Likely Changes to Military Retirement System (US)

[NICE!]

http://www.militarytimes.com/story/military/pentagon/2015/04/30/dod-rejects-tricare-reform-does-not-oppose-retirement-changes/26638471/

It is looking more and more likely that the US military retirement system, which is based upon a pension that cliff vests at 20 years of service, will change.

They're talking about a hybrid defined contribution/benefit system where the government contributes 1% of basic pay to a 401k, regardless of employee contribution, with matching up to 5% of basic pay. Furthmore, there will be a retention bonus offered at the 12 year point that incurs a 4 year committment for the servicemember. There will still be a pension that cliff vests at 20 years, but it will be valued at about 20% of the pension under the current system.

All current servicemembers will be grandfathered under the old system, unless they choose to move to the new one.

I personally think this is a great move, because it ensures that everyone who serves 2 years has something, and it gives the services more flexibility to control retention, since the 12 year bonus is based upon career field and current service needs. It also removes the incentive for some people to stay just for the pension, because at least they'll have something. Finally, it makes things fairer since officers are much more likely to reach 20 years and retire than enlisted members.

Military or former military mustachians, what do you think? Anyone else have thoughts on the matter?

For my personal situation, DW and I will have a very difficult choice. My current committment will likely take me to the 12-13 year point. If they allow me to move to the old system and give me 401k contributions for previous years of service, I don't know what I'll do. I guess it'll be dependent on my future prospects and current situation at that time, as well as my wife's career situation.

Part of me looks like some of the near-FIRE posters in the forum that found a way to get early retirement or laid off (with severance) near FIRE. We probably won't be FI at that point, but receiving that kind of injection (likely 1-1.5 years of savings) into the 'stache might make me happy to leave and figure things out from there, with DW as the likely breadwinner. She'll probably work for a long time anyway, so it would be more about my psychology and feeling like I've gotten us in to the proverbial redzone of FI savings, where she can then pound the rock and get us across the goal line.

Thoughts?

[jmusic]

I've been paying attention to this as well.  I agree with some of the arguments in favor of overhaul (specifically that the REAL warfighters are least likely to benefit from the current system), but make no mistake, the real reason behind it is so that Uncle Sam can cut benefits overall.

As far as trying to get a severance, that would typically only happen if you hit High Year Tenure or get forced out via other means, and the payouts are nowhere close to a real retirement.  For myself, it would mean the difference between ~$120K for severance at 15 YOS, or the pension equivalent of ~$1.1M 401K if I can retire. 

[Villanelle]

Husband is at about 16. His commitments will take him through about 21 or 22 years.  No idea if he will get out then or try to stay in for one more promotion and at least 3 years at that rank.   Regardless, he'll almost certainly be better off staying with the old system.  As long as whatever changes they make grandfather people in, for us personally there will be no change.

It seems like they'v studied this and feel confident that it won't mess with retention.  I'm not sure what jmusic means by "real warfighters" and probably don't want to, but if it doesn't affect retention, that it seem reasonable to give everyone something modest, rather than a select 20+ year crowd a lot.  That is, of course, assuming this won't cost more and might even end up saying a few dollars.

For the choice, I am curious to see how they implement it for those already in and given a choice. 

[jmusic]

I'm not sure what jmusic means by "real warfighters..."

Means that the desk jockeys are more likely to put in 20 years than the ground pounders...

[clifp]

I've been paying attention to this as well.  I agree with some of the arguments in favor of overhaul (specifically that the REAL warfighters are least likely to benefit from the current system), but make no mistake, the real reason behind it is so that Uncle Sam can cut benefits overall.

As far as trying to get a severance, that would typically only happen if you hit High Year Tenure or get forced out via other means, and the payouts are nowhere close to a real retirement.  For myself, it would mean the difference between ~$120K for severance at 15 YOS, or the pension equivalent of ~$1.1M 401K if I can retire.

As long as they grandfather the existing soldier in I think it is a good idea. I've meet too many senior NCO with 8-12 who have after their 3rd deployment to Iraq or Afghanistan said I'm getting out.   I feel these guys really got screwed by the existing system.

I hesitate to use the word REAL warfighters, but I'm pretty sure that very few 18 year olds join the Marine Corp primarily because they get a pension in 20 years. I think a nice retention bonus at 12 would have kept a lot of these guys in.   However, since it is about retirement I really hope that a significant amount of that bonus is available in a retirement savings account.

[Travis]

I'm not sure what jmusic means by "real warfighters..."

Means that the desk jockeys are more likely to put in 20 years than the ground pounders...

The rate at which service members make it to 20 years is primarily based on the size of that force pool. Simply put, there are more infantry than HR soldiers.  The size of the promotion pyramid is the largest factor in how many make it until 20.  Officers in all branches probably have higher ratio of making it to 20 years than enlisted personnel based on the much tighter promotion ladder for the enlisted, though you can retire as an E-6 while you pretty much have to make it to O-5 to reach retirement.  As a whole, it's something like 20% of the force makes it/stays until 20 years.  I don't have exact numbers, but the majority of enlisted personnel leave at the 4 to 8 year mark and around half the officers get out at 5 years.

One of the reports I read today stated President Obama asked the committee to slow down on the retirement package because he didn't think the long-term effects on retention have been analyzed.  That will be tough to compute since the entire promotion ladder is based on a 20 year career.  If this new system allows service members to be more fluid with their career paths it could shake up promotions, assignments, education, and quality of life since troops can get out at almost any point in their careers and won't feel as beholden to that 20 year cliff.

[NICE!]

specifically that the REAL warfighters are least likely to benefit from the current system

...

Means that the desk jockeys are more likely to put in 20 years than the ground pounders...

I agree with everything you've said except for this. It is unhelpful to use such rhetoric - everyone is part of the team. Football isn't only played by QBs, RBs, and WRs - there are a ton of other important players. The military is the same way. Am I not a part of the team because I work on cyber stuff? Are pilots at 30,000 feet that provide intel or just plain old aerial refueling not part of the team? Are logistics types that bring supplies to everyone not part of the team?

Also, I'm sure you can see that unhelpful rhetoric like that derails the thread. That's cool though, let's get it back on track.

I think we probably agree in spirit, we like some of the ideas of the new system because too many junior personnel (particularly enlisted) are burned out after only a few years and leave without anything. I think that sucks and that's why I like the move to change things.

