Pentagon proposes reform of U.S. military retirement system

Reuters News
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Posted: Jun 10, 2015 6:20 PM

By David Alexander

WASHINGTON (Reuters) - The Pentagon on Wednesday proposed a reform of its retirement system, which would cut guaranteed benefits for those who serve 20 years while boosting retention pay and adding a retirement savings plan to ensure most troops can leave with a benefit.

Army Colonel Steve Warren, a Pentagon spokesman, said the proposal submitted to Congress would "achieve real tangible savings" of $8.1 billion over 10 years for the Defense Department.

Under the current military retirement system, troops who serve at least 20 years can retire with an annual benefit roughly equal to half pay. Those who retire before reaching 20 years service receive no retirement benefit.

Under the proposal sent to Congress, troops who serve for 20 years or more would receive a defined benefit annuity that would be equivalent to about 80 percent of the current pension scheme, or about 40 percent of retirement salary.

They also would be eligible for so-called "continuation pay" aimed at encouraging them to remain after eight years in the military. The continuation pay would offset some of the reduction in the defined benefit.

All troops entering the service also would be enrolled in a retirement savings plan, which would receive a minimum Pentagon contribution of 1 percent of base pay.

Service members would be able to contribute to the plan from their salaries, with the Pentagon matching up to 5 percent of base pay after four years of service.

Current service members could opt to stick with their current retirement plan. But beginning in 2018, the new plan, if approved by Congress, would become mandatory for new service members.

The current system has been criticized for being out-of-step with retirement schemes offered by other employers, which are portable and allow workers to take retirement savings with them when they switch jobs.

"This proposal includes elements that the department believes are necessary to promote retention, maintain the all-volunteer force and protect service members who retire due to disability," said Army Colonel Steve Warren, a Pentagon spokesman.

The Pentagon settled on the new system after reviewing retirement proposals by the U.S. House of Representatives and Senate as well as a military retirement commission that issued its findings earlier this year.

Navy Lieutenant Commander Nate Christensen, another Pentagon spokesman, said the new plan would mean about 85 percent of all troops leaving the service would receive some form of retirement of benefit to take with them.

(Reporting by David Alexander; Editing by David Gregorio)