Military Retirement Debate: Fairness, Sustainability, and Incentives
Debating proposed changes to the US military's retirement system.
James Skylar Gerrond, a former Air Force officer and current DOD employee, is enthusiastic about the proposed changes to the military retirement system I discussed a couple months ago. While those of us skeptical of the change worry about impact on retention, Gerrond emphasizes the unfairness of the current system, in which there are no retirement benefits at all until one reaches twenty years of service:
This retirement ‘cliff” has very predictable effects on the retention curve. There is substantial turnover in the junior enlisted and junior officer ranks as people join the military, fulfill one, two and occasionally three terms of varying lengths, and then move on to ventures outside the military. Once members cross the 10-year ‘halfway’ mark separations drop off substantially. The salient fact here is that 83% of veterans do not receive any retirement benefits and this percentage is almost entirely drawn from the junior ranks - the demographic that has done the vast majority of the fighting and dying over the last decade.
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While it is perfectly reasonable that a person’s retirement benefits will increase along with their length of service, what is unforgiveable is that this is the only discriminator the military currently uses. This means that unless you complete 20 years of service you receive absolutely nothing. Items like the number of times you deploy and your military occupational specialty (MOS) are completely irrelevant.
All true. But, for all practical purposes, this same critique applies to active duty pay, too. Hostile fire pay, the tax-free stipend military personnel receive while deployed to combat zones, is a measly $225 a month (recently prorated to the day). So, for all practical purposes, rank and time in service are the key variables.
Gerrond contrasts the fictional case of an Air Force officer who scarcely deploys to combat and spends his days in an air conditioned setting, leaving the service with a handsome $48,000 annual stipend for the rest of his days after twenty years of service with that of an Army infantry soldier who deploys to hard combat duty several times and then leaves after ten years. Of the latter, he snarks, “This individual has simply not sacrificed enough to receive any retirement benefits.”
I have for many years argued that the longstanding pay and benefits system of the military, which is largely about rank and time in service, is antiquated. We probably ought to lower base pay across the board while ramping up various specialty and incentive pays for those doing hazardous, physically demanding, and training-intensive duty. But that’s not only a very different discussion, it’s one that’s not really even on the table because of cultural inertia.
In any case, the retirement system simply mirrors active duty pay. Indeed, that’s long been the basis: At 20 years, you get half of your base pay and that incrementally goes up maxing out at 75 percent of base pay at the 30 year mark. Given that structure, I find the discussion about the differential treatment of officers and enlisted, Army and Air Force, infantry and support, and deployed and non-deployed a red herring.
As to the “fairness” of giving people no retirement benefits after ten years and handsome ones at twenty years, I’m not convinced that it’s a problem.
I was only on active duty four years, deployed to combat, and then separated during the post-Cold War drawdown. It never occurred to me that I was owed pension benefits for my service. (It would have been different had I been injured in the line of duty but, as Gerrond notes, we’ve always treated disability and retirement as different entities.) The Army promised me a paycheck and various benefits and delivered. I knew that I had to make it to twenty (as my father, who retired as a first sergeant, did) in order to earn a pension.
Would it be nice if people vested earlier–say, at the ten year mark–to reward them for their sacrifice? I suppose. On the other hand, that would undercut the entire purpose of the current retirement system, which was never about compensating people for their service (that’s what the biweekly check is for) but rather giving them incentive to embrace the suck rather than taking their taxpayer funded training and experience to the private sector once the thrill was gone.
Now, Gerrond’s multiply-deployed staff sergeant is quite likely to stay in the service, becoming part of the Army’s senior NCO corps. Having given ten years to his country, he can now see the pot of gold at the end of the rainbow; in another ten years, he’ll be able to leave the Army and make $25,000 a year just for breathing. Under the Defense Business Board’s 401k-style plan, he might as well go work for an employer who can’t make him go off to Afghanistan since, after all, his retirement portfolio would go with him.
The strongest argument against the current system isn’t its unfairness but its unsustainability. The model is based on an era when military pay was abysmally low and male life expectancy after 40 was much lower. Now that military pay is competitive with the private sector, it’s hard to justify paying a retired lieutenant colonel the equivalent of active duty staff sergeant pay for thirty or forty years.
The Veteran’s Administration, which has a budget of $90 billion a years and over 250,000 employees, only services 17% of retired veterans?
Aren’t there pension sweeteners that will give you credit towards retirment age for combat experience? The reason I asked is I have a cousin who retired after 24 yrs (medical tech, multiple deployments to Persian Gulf) with what I was told was a full retirement package. I could have heard wrong, but its just as odd to me to be done working in your mid 40s.
@PD Shaw:
None that I’m aware of.
After 24 years of service he would be eligible to receive 55% of his base pay* for the rest of his life. That’s generally not enough to retire altogether, so almost everyone goes on to another career after they separate from the service. But, yes, it’s a helluva nice stipend at a relatively young age. My dad drew Army retirement from just before his 39th birthday until his died at 66–longer than he was on active duty.