I do know that it will take time to figure out how this will affect behavior. They're saying the 12 year bonus that incurs a 4 year commitment should do it. I tend to agree, because the Air Force does something very similar to this with pilots. Right after they serve their initial post-pilot training commitment, they owe 8 years. Just as they approach that milestone, they're offered an extremely lucrative yearly bonus for 5 years with a commitment for the same length of time. Lo and behold, many AF pilots make it to 20 and retire.

I doubt the military will be good at managing this type of an incentive/commitment structure, but honestly they're not all that great at force management as it is. Thus, I support efforts to make the retirement system more equitable and yes, less costly for the taxpayer.

Back to my personal situation...What would you do? In a few years we won't be quite FI and if I switched over to the new system (assuming they give back 401k/TSP contributions) I still wouldn't be there, but it'd be like a nice severance package. I'd quit and let my wife take the lead career, or I'd try to make some money with my existing skills for a few years until FI and then we'd go from there.

[Villanelle]

I do know that it will take time to figure out how this will affect behavior. They're saying the 12 year bonus that incurs a 4 year commitment should do it. I tend to agree, because the Air Force does something very similar to this with pilots. Right after they serve their initial post-pilot training commitment, they owe 8 years. Just as they approach that milestone, they're offered an extremely lucrative yearly bonus for 5 years with a commitment for the same length of time. Lo and behold, many AF pilots make it to 20 and retire.

...
Back to my personal situation...What would you do? In a few years we won't be quite FI and if I switched over to the new system (assuming they give back 401k/TSP contributions) I still wouldn't be there, but it'd be like a nice severance package. I'd quit and let my wife take the lead career, or I'd try to make some money with my existing skills for a few years until FI and then we'd go from there.

The Navy's policy is similar, and yet a lot of our pilot friends have still gotten out when their flight school obligation is up, even if they are eligible for the Department Head bonus.  They leave to pursue airline gigs, because of the freedom of civilian life, because they are tired of the toll this life takes on their families, because they 2xFOS and have to get out, and many other reasons.  If there wasn't the 20 carrot at the end of the stick, or there were interim carrots, I'm quite certain even more would get out.  Maybe that's not an actual problem since people are failing to select and being forced out, so losing more won't mean manning shortages.  But that means that while the numbers might still work, the military loses some ability to be selective.  Instead of picking who they want to keep, they keep whomever is willing to stay, which certainly isn't ideal. 

It's really difficult to answer this question without knowing how they will grandfather in people. Certainly they could do the math and figure out what their contribution would have been on your salary for the last 12 years, and invest that in a lump sum, but whether or not that's how it happens remains to be seen.  (Unless there are details that I've missed, which is entirely possible.)  If you really want out and are fairly unhappy with the idea of sticking it out to 20, then perhaps whatever they give you will be worth it to get out at 12-13.  Financially, I'm sure you'd be way better of sticking with the current system and doing 20.  So only you can decide how badly you want to punch out early, and what that's worth to you.

[MrsPete]

Overall, I think it sounds like a pretty good idea.  It still rewards our military people with a pension (and if you're going to pay low, you have to sweeten the deal with things like the pension), but it doesn't lock them into the current 20-years-or-nothing, one-size-fits-all deal. 

I'm a teacher, and for us to get "the good deal pension" (that includes basic medical for the retired teacher and a buy-in option for the spouse), we have to put in 30 years.  However, we have lesser options too:  A person who puts in 20 years can retire with a (very) reduced benefit; choices are good. 

I personally think this is a great move, because it ensures that everyone who serves 2 years has something

I don't think I agree with this idea.  I don't think two years of service is enough to justify a lifelong pension (even if it's small, even it if starts at age ___).  Is a "standard" commitment four years?  If so, I think I'd say that anyone who puts in eight years or more would get a pension (meaning that the person worked two commitments -- I know I'm not using the right terminology), and the pension would increase from there. 

but I'm pretty sure that very few 18 year olds join the Marine Corp primarily because they get a pension in 20 years.

Oh, don't be too sure!  I remember a specific conversation between me and my brother:

He was a senior in high school and was talking to recruiters.  I was home from college for Christmas vacation.  He was telling me, The Air Force said this, and the Army said that.  I asked him, "What'd each one say about pensions?  His response, so 17-years-old, was, "Oh, the guy mentioned that, but I didn't know what it meant ... but let me tell you about this other thing."  I stopped him, told him what a pension was, and he became so excited that he jumped up off the floor where he'd been laying and started pacing back and forth.  He kept asking me, "You're sure about this?  They keep paying you -- paying you real money -- after you leave the job?"  He was strongly motivated by MULTIPLE incentives:  The job he'd do, the idea that he wanted to go military, AND, yes, his distant future.  He was already 90% sure he was going into the military, but the first week of January he signed his name on the dotted line and became a Navy man, and it was understanding the pension that put him over the edge and made his decision final. 

[ChrisLansing]

As a veteran (not retired) and a taxpayer, I'm happy to see this overly generous retirement system revamped.   

[RFAAOATB]

I don't like how they are complaining about the old system leaving nothing to those who do not serve 20 years.  Everyone is able to use the TSP to supplement their savings.  To say "system that would shrink the size of the current pension but create 401(k)-style investment accounts that would for the first time provide a retirement benefit to troops who serve less than 20 years" is dishonest when the TSP is there. If PVT Snuffy doesn't sign up well that's his own dumb ass fault.

[Lkxe]

I don't like how they are complaining about the old system leaving nothing to those who do not serve 20 years.  Everyone is able to use the TSP to supplement their savings.  To say "system that would shrink the size of the current pension but create 401(k)-style investment accounts that would for the first time provide a retirement benefit to troops who serve less than 20 years" is dishonest when the TSP is there. If PVT Snuffy doesn't sign up well that's his own dumb ass fault.

And the same people who don't use it now, won't use it later - junior enlisted. No one leaves the military with nothing never have. The assets may not be tangible or what you want but everyone who served left with the GI Bill (180,000 an improvement for sure) and access to VA benefits (medical and loans). The changes will save money, that is the intention but to the benefit of personnel seems unlikely as that isn't the goal.

[dude]

Hopefully Nords will weigh in on this, as this is his bailiwick.

[Chuck]

This is AMAZING.

Finally something for the 75+% of servicemembers who don't hang on for 20 years. Finally.

