Twenty years of service for a lifelong pension. That’s been the deal between the U.S. government and military personnel for decades. But that could change in a big way.
The Defense Department is looking at ways to overhaul its retirement program, which costs taxpayers more than $50 billion a year and only applies to the 17 percent of service members who eventually qualify for the benefit. Currently, personnel who serve 20 years receive monthly retirement checks equal to about half of their highest pay rate while serving.
The impetus for the overhaul comes, in part, as a result of cutbacks in defense budgets. The price tag for pension payments becomes more expensive each year, and the program is projected to double in cost over the next 20 years unless changes are made.
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Critics of the program say reforms are not only much-needed but long overdue as well.
The configuration was conceived of about a century ago and hasn’t undergone significant changes since the 1940s. At its inception lifespans were shorter and military salaries weren’t comparable to civilian pay.
Several options are under consideration, according to documents obtained by The Military Times, including one that would make minor tweaks to the existing program. Another, though, would be fashioned after a 401(k) and give service members a lump sum after 20 years in exchange for a smaller monthly pension.
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The Pentagon has said its proposals are merely options for consideration by the Military Compensation and Retirement Modernization Commission, a group that’s scheduled to make its recommendations public by next February.
The pension system has long been considered a major benefit for service members who put in the requisite 20 years of service. Personnel can retire as early as age 38 and receive guaranteed monthly payments, adjusted annually for inflation, for the rest of their lives. Still, the program excludes the majority of service members and doesn’t differentiate between personnel who have served in combat roles and those who have served in peacetime.
“It’s not fair to most of the people who have borne the brunt of these wars,” said Lawrence J. Korb, a senior fellow at the Center for American Progress who served as assistant secretary of defense from 1981 through 1985. He also noted that the current system has led to unintended consequences.
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“Pentagon managers are reluctant to separate personnel who have served more than 10 years but less than 20, not wanting to leave service members without a job and retirement savings,” Korb wrote in a paper he co-authored with Alex Rothman and Max Hoffman. “As a result, the Defense Department is forced to either separate service members early in their careers or keep them until they reach 20 years, even if they are underperforming, unhappy, or ill-suited to the immediate needs of the military.”
One of the options submitted by the Pentagon would provide cash incentives for personnel who serve 12 years instead of two decades, which would apply to the thousands of service members who signed up after the 9/11 terrorist attacks and fought in Iraq and Afghanistan.
While that would provide an immediate financial incentive to forego another eight years of service, some say the appeal of lifelong pension program played a big role in the decision to join the military.
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“That’s a big factor, huge,” said Staci Bidwell Richard of Carrsville, Va., whose husband has been in the Navy for 12 years. She said that if given the option of taking a lump sum after a dozen years, the retirement checks would be too good to pass up. “He would want the pension. He would stay in.”
That money is often used by retirees as a financial cushion while they transition into the civilian labor force or go back to school.
There’s already appetite in Congress to make changes to the system. The House Budget Committee, chaired by Paul Ryan (R-WI), weighed in on the issue, saying on its website in December that “current levels of military compensation are incompatible with the overall demands on the defense budget.”
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