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*There are slight variants–it could have been based on his “high 3” years’ base pay.
@James Joyner: My info is triple hearsay, but that sort of sweetener (additional credit for hazardous duty after retirement eligibilty is reached) makes more sense than earlier vesting of pensions. That is assuming you want to give people with more than 20 yrs experience additional incentives to stay until 30 yrs. Maybe you don’t; maybe the greater needs are for people in their 20s and 30s.
@ponce: Not sure you’re looking at that right. Just because you’re a veteran doesn’t mean you’re a “retired veteran.” The VA services all vets, but only 17% of them will be retirees.
“it’s hard to justify paying a retired lieutenant colonel the equivalent of active duty staff sergeant pay for thirty or forty years.”
That’s certainly true, especially considering there are other benefits military retirees have at their disposal. Put in your 20, get a federal job thanks to “military preference” policies, put in another 20…and you’re done. Not a bad deal really…until you consider that the skills accumulated in a 20 year military career could be better put to use in the private sector rather than sitting in an office with no phone waiting out the clock on your second pension.
I work with a lot of military guys (my boss is an army retiree) and I will say this: They are the most well-trained, competent people I’ve ever worked with. I attribute that directly to skills they learned in the military.
@James Joyner: A couple of guys I know are in that situation [have 20 to 25 years of active service as senior enlisted (E-7/E-8) and are “retired” in that their current day job is a reasonably flexible, decently paying job that they would have been doing for free anyways (refereeing soccer/training younger referees). The retirement pension is not enough to live on, but if they can supplement with another 10-15K of enjoyably earned money, they are in great shape.
I think this is upside down.
The real issue isn’t that military benefits are so good…it’s that private sector retirement ain’t so hot.
Do we really want to race to the bottom?
Herb,
Something doesn’t add up.
Military pensions cost $18 billion a year.
The VA’s budget is $90 billion a year.
Do all retired veterans get free medical care through the VA no matter how many years they served?
So when I got to 12 years in and realized that I wasn’t going to command anymore, the only thing that kept me and many of my similarly situated peers in, was the fact that if we stayed 8 more years, we would get nice pensions. I enjoyed my time when it was tied to things I thought were enjoyable, rewarding and important. The last 8 years were dedicated to long hours on the Army staff, writing and developing doctrine and a variety of other tasks that make the Army function for the warfighters. They need experienced , mature soldiers who have deployed and know what the others need. It was not nearly as rewarding as the initial years. If I had had a 401K and could have walked with my experience at 12, I am many of my peers would have parted ways with the Army. This is one of the dynamics the current system is designed to foster. It works for Sr NCOs as well as officers. You can’t hire a 17 year Master Sergeant, Sergeant Major or Lieutenant Colonel off the street. Make sure you fix the right problem.
@ponce: I still think you’re confusing “veterans” with “retired veterans.” To be a vet, you just have to have served. To be a retiree, you have to have served for 20 years or more. So while all retirees are indeed veterans, not all veterans are retirees.
Also, I’m not sure anyone gets ‘free” medical care from the VA. Drastically discounted care…sure, but free? I’m pretty sure there’s some cost-sharing going on, even if it’s not much.
@Hey Norm: When was it ever otherwise? Aside from some jobs in the manufacturing sector, most notably the auto industry, there really was never a private retirement system for most blue collar workers. That’s why Social Security was spawned, after all: because too many people simply had no means of support once they were no longer physically able to work.
I found this:
6. Can I receive medical benefits although I only served for a short period of time in the service? Yes, if you served 24 months or more since September 7, 1980, or if you were released from the service with a medical disability or for medical reasons. Prior to September 7, 1980, you only had to have days in the service for treatment; however, all medical treatment is based on having other than dishonorable service.
http://www.oefoif.va.gov/faqs.asp#FAQ6
It looks like, despite the quote in James’ original post that 83% of veterans get no benefits, the VA does indeed provide considerable benefits to all veterans even if they didn’t put in 20 years of service.
@ponce: “despite the quote in James’ original post that 83% of veterans get no benefits”
The quote says no retirement benefits. Someone else may know better than me, but I believe the medical benefits for relatively short service are through Tricare, which is under DOD, not VA.
@ponce:
In your haste to make your point that the VA is wasteful you seem to have glossed over this part of the regulation
.
Go ahead with your point Ponce, but be careful that you don’t disrespect the veterans who fought to give you the right to make your point.
I don’t know if I’d go so far as to call it a benefit… you ever been to a VA doctor?
Loviator,
I really have no opinion on the VA’s utility.
But with a budget almost five times the cost of military pensions, it seems silly to leave it out when discussing veterans benefits.
It reminds me of when wingnuts try to claim that because 50% of Americans pay no income tax, they pay no federal taxes at all.