[davisgang90]

I think there are some good recommendations in the report.  I think providing TSP matching is an important benefit for everyone and especially those who don't do 20 years.

I think the real challenge will be convincing enough people to stay to 20 given the improved benefits available to those who don't make it a career.  The military can be a very difficult occupation to do for that period of time despite the opinions of those who left themselves before 20. 

[RFAAOATB]

This is AMAZING.

Finally something for the 75+% of servicemembers who don't hang on for 20 years. Finally.

And what would you call the TSP now?  If they add TSP matching to military like they do Federal workers, that would be an improvement over the current system.  I don't know how much matching I would accept to give up a pension, but don't say that the service members get nothing for leaving early when the TSP is there.

[Villanelle]

This is AMAZING.

Finally something for the 75+% of servicemembers who don't hang on for 20 years. Finally.

And what would you call the TSP now?  If they add TSP matching to military like they do Federal workers, that would be an improvement over the current system.  I don't know how much matching I would accept to give up a pension, but don't say that the service members get nothing for leaving early when the TSP is there.

Not only "what would you call the TSP now", but what do you call the pay checks and training and benefits?  People act as though those who don't do 20 give their time as a donation or something.  It's still paid employment.  If the deal were so bad, I don't think they'd be turning away so many recruits or having to force out so many service members.

I'm not saying it can't be improved, but the "finally!  something for everyone else" line doesn't make much sense to me. 

And I too wonder about retention.  I read the last report that came out and I believe it claimed that changes like this would have little to no effect.  That just doesn't seem to square with when I've seen and experienced.  Most people I know, along with their families, hit a bit of a wall around 14-15 years.  If they didn't lose much by getting out, I think many would opt to do so.  Also, in the the Naval Aviation and SWO communities, that's about the point where you either screen for command, or not, making a natural break.  There are jobs for all those people so presumably at least most of them are needed.  The difference between them bailing at 15 or staying until 20 would still have to be pretty significant, even if slightly less so than it is now, to get many of them to stay, I think. 

And if that's how it comes to pass, then all that money saved, and perhaps more, will likely just have to go into retention bonuses to keep those people around. 

We'll see, I guess.  I don't think this new system is unfair by any means.  But certainly it is untested.  There's no good way to dip a toe in and see how it goes, AFAICT.  So if they are doing this, I guess we will all just have to wait 20 or so years and see what the numbers look like once it has run at least one full cycle. 

[jmusic]

I personally think this is a great move, because it ensures that everyone who serves 2 years has something

I don't think I agree with this idea.  I don't think two years of service is enough to justify a lifelong pension (even if it's small, even it if starts at age ___).  Is a "standard" commitment four years? 

To clarify, the proposal is NOT for a pension, just for a lump sum payment to the TSP (401K) on seperation.  The numbers I heard were something small like $5k or so for 4 years.  I also heard about a continuity payment at 12YOS for another 4 year commitment, which will lock folks into the new (reduced) pension amounts. 

The plan kinda reminds me of REDUX, which was also designed to save the government money by waving "CASH NOW" in front of our faces... 

[Chuck]

And what would you call the TSP now? 

A 401k with zero employer contribution. Shitty. I call it shitty.

If they add TSP matching to military like they do Federal workers, that would be an improvement over the current system.  I don't know how much matching I would accept to give up a pension, but don't say that the service members get nothing for leaving early when the TSP is there.

That is exactly what they are proposing. A very generous matching system (with the potential for even higher matches in MOS's that need higher retention) that all can benefit from, rather than a pension for the minority.

[davisgang90]

Before the non-matching TSP, it was even "shittier".  Our W-2s are marked that we participate in a pension plan so we couldn't (and still can't) deduct our Traditional IRAs on our taxes.

Once I made it to the magical 20 years I was OK with it, but it used to really irritate me before.  It's not like I was vested in the pension before 20 which would make sense to disallow an IRA deduction.

[NICE!]

And I too wonder about retention.  I read the last report that came out and I believe it claimed that changes like this would have little to no effect.  That just doesn't seem to square with when I've seen and experienced.  Most people I know, along with their families, hit a bit of a wall around 14-15 years.  If they didn't lose much by getting out, I think many would opt to do so.  Also, in the the Naval Aviation and SWO communities, that's about the point where you either screen for command, or not, making a natural break.  There are jobs for all those people so presumably at least most of them are needed.  The difference between them bailing at 15 or staying until 20 would still have to be pretty significant, even if slightly less so than it is now, to get many of them to stay, I think.

Did you read the report/numbers? You reference 14/15 years, but that's completely irrelevant. People will probably take the retention bonus at 12 years, which will buy them a 4 year committment. After that they're 4 years away from the pension (which is only going down by 20%). I highly doubt there'd be any increase in people punching at ~15 years. Of course some will (see: Nords' situation), but most will be driven by sucking up one last assignment for the pension.

And if that's how it comes to pass, then all that money saved, and perhaps more, will likely just have to go into retention bonuses to keep those people around. 

And that's fine, but now the military actually has the flexibility to do more force management. The services can say, 'oh shit, we need more cyber,' then throw down a massive retention bonus, while at the same time saying 'meh, we have enough MPs,' and offering them a much smaller bonus.

And to RFAAOATB, the TSP IS great, but don't pretend like the system is fair to the poor infantrymen who did 15 months in Sadr City plus two other deployments to Afghanistan...SO FAR. A matching system with a reduced pension, basically giving the military a gold-plated version of FERS, is an excellent way to make the system fairer. It also gives people a nudge who might think about leaving. It is better for the military and those people to get them out.

This is completely setting aside the issue of poor, homeless vets. Something like this would absolutely help a situation like that - at least people would have some money to rely upon. I think I'd like the system even more if they made the government non-matching portion of the contributions (1% of base pay) inaccessible for say, the first couple years after leaving the service.

Before the non-matching TSP, it was even "shittier".  Our W-2s are marked that we participate in a pension plan so we couldn't (and still can't) deduct our Traditional IRAs on our taxes.

Are you sure about this? I do not think this is correct.

[davisgang90]

And I too wonder about retention.  I read the last report that came out and I believe it claimed that changes like this would have little to no effect.  That just doesn't seem to square with when I've seen and experienced.  Most people I know, along with their families, hit a bit of a wall around 14-15 years.  If they didn't lose much by getting out, I think many would opt to do so.  Also, in the the Naval Aviation and SWO communities, that's about the point where you either screen for command, or not, making a natural break.  There are jobs for all those people so presumably at least most of them are needed.  The difference between them bailing at 15 or staying until 20 would still have to be pretty significant, even if slightly less so than it is now, to get many of them to stay, I think.

