A Framework for Restructuring the Military Retirement System

For more than a century, the military has provided a defined benefit (DB) pension to service members who render 20 or more years of active-duty service. The U.S. civilian labor force has long since replaced DB pension programs with defined contribution pension programs where employers and employees...

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Bibliographic Details
Main Authors: Wallace, Roy A, Lyle, David S, Smith, John Z
Format: Report
Language:English
Subjects:
DB(DEFINED BENEFIT)
EMPLOYMENT
MILITARY PERSONNEL
PENSION
Personnel Management and Labor Relations
RETIREMENT(PERSONNEL)
SALARIES
SAVINGS
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Summary:For more than a century, the military has provided a defined benefit (DB) pension to service members who render 20 or more years of active-duty service. The U.S. civilian labor force has long since replaced DB pension programs with defined contribution pension programs where employers and employees contribute to a 401(k)-type account. The military, however, has continued to provide a DB pension plan worth in excess of a million dollars to veterans who retire as early as 38 years of age. With annual military retirement system outlays exceeding $50 billion, senior officials have begun calling for pension reform on the grounds that the current system is fiscally unsustainable. In the fall of 2011, the Department of Defense Business Board (DBB) proposed several reforms to reduce military pension costs. These reforms include: establishing a 401(k)-type account with employer contributions, allowing service members to vest in this retirement account after 4 years of service; restructuring the DB portion so that individuals could not begin receiving benefits until they are 67 years of age; providing pension bonuses for deployments; and, substantial transition pays. While these reforms report significant potential cost savings of $3.65 billion (2034 dollars), service members would lose 39 percent of the value of the existing pension program.