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This blog is part two of our discussion on Modernizing the Military Retirement System, the preliminary report from the Defense Business Board. Last month we began with the basic thought that the report seeks to normalize military retirement with civilian sector retirement programs. AUSN believes that this is fundamentally a flawed approach although it is understandable why the DBB would think that way – it is their background.

A second fundamental flaw to this report is that it attempts to address only military retirement. Military retirement is just one aspect of the totality of military pay and allowances and cannot be addressed by itself. For instance, the DBB report suggests different retirement allowances for those serving in combat or in hardship tours. Currently we have tax free combat pay, hazardous duty pay, etc. for those serving in those capacities. To address those issues in retirement without considering current pay is half a discussion.

When we concluded last month we had a list of items for this month so here is the first one: “The Retirement Plan is Unfair.” The report says the plan is unfair because those serving less than 20 years have no retirement benefit (83% of those who enter service do not retire) while those serving 20+ receive an immediate lifetime benefit. The report also quarrels with this on the basis that rewarding military retirees for “the risky nature of military service” isn’t fair when most of those who see combat do not stay to retire (12-13% of enlisted retire). It is easy to get caught up in the concept of fairness. If an employer, the military, makes it clear what the conditions for employment, pay & benefits are and one chooses to be employed that is fair. If the employer unilaterally changes those terms, including retirement, during the course of employment  - that is unfair.

Second on our list: “Military compensation is higher than that of average civilians with similar education levels.”  The report says that enlisted pay ranks in the top quartile of high school graduates and officer pay ranks in the top quartile of college graduates. That yardstick is too simple. We should ask, what is the percentage of enlisted in the Air Force and Navy with some college experience. It won’t be a large percentage today but it is growing and how does their pay compare? Of those officers reaching twenty years what percentage hold masters degrees and how does that pay compare? Most importantly though pay is a reflection of the nature of military service and what it takes to entice citizens to remain in that career field not a reason to reduce their retirement benefits.

Third: “Retiree healthcare is significantly more generous than civilian programs.” This is certainly true and one of the reasons that people make a career decision to remain in the service. Again, not a reason to reduce their financial retirement benefit. As AUSN stated before the Under Secretary of Defense, “Our military retirees have earned better [health care], expect better, and deserve better [than society as a whole].”

Fourth: “83% of military personnel receive no retirement benefits.” This too is true as is the statement that only 12-13% of enlisted reach the 20 year retirement point. In the report this is part of the “fairness” discussion. There are two questions which the report completely overlooks: 1) Recognizing that turnover of employees creates significant training expense, what is the desirable retention? Certainly highly technical skills need to be retained longer while for unskilled labor the acceptable turnover rate might be higher. 2) In the all volunteer force in our free market economy the purpose of a pay & benefit and retirement program is to entice people to become employed. Before we agree that the retirement program is too expensive perhaps we should ask why 83% choose not to stay to retirement? That is the elephant in the room here! If military pay and allowances and retirement are materially better than the civilian sector why do 83% say no thanks?

Fifth: “The retirement system should be an effective force shaping tool.” The report says that the current plan is “inflexible” and modifying it would create a force shaping tool. Frankly the intent here is not very clear. The report sites the need to make downsizing easier and suggests that vesting at ten years with increasing retirement benefits for longer service would help in this regard. It would seem that the only way the retirement system becomes “flexible” is if the military is allowed to change it midstream. AUSN’s position is that the retirement system in place when one raises his or her right hand should be the one that person leaves with. To force a different scenario is disingenuous. 

We conclude with these thoughts: The reason that military retirement is being looked at is because the current system is considered unaffordable in the long run. There are no doubt improvements that could be made in the system and these should receive careful consideration. Fundamental to any retirement overhaul from any commission that has looked at this is the recommendation that would delay retirement pay until age 60 something. The savings desired cannot be achieved without this. All other recommendations pale to the impact of this one. Overriding all of this is the need for a pay & benefits program, including retirement, that will allow the country to maintain the caliber of all volunteer force that we have today. This has got to be job one! What will be the effect on career recruitment of withholding retirement checks until age sixty-seven? We had better know the answer before we go down this road!    

Posted in: Capitol Hill Blog

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