Did you read the report/numbers? You reference 14/15 years, but that's completely irrelevant. People will probably take the retention bonus at 12 years, which will buy them a 4 year committment. After that they're 4 years away from the pension (which is only going down by 20%). I highly doubt there'd be any increase in people punching at ~15 years. Of course some will (see: Nords' situation), but most will be driven by sucking up one last assignment for the pension.

And if that's how it comes to pass, then all that money saved, and perhaps more, will likely just have to go into retention bonuses to keep those people around. 

And that's fine, but now the military actually has the flexibility to do more force management. The services can say, 'oh shit, we need more cyber,' then throw down a massive retention bonus, while at the same time saying 'meh, we have enough MPs,' and offering them a much smaller bonus.

And to RFAAOATB, the TSP IS great, but don't pretend like the system is fair to the poor infantrymen who did 15 months in Sadr City plus two other deployments to Afghanistan...SO FAR. A matching system with a reduced pension, basically giving the military a gold-plated version of FERS, is an excellent way to make the system fairer. It also gives people a nudge who might think about leaving. It is better for the military and those people to get them out.

This is completely setting aside the issue of poor, homeless vets. Something like this would absolutely help a situation like that - at least people would have some money to rely upon. I think I'd like the system even more if they made the government non-matching portion of the contributions (1% of base pay) inaccessible for say, the first couple years after leaving the service.

Before the non-matching TSP, it was even "shittier".  Our W-2s are marked that we participate in a pension plan so we couldn't (and still can't) deduct our Traditional IRAs on our taxes.

Are you sure about this? I do not think this is correct.

Every W-2 I have received from the Navy for 25 years has had the Retirement Plan box checked.  Block 13.  http://images-paycheck-chronicles.military.com/wp-content/uploads/2014/01/W-2-without-identifying-information.png?b538d5

[davisgang90]

Individual Retirement Arrangements

Generally, you can deduct the lesser of the contributions to your traditional individual retirement arrangement (IRA) for the year or the general limit (or spousal IRA limit, if applicable). However, if you or your spouse was covered by an employer-maintained retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. The Form W-2 you or your spouse receives from an employer has a box used to indicate whether you were covered for the year. The “Retirement plan” box should have a mark in it if you were covered.

http://www.irs.gov/publications/p3/ar02.html

[NICE!]

Every W-2 I have received from the Navy for 25 years has had the Retirement Plan box checked.  Block 13.  http://images-paycheck-chronicles.military.com/wp-content/uploads/2014/01/W-2-without-identifying-information.png?b538d5

Ok, but this prevents us from deducting the Traditional IRA? Why doesn't it apply to the traditional TSP?

[davisgang90]

Every W-2 I have received from the Navy for 25 years has had the Retirement Plan box checked.  Block 13.  http://images-paycheck-chronicles.military.com/wp-content/uploads/2014/01/W-2-without-identifying-information.png?b538d5

Ok, but this prevents us from deducting the Traditional IRA? Why doesn't it apply to the traditional TSP?

Probably because TSP is considered part of our compensation package and IRA is not.  Like I said, not as big a deal now, but in the 1990s when I was scrimping to put money in an IRA it used to piss me off that as far as the IRS was concerned I was "covered" by a retirement plan I might not be able to stay long enough to qualify for and enjoy.

[beltim]

Every W-2 I have received from the Navy for 25 years has had the Retirement Plan box checked.  Block 13.  http://images-paycheck-chronicles.military.com/wp-content/uploads/2014/01/W-2-without-identifying-information.png?b538d5

Ok, but this prevents us from deducting the Traditional IRA? Why doesn't it apply to the traditional TSP?

To be more accurate, it reduces the income limit at which you can deduct contributions to a traditional IRA: http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

[jmusic]

Every W-2 I have received from the Navy for 25 years has had the Retirement Plan box checked.  Block 13.  http://images-paycheck-chronicles.military.com/wp-content/uploads/2014/01/W-2-without-identifying-information.png?b538d5

Ok, but this prevents us from deducting the Traditional IRA? Why doesn't it apply to the traditional TSP?

To be more accurate, it reduces the income limit at which you can deduct contributions to a traditional IRA: http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

True that.  If I hadn't contributed to TSP I wouldn't have been able to deduct my tIRA contribution (and it would've been a rIRA contribution instead).

[mrmoneycleanshaven]

A matching system with a reduced pension, basically giving the military a gold-plated version of FERS, is an excellent way to make the system fairer. It also gives people a nudge who might think about leaving. It is better for the military and those people to get them out.

Depends. If you are referring to a career field with few bonuses then you are 100% correct. But my base pay will represent roughly 20% of my total compensation, at retirement. So under this "gold plated FERS" I'll collect 8% of my pay as a pension, and will only get matched for 1.2% of my pay with the matching TSP (it matches 6% of base, but base only makes up 20% of my pay).

If they are going to tell me its a good deal, they could at least make the matching based on all taxable pays, the TSP section of mypay is already set up to do this. I'd still just get an 8% pension, but at least the match would be close to 5% of my pay.

[Dexterous]

I think the services will have a difficult time retaining people who are forced into the new system.  Many will just take whatever they can and run as soon as possible. 

The Post-9/11 GI bill is already a huge benefit for those who separate early, let's not forget about that when discussing the new retirement plans.

[davisgang90]

I think the services will have a difficult time retaining people who are forced into the new system.  Many will just take whatever they can and run as soon as possible. 

The Post-9/11 GI bill is already a huge benefit for those who separate early, let's not forget about that when discussing the new retirement plans.

You are correct, the new GI Bill is a great benefit, both for those who separate after one enlistment and for those (like me) who pass it down to their kids.

[NICE!]

Depends. If you are referring to a career field with few bonuses then you are 100% correct. But my base pay will represent roughly 20% of my total compensation, at retirement. So under this "gold plated FERS" I'll collect 8% of my pay as a pension, and will only get matched for 1.2% of my pay with the matching TSP (it matches 6% of base, but base only makes up 20% of my pay).

