing allowances and cutting support for base grocery and retail stores.

Some veterans groups and military family organizations have fiercely opposed the Pentagon's efforts, accusing the department of going after low-hanging fruit instead of taking on wasteful spending.

Thornberry said he appreciated the commission's hard work and that "there's a lot of it that makes sense."

"I think it was really helpful to have that overall look at pay and benefits rather than the ‘nickel and diming’ kind of stuff that comes up in the budget every year," Thornberry told The Hill last week.