@ponce: @Rick: While my original piece focused on how the current retirement system is unfair since it focuses exclusively on time in service, this is the obvious (and very legitimate) counter-point. Any changes to the retirement system need to assure that there is a measure of incentives included that will maintain appropriate levels of senior (~15 year plus) officers and NCOs, but I don’t believe that this has to be an all-or-nothing system like we currently have.
@ponce:
I’m sorry, after reading this
and this
and this
.
I got the impression that you opinion on the VA’s utility was that it was wasteful. I particularly got that opinion when you seemed to be complaining of the fact that non- VA retirees has access to VA care even though there injuries/disabilities may have occurred while on active duty.
I agree the VA can be terribly wasteful, like any large entity that service millions of people, but be careful when making you point about VA wastefulness that you don’t disrespect those who were damaged in defending your right to make your point.
James,
Don’t military personnel get reenlistment bonuses?
That was not my intention.
I was just trying to point out that a family medical insurance plan can cost upwards of $25,000 a year, so if the VA is providing something similar to all veterans their benefits may be substantial even if they didn’t qualify for the 20 year retirement pay.
@ponce:
Officers, generally speaking, don’t. Enlisted sometimes do, but they vary wildly based on MOS and ongoing circumstances. But lifetime retirement benefits is a much more attractive lure than a signing bonus.
The VA is providing services to disabled veterans-a group of veterans with medical needs that likely require more medical intervention than the non disabled and retired group.
The VA has a completely different mission.
That is just one function of the VA.
Just reading over its website I see programs that help veterans pay for college, home loans, insurance, burials, etc.
I really do appreciate you posting this response, even though we disagree on some aspects of this, I think we agree on some important pieces as well.
AGREE: Sustainability of the post-military support system is a very serious issue. I think that anyone who studies and sees the projected growth would agree. However, there are folks who will approach this with a ‘no cost is too much’ for veterans and lobby to cut spending elsewhere. I wanted to avoid that discussion, so I didn’t hit any of the macro level issues. Bacevich and Goldich glossed over them too. I’ll write a follow-on and we can hug it out over that part.
DISAGREE: Retention of skilled, experienced 15-year plus officers and NCOs is probably the most logical rebuttal to the idea of transitioning to a sliding retirement system that allowed for separation anywhere along the timeline. The system would certainly need to maintain certain incentives to keep a critical mass of experienced personnel. I don’t think that is impossible and I certainly think that the long term good done by distributing benefits to at least some of 83% of veterans who currently don’t receive anything would be more beneficial than the current system.
Also, the dirty little secret is that the effects of the current retirement system don’t just help retain quality leaders, they also hold in the poor ones. While its impossible to even guess what this ratio is, take a look at the Army’s recent emphasis on ‘Toxic Leaders’ and ask yourself if the retirement system contributes to that. I think it does and I think it does so in a very large way.
Yes. I remember the ROAD Warriors quite well.
Steve
Funny how the marines are the only ones who can actually be shot at in the headlining photos…. (OK, one Army dude exposed himself)…
Quick glance, this does NOT address that under current Civil Service and OPM policies, an individual with credible (key word) military service CAN APPLY their TAFMS towards their Federal Civil Service retirement. For those that retired, you have to pay a “buy-back,” But for someone that served, say 8 years; they would be eligible for a Federal Civil Service retirement, 8 years earlier (or able to claim instead of 30 years of Federal Civil Service, they get 38 years). This does not cover those with Service Connected disabilities and/or Medical Retirements.
Just something to consider…
Me? I did my 20, then 2 more to be able to return to the CONUS and be able to job hunt. $2,000 a month retired pay is NOT enough to live on. Paying close to $60 a month for Delta Dental (for Retirees) and about $115 a month for TriCare Prime, and supplemental health insurance (for all the stuff NOT covered by TriCare Prime). Yes, better than what our daughter’s Blue Cross/Blue Shield’s monthly premium is, but she has better coverage overall.
The military could know some off the out year pension and use the funds to match the TSP (401K) contribution that service members can currently make. It would help the lower ranks and help individuals who do not stay in for retirement.
Reading everyone’s posts and some have good valid statements.. But what a lot of people do not understand. A Veteran who has served 4 years or so and then decides to get out still has an IRR commitment, IRR = Inactive Ready Reserve for the next X years to total an 8 year commitment.. (You don’t normally get a monthly check for being IRR, except for certain times) Anytime during those X years of IRR, they can be called back to active duty.. After that, they are done.. And can walk away scott free.. Someone who has served 20 years or more and “retired” can be recalled to active duty at anytime for the rest of their lives, that’s what that so called “retired pay” is for.. Reduced pay (stipend) for reduced service (Inactive retired).. They have decided to make service to their country their life.
However in reality by policy it is unlikely those retired folks will be called back up if they have been “retired” for 5 years or more, or have reached the age of 60. But… If the caca hits the fan and their service is needed, policy can be changed and they can be recalled..
@ponce: Thats incorrect. The VA serves ALL vets, not just retirees. It serves the 83% that dont retire as they are veterans and its the veterans administration. Its not the Retiree Administration.