If they are going to tell me its a good deal, they could at least make the matching based on all taxable pays, the TSP section of mypay is already set up to do this. I'd still just get an 8% pension, but at least the match would be close to 5% of my pay.

When are you retiring? You're referencing a pension and 8%, but that's clearly not what we're saying. According to the reports, the pension at 20 valued at 20% of what it is today, so 20 years gets you a pension at 30% of base pay.

You reference the TSP only matching base pay as if that is a new or strange concept when the pension itself is based upon base pay, not bonuses,  or housing/subsistence allowance. I don't quite understand where you're coming from here.

This system will undoubtedly be better for people who don't make it to 20. It will also remove the incentive for people to go Guard/Reserve who otherwise wouldn't just to get their pension...Now that I think about it, the recruitment/retention studies should probably look into that side of things more. I wonder what the Guard/Reserve will have to do in order to recruit & retain?

[mrmoneycleanshaven]

When are you retiring? You're referencing a pension and 8%, but that's clearly not what we're saying. According to the reports, the pension at 20 valued at 20% of what it is today, so 20 years gets you a pension at 30% of base pay.

You reference the TSP only matching base pay as if that is a new or strange concept when the pension itself is based upon base pay, not bonuses,  or housing/subsistence allowance. I don't quite understand where you're coming from here.

This system will undoubtedly be better for people who don't make it to 20. It will also remove the incentive for people to go Guard/Reserve who otherwise wouldn't just to get their pension...Now that I think about it, the recruitment/retention studies should probably look into that side of things more. I wonder what the Guard/Reserve will have to do in order to recruit & retain?

The article is poorly worded, its a 20% reduction of current value, so 40% of base pay at retirement (vs the current 50%). But base pay is a fraction of total pay for many, and very small for my career field so this will be 16% of my retirement income (I goofed when I typed 8%, that's what I get for a late night post). So under the current plan I get 20% at 20 years, and under the proposed plan I get 16% at 20 years.

Under the current plan my TSP is unmatched, but under the proposed plan I would get a 6% of base pay match, or 1.2% of my income.

Meanwhile my GS coworkers get a much higher base pay than I, same job but I get less pay overall and way less that applies to a pension. They get 1% of their base for each year in service, and a total match of 5%.

That's roughly a 10% pension plus a true 5% TSP match, plus vesting much earlier if you decide to get out. vs nothing in the .mil, although you have to wait until 57 to collect.

Yes I'd take either version of the military retirement plans over the FERS any day, but I don't think its proper to call it a gold plated FERS, especially when you factor in the miles that a military career puts on a body.

[NICE!]

Are you comparing yourself to the appropriate level of GS? A lot of people like to act like they'd do so much better salary-wise outside the military, but it is rarely true when all things are considered.

TSP vesting will be extremely early in the military (2 years).

I'm betting that part of this deal will allow you to throw the whole 12 year retention bonus in the TSP, but maybe that's just wishful thinking.

You're right about base pay not being the full salary for the military, but remember the pension is based off of base pay. I don't quite get the argument.

Also, you're saying you'd take the military retirement over FERS, so how isn't it a gold-plated version of it? You're saying you prefer it and they will be much more similar than they are now.

[mrmoneycleanshaven]

Are you comparing yourself to the appropriate level of GS? A lot of people like to act like they'd do so much better salary-wise outside the military, but it is rarely true when all things are considered.

TSP vesting will be extremely early in the military (2 years).

I'm betting that part of this deal will allow you to throw the whole 12 year retention bonus in the TSP, but maybe that's just wishful thinking.

You're right about base pay not being the full salary for the military, but remember the pension is based off of base pay. I don't quite get the argument.

Also, you're saying you'd take the military retirement over FERS, so how isn't it a gold-plated version of it? You're saying you prefer it and they will be much more similar than they are now.

Yes, I'm an ER doc and work right next to guys who pull better shifts, for higher pay, and they don't deploy or deal with much of the military "lifestyle." Its a direct conversion, no swapping of skills, or if I get the job, but a literal lateral move. I wasn't even going to get into that though. It wasn't about higher over all pay, or quality of life, it was just about how much of that pay do I get as a pension.

If I were to swap over, and put the pay difference after taxes into Index funds and got crappy returns I'd still be magnitudes ahead of where I will be at 20 if I stay in, but again its not about that.

It's about GS employees getting a true 5% match, when even a junior groundpounder at best is getting a true 3% match. It's about the vesting of the defined benefit, which doesn't happen until 20 with the military.

Additionally, with FERS and the GS system a much larger portion of compensation is counted towards defined benefit retirement.
 
So I think its a bit misleading to say the current or proposed military retirement plans are gold plated FERS, as they fall short of FERS in many ways.

There is no provision in the MCRMC to put the 12 year bonus in the TSP, and that might just be a nightmare with the cap on employee contributions outside of a warzone. Regardless the MCRMC does seem to believe that the money would be invested somewhere so you might be on to something.

I'm not doing this for the money, even though those guys get more than I do, I like what I do, but lets not make it seem like its a great deal. In the civilian sector a 1.2% match would get an employer laughed at.

[beltim]

I'm not doing this for the money, even though those guys get more than I do, I like what I do, but lets not make it seem like its a great deal. In the civilian sector a 1.2% match would get an employer laughed at.

20% of full-time employees don't have access to a 401k from their employer, and of those that do, 41% don't get any match at all. 

http://www.americanbenefitscouncil.org/documents2013/401k_stats.pdf
http://www.benefitspro.com/2013/05/02/fewer-employers-match-401k-contributions

[NICE!]

Yes, I'm an ER doc and work right next to guys who pull better shifts, for higher pay, and they don't deploy or deal with much of the military "lifestyle." Its a direct conversion, no swapping of skills, or if I get the job, but a literal lateral move. I wasn't even going to get into that though. It wasn't about higher over all pay, or quality of life, it was just about how much of that pay do I get as a pension.

If I were to swap over, and put the pay difference after taxes into Index funds and got crappy returns I'd still be magnitudes ahead of where I will be at 20 if I stay in, but again its not about that.

It's about GS employees getting a true 5% match, when even a junior groundpounder at best is getting a true 3% match. It's about the vesting of the defined benefit, which doesn't happen until 20 with the military.

Additionally, with FERS and the GS system a much larger portion of compensation is counted towards defined benefit retirement.
 
So I think its a bit misleading to say the current or proposed military retirement plans are gold plated FERS, as they fall short of FERS in many ways.

There is no provision in the MCRMC to put the 12 year bonus in the TSP, and that might just be a nightmare with the cap on employee contributions outside of a warzone. Regardless the MCRMC does seem to believe that the money would be invested somewhere so you might be on to something.

I'm not doing this for the money, even though those guys get more than I do, I like what I do, but lets not make it seem like its a great deal. In the civilian sector a 1.2% match would get an employer laughed at.

I definitely see where you're coming from, military life isn't easy. Maybe gold-plated FERS isn't the right nickname, but as you noted, the military system will still be better. In fact, I'm thinking there will be a side effect of having more people get serious about saving to get the match because the military will genuinely try to do the financial education piece, unlike a lot of companies in the private sector.

However, I find it a bit strange that you're noting the fact that the match will only be based upon base pay when base pay only being a small part of compensation is one of best parts of the military compensation package. The fact that a significant portion of pay comes from the combination of BAH & BAS gives the military a huge leg up by having a really good chunk of money income tax free.

You're right about the 12 year bonus being a nightmare, but this is the federal government and they could just make the military retirement rules say whatever the hell they want and tell the TSP & IRS to figure it out. They already kind of do this with tax-exempt pay in deployment zones as well as higher limits for those contributions as well (somewhere in the $50k range). I'd actually be pretty damn shocked if the system weren't built to allow these bonuses to be dumped in the TSP since the idea is that we're changing/replacing the old retirement system. If the money is supposed to be for retirement, it should go in the retirement account they created.

[sol]

Meanwhile my GS coworkers get a much higher base pay than I, same job but I get less pay overall and way less that applies to a pension. They get 1% of their base for each year in service, and a total match of 5%.

That's roughly a 10% pension plus a true 5% TSP match, plus vesting much earlier if you decide to get out. vs nothing in the .mil, although you have to wait until 57 to collect.

To be fair to your GS coworkers, you should probably mention that the civilian pension isn't indexed to inflation until it is claimed, which can be as early as age 57 if they are willing to accept a 25% reduction (5%/yr for five years before age 62) in pension amount for retiring so early.  The existing military pension is a vastly superior deal, and also happens to come with a few other perks that civilians don't get, like lifetime subsidized health care and additional death benefits.  Plus you get to board airplanes first, I guess?

The lack of an inflation index is what really kills the GS pension for early retirees.  A military employee who retires at 38 can be set for life.  An equivalent GS employee with 20 years of service has two decades to wait before his pension starts paying out, and when it does it will pay 20% of his high-3 salary based on 20 year old wages. 

I don't think it's fair to complain that the military pension payout will be smaller than FERS, when you get to start collecting it 20 years earlier and get an inflation adjustment from the get-go.  Those 20 years of additional payments might make up for the smaller check, which isn't so much smaller anymore by age 62 thanks to those inflation adjustments.

[mrmoneycleanshaven]

I definitely see where you're coming from, military life isn't easy. Maybe gold-plated FERS isn't the right nickname, but as you noted, the military system will still be better. In fact, I'm thinking there will be a side effect of having more people get serious about saving to get the match because the military will genuinely try to do the financial education piece, unlike a lot of companies in the private sector.
I really hope so, my USAA brief has been better than anything the military has given me thus far, and that's kind of an issue as USAA isn't exactly cheap when it comes to IRA fees, but I am sure you run into the same walls I do and have a heck of a time talking savings

However, I find it a bit strange that you're noting the fact that the match will only be based upon base pay when base pay only being a small part of compensation is one of best parts of the military compensation package. The fact that a significant portion of pay comes from the combination of BAH & BAS gives the military a huge leg up by having a really good chunk of money income tax free.
I love BAH, BAS and our Tricare, don't get me wrong, the marginal tax I'd have to pay on those only grows, but at least our taxeable special pays should be matched under the new system. The current system kind of screws of those who receive special pays as none of those count towards retirement, this is where the GS system does a things bit better. Take these EOD guys, they have a brutal job, and get hefty bonuses to do it, and they will be hurting at 20, but they get the same pension as anyone else of the same paygrade and TIS, and that doesn't sit well with me.

You're right about the 12 year bonus being a nightmare, but this is the federal government and they could just make the military retirement rules say whatever the hell they want and tell the TSP & IRS to figure it out. They already kind of do this with tax-exempt pay in deployment zones as well as higher limits for those contributions as well (somewhere in the $50k range). I'd actually be pretty damn shocked if the system weren't built to allow these bonuses to be dumped in the TSP since the idea is that we're changing/replacing the old retirement system. If the money is supposed to be for retirement, it should go in the retirement account they created.

Luckily its being postponed, so they can take a better look at all this.

[NICE!]

To be fair to your GS coworkers, you should probably mention that the civilian pension isn't indexed to inflation until it is claimed, which can be as early as age 57 if they are willing to accept a 25% reduction (5%/yr for five years before age 62) in pension amount for retiring so early.  The existing military pension is a vastly superior deal, and also happens to come with a few other perks that civilians don't get, like lifetime subsidized health care and additional death benefits.  Plus you get to board airplanes first, I guess?

The lack of an inflation index is what really kills the GS pension for early retirees.  A military employee who retires at 38 can be set for life.  An equivalent GS employee with 20 years of service has two decades to wait before his pension starts paying out, and when it does it will pay 20% of his high-3 salary based on 20 year old wages. 

I don't think it's fair to complain that the military pension payout will be smaller than FERS, when you get to start collecting it 20 years earlier and get an inflation adjustment from the get-go.  Those 20 years of additional payments might make up for the smaller check, which isn't so much smaller anymore by age 62 thanks to those inflation adjustments.

On point, sol! Also, you mention boarding planes first which reminded me that I completely forgot about the following:

Space Available flying on military flights. We never really talk about this in the forums, but that shit is the dream for early retirees. If you're flexible, you can travel for free and then land somewhere that has a cheap, decent quality hotel and is generally within shouting distance of a reasonably-sized city.

Also, gyms. They are pretty damn nice on military bases.

But these things are not really germane to the discussion. What sol said about the additional 15-20 years of a pension plus COLA is really important.

I really hope so, my USAA brief has been better than anything the military has given me thus far, and that's kind of an issue as USAA isn't exactly cheap when it comes to IRA fees, but I am sure you run into the same walls I do and have a heck of a time talking savings

Yeah I don't touch USAA's investments. They are a huge disappointment. Good checking & insurance, though.

I absolutely run into terrible walls with encouraging people to save. It is extremely difficult and I run into the issue of being an officer preaching savings to enlisted, which to many looks like a silver spoon huge income dude telling a poor kid what to do. That's why I generally try to get my Senior NCOs on board with encouraging the NCOs to save & teach saving to the junior enlisted. However, once or twice I've been asked a question or two from a junior dude and those conversations were awesome. When someone is willing they generally listen.

But to your point of course I'd selfishly love to have all pays be part of the equation here. I think we need to be honest with ourselves here, though. The current system is unsustainable from a fiscal standpoint and the primary (or a primary) impetus for change is reducing cost. I doubt they'll lump BAH/BAS into this.

I'm actually not happy this is being delayed. The longer it is delayed the closer I get to a point where my decision will already be made and I won't get to do what I mentioned earlier in the thread (if it is an option)...get a ton of back/make-up TSP contributions and then punch. The longer they wait, the more likely I am to stick it out or go Guard/Reserves.

[mrmoneycleanshaven]

To be fair to your GS coworkers, you should probably mention that the civilian pension isn't indexed to inflation until it is claimed, which can be as early as age 57 if they are willing to accept a 25% reduction (5%/yr for five years before age 62) in pension amount for retiring so early.  The existing military pension is a vastly superior deal, and also happens to come with a few other perks that civilians don't get, like lifetime subsidized health care and additional death benefits.  Plus you get to board airplanes first, I guess?

The lack of an inflation index is what really kills the GS pension for early retirees.  A military employee who retires at 38 can be set for life.  An equivalent GS employee with 20 years of service has two decades to wait before his pension starts paying out, and when it does it will pay 20% of his high-3 salary based on 20 year old wages. 

I don't think it's fair to complain that the military pension payout will be smaller than FERS, when you get to start collecting it 20 years earlier and get an inflation adjustment from the get-go.  Those 20 years of additional payments might make up for the smaller check, which isn't so much smaller anymore by age 62 thanks to those inflation adjustments.

I apologize, I wasn't aware of the reduction at age 57, and my coworkers might not either, or they just leave it out in talks. Thats where I get my FER's knowledge from.

[sol]

I wasn't aware of the reduction at age 57

It's kind of a complicated system.  There is no pension penalty for retiring/collecting at age 57 as long as you have put in 30 years of service, which makes it a longer service period than the military requires and still has a much older retirement age.  I would personally have jumped at the chance to forego a 5% TSP match to cut 10 years from my obligation and gain 20 extra years of pension payments.

Most of us here, though, are more likely to retire under the MRA+10 provision, which confers that nasty 5%/yr penalty if you retire before age 62.  I think it's unfortunate that the current military pension system doesn't pay anyone who's out in less than 20 years, so I was hoping this new system would give those folks a little more flexibility.

[mrmoneycleanshaven]

Yeah I don't touch USAA's investments. They are a huge disappointment. Good checking & insurance, though.

I absolutely run into terrible walls with encouraging people to save. It is extremely difficult and I run into the issue of being an officer preaching savings to enlisted, which to many looks like a silver spoon huge income dude telling a poor kid what to do. That's why I generally try to get my Senior NCOs on board with encouraging the NCOs to save & teach saving to the junior enlisted. However, once or twice I've been asked a question or two from a junior dude and those conversations were awesome. When someone is willing they generally listen.

But to your point of course I'd selfishly love to have all pays be part of the equation here. I think we need to be honest with ourselves here, though. The current system is unsustainable from a fiscal standpoint and the primary (or a primary) impetus for change is reducing cost. I doubt they'll lump BAH/BAS into this.

I'm actually not happy this is being delayed. The longer it is delayed the closer I get to a point where my decision will already be made and I won't get to do what I mentioned earlier in the thread (if it is an option)...get a ton of back/make-up TSP contributions and then punch. The longer they wait, the more likely I am to stick it out or go Guard/Reserves.

You're lucky, my SNCO's all seem to be going for broke, but they do have some awesome trucks. Poor guys will have to work post ARMY just to make ends meet.

Not BAH/BAS but taxable special pays, flight pay, HSP, etc. Again should an O5 Nurse CRNA and an O5 Nurse with no special training get the same pension? With FERS as I understand it there is a difference in base pay for those fields, in the military there is not, and thats what I take pause with. But I've gotten way off topic.

Do you think they'd back date it? Or just carry forward? The report wasn't clear. I know there is the ability to release the grandfather clause, but I wonder if they will back match TSP, or just count grandfathered years as 2.5% and years going forward as 2% with bonuses and match as applicable (so a guy who is at 13 years is pretty much stuck in the current system, where a guy with 11 years might make it out ok).

[clifp]

but I'm pretty sure that very few 18 year olds join the Marine Corp primarily because they get a pension in 20 years.

Oh, don't be too sure!  I remember a specific conversation between me and my brother:

He was a senior in high school and was talking to recruiters.  I was home from college for Christmas vacation.  He was telling me, The Air Force said this, and the Army said that.  I asked him, "What'd each one say about pensions?  His response, so 17-years-old, was, "Oh, the guy mentioned that, but I didn't know what it meant ... but let me tell you about this other thing."  I stopped him, told him what a pension was, and he became so excited that he jumped up off the floor where he'd been laying and started pacing back and forth.  He kept asking me, "You're sure about this?  They keep paying you -- paying you real money -- after you leave the job?"  He was strongly motivated by MULTIPLE incentives:  The job he'd do, the idea that he wanted to go military, AND, yes, his distant future.  He was already 90% sure he was going into the military, but the first week of January he signed his name on the dotted line and became a Navy man, and it was understanding the pension that put him over the edge and made his decision final.

I did say Marine Corp for a reason.  In general Marine Corp recruits (See Making the Corp) are motivated by more patriotic/traditional reason for signing up than the other services.  Navy, Air Force (ROTC in my case) and Army typically appeal for multiple reason like your brother.   I believe (Nords will correct me if I'm wrong) that the Marines have the lowest percentage of the service collecting pension, Air Force I think is the highest.

But proportionally Marines are engaged in far more of the actual fighting than the other services, so I believe the current system penalizes them unfairly.

[jmusic]

I'm actually not happy this is being delayed. The longer it is delayed the closer I get to a point where my decision will already be made and I won't get to do what I mentioned earlier in the thread (if it is an option)...get a ton of back/make-up TSP contributions and then punch. The longer they wait, the more likely I am to stick it out or go Guard/Reserves.

I agree, I am in a similar position (~10 years ATM) and would like to know more about it.  I'm not confident that there would be a big benefit for folks looking to get out, but I might be inclined to jump if its decent because my chances of making the rank required to avoid HYT aren't great.

[Sailor Sam]

You're lucky, my SNCO's all seem to be going for broke, but they do have some awesome trucks. Poor guys will have to work post ARMY just to make ends meet.

Yes. Oh yes. But I'd like to take a second to say it's not just enlisted. The commissioned and warrant officers also have some damn nice trucks/kids, houses, elephants, etc. Thus far I've have 5 shipboard CO's, each at O-6 with 20+ YOS. They all have, or plan to have second careers. When I asked why only one said he wanted to keep working. The other 4 all said they needed an income above the pension. I'm always astounded. 

Do you think they'd back date it? Or just carry forward? The report wasn't clear. I know there is the ability to release the grandfather clause, but I wonder if they will back match TSP, or just count grandfathered years as 2.5% and years going forward as 2% with bonuses and match as applicable (so a guy who is at 13 years is pretty much stuck in the current system, where a guy with 11 years might make it out ok).

I think back matching would be a nightmare beyond consideration. Topeka has routinely failed to correctly charge my leave, let alone calculate back contributions. But that's nothing but opinion and free floating grumpiness; here's hoping I'm utterly wrong.

[MsPeacock]

I don't like how they are complaining about the old system leaving nothing to those who do not serve 20 years.  Everyone is able to use the TSP to supplement their savings.  To say "system that would shrink the size of the current pension but create 401(k)-style investment accounts that would for the first time provide a retirement benefit to troops who serve less than 20 years" is dishonest when the TSP is there. If PVT Snuffy doesn't sign up well that's his own dumb ass fault.

And the TSP is the same as the 401k offered to GS employees, but w/o matching. I was on AD when the TSP was created and it felt like a *huge* deal because prior to that it really was 20-years or nothing.

As an PP mentioned - "ground  pounders" being less likely than "desk jockeys" to make it to 20. IME, working 20 years now in the DoD medical system- there is some truth to this because "ground pounders" have a much higher frequency of career ending injuries. They may end up medically retired, but many get out w/o a medical board and just try to get on w/ their lives.

Military is downsizing so they don't care if a change in pension plan will effect retention. I'm seeing people being ad sep'd for PT failures for the first time in the past 10 years. Also, kicked out for DUIs from 8 years ago, over weight, etc. - in other words, previously minor stuff  - and no severance pay for those folks.

Also noted below - GS pays more than base pay for equivalent military jobs - however, military gets housing allowance, BAS, and much cheaper (to free even) health insurance - which accounts for significant untaxed income. My experience going from AD, to contractor, to GS - AD and GS were pretty equivalent when it was all said and done. Retirement is about the same, too - 50% of base pay for military as it stands now, and 1% per year worked for GS - but you can't collect until minimum age (62? -  I can't recall) - so typically 20-30% of your "high 3 years"

If you leave AD and get hired as GS you can buy into FERS w/ 1% of your base pay for each year of AD. You have something like 3-5 years to cover the amount, so it is manageable and then you are vested pretty quickly (need 5 years credited, I think).

[mrmoneycleanshaven]

Yes. Oh yes. But I'd like to take a second to say it's not just enlisted. The commissioned and warrant officers also have some damn nice trucks/kids, houses, elephants, etc. Thus far I've have 5 shipboard CO's, each at O-6 with 20+ YOS. They all have, or plan to have second careers. When I asked why only one said he wanted to keep working. The other 4 all said they needed an income above the pension. I'm always astounded. 

Yes there are some fancypants at all levels. I didn't mean to imply that officers are above this, but that its really hard to preach to these young E's about frugality when their senior enlisted leadership have more money in their pleasure craft than I have in my entire garage.

[Travis]

Yes. Oh yes. But I'd like to take a second to say it's not just enlisted. The commissioned and warrant officers also have some damn nice trucks/kids, houses, elephants, etc. Thus far I've have 5 shipboard CO's, each at O-6 with 20+ YOS. They all have, or plan to have second careers. When I asked why only one said he wanted to keep working. The other 4 all said they needed an income above the pension. I'm always astounded. 

Yes there are some fancypants at all levels. I didn't mean to imply that officers are above this, but that its really hard to preach to these young E's about frugality when their senior enlisted leadership have more money in their pleasure craft than I have in my entire garage.

It's painful to watch my peers (O-3 to O-5) worry about money.  I have one coworker who has less than 20, but won't flinch if the Army cuts him off before then. He's done his homework, invested, and he'll do just fine.  I have some others who are at or near 20 and are honestly concerned about post-Army careers.  The friend will still need a job, but he won't be broke if he's unemployed for a month like the others.  There are as many financial knuckleheads in the O-ranks as their are on the enlisted side, but I think the officers have no excuses.

[NICE!]

If you read the DBB and other reports, they put a lot of consideration into retention and how it is affected by the 20 year cliff-vested pension. Trust me, they're taking it into consideration. I worked for a Marine O-6 who worked directly for the flag officer in charge of manpower and he told me that the pension was actually more important for enticing people to get out. He said, like it or not, they don't want a bunch of E-7s, E-8s, and O-5s running around for much longer than 20.

I think the retention bonus at 12 and continuing the pension will continue to make the system workable, but of course there will be growing pains and peaks/valleys.

We'll see if they eventually get it right.

[Travis]

He said, like it or not, they don't want a bunch of E-7s, E-8s, and O-5s running around for much longer than 20.

Too true.  I sat in a briefing with the Commanding General of Army Human Resources Command last year, and one of his biggest annoyances regarding the forced drawdown was the O-5s and O-6s overstaying their welcome.  For every one of those trying to stay in until mandatory retirement age knowing they'll never be promoted again, that translates into a handful of junior officers that can't get promoted.  In the Army you make O-5 at 17 years, but you can stay in at that rank a few years past 20 (24? 26?). The NCO side started doing this a few years ago by telling the E-7s that if they're at 20 and it's obvious they're never going any higher, they needed to start retirement proceedings or be forced into retirement on short notice.