Wonder why Republicans aren't making a big deal about defense cuts?
When you call your Congressman to tell him or her how to vote on this debt limit - ask them if the defense cuts are coming from the pension plans of our active duty military? If they don't know the answer, tell them to find out before they vote.
According to the Air Force Times, recommendations have been made by the Defense Business Board to 'modernize' the military retirement plan:
In a massive change that could affect today’s troops, the plan calls for a corporate-style benefits program that would contribute money to troops’ retirement savings account rather than the promise of a future monthly pension, according to a new proposal from an influential Pentagon advisory board.
Corporate-style is code word for Stock Market. They want us to put a portion of our monthly paycheck into a 401(k), cross our fingers that the market stays strong while taking away the current retirement plan. The 'savings' to the government appears to be huge... and the losses to those currently serving and planning to retire could be staggering.
This plan was released last week:
The new proposal was unveiled July 21 by the Defense Business Board, the wellspring for many cost-saving initiatives adopted by the Defense Department in recent years. The new retirement plan would mark the biggest change in military retirement in more than 60 years and require approval from Congress.
Believe it or not, there are two upsides to this plan. Let's deal with those first.
First upside: Currently, troops that decide to leave the Armed Forces before 20 years receive 0 in compensation. They receive no retirement pay. They receive no commissary or BX benefits. They receive no health care benefits. The current system encourages troops to stay the full 20 years. Occasionally, the government will offer a compensation package to encourage people to leave earlier - especially in career fields that are over saturated. But this is rare.
The current plan would make sure that every soldier, sailor, marine, and airman has a 401(k) plan with money in it from every year served, whether they leave after a couple of years or after 20 years. Each troop would be required to place a portion of their salary into a 401(k) and the government would match funds.
The downside to this - military salaries for entry level NCO and Officers are not high. When my husband was a 2nd Lieutenant, we were already saving from his paycheck for retirement. An additional 16%, as proposed, would have forced us to place our savings in the government account rather than in the account of our choice. This type of plan hurts those that already have planned in the first place. It doesn't add to my savings, it just forces me to use the government plan instead.
Second upside:
A critical new feature would adjust those contributions to give more money to troops who deploy frequently, accept hardship assignments or serve in high-demand jobs.
Sounds great, doesn't it? Of course, there is a caveat. Those bonuses are not guaranteed. They are a possibility only. If the government decides not to pay them, they won't have to. And, what is missing from the Defense Business Board's report is that we do receive salary benefits for deployment and for hardship assignments - those payments are just not included in our retirement pay. They come in our monthly pay and are immediately available for families to use. They may not be sufficient, but they do exist.
If you are a troop who does not plan on staying a full 20 years, this plan could be a benefit to you. It gives you something that military members have never had before. But, after a few years, this plan pays you far less than the current system.
Again, from the Air Force Times:
Most private-sector companies contribute 4 percent to 12 percent of base pay into an employee’s retirement savings account. By comparison, the current military retirement benefit, for those who ultimately get it, amounts to a 75 percent contribution each year, the board said.
Basically, the board that made this budgetary decision is comparing apples to oranges. Most private-sector companies no longer have PENSION plans, thus only contribute 4-12 percent. Let's face it - this plan isn't about RETIREMENT... it's about screwing more Americans out of their pensions, just like corporations have been doing for the last few years.
Let me show you a graphic from the Military Officer's Association of America that really highlights the differences:
This one requires some explanation - MOAA explanations in blockquotes with my further explanation after each section:
The red shaded area shows the current retired pay projection over time for a newly retiring E-7 at age 40 with 20 years of service. His/her retired pay of about $24,000 a year would grow using a 3% COLA factor. This chart carries the projection for the expected lifetime (age 85) of a current 40-year-old retiree.
This is the graph of an enlisted man (E7 has several different names in the different services) - officers would generally be 5 years older when starting and thus, 5 years older at the end of twenty years; they also earn more money. Most officers retire as Field Grade Officers (major or lieutenant colonel). The graph raises so smoothly because the Cost of Living is expected to raise. In 2031, a salary of $80,000 will be needed to live in same lifestyle of a person earning approximately $30,000 currently.
The QRMC plan (blue shaded area on the chart) would reduce retired pay 5% for each year before age 57 (17 years x 5% = 85% reduction), yielding only $3,600 at age 40.
And this bears further consideration - that $3600 at age 40 is money in the pocket. It might be better of left in the retirement plan to grow further. It might not. A lot would depend on the stock market. And $3600 in your pocket after 20 years of service? Won't help much just as you're getting ready to send your kids to college and looking to put a down payment on that house you can finally own because you're going to live in one location.
At age 60, the retiree would begin drawing money from a 401(K)-type plan. Using QRMC assumptions and projecting a 7% rate of return, the retiree would draw an additional $13,600 per year until age 85. To be able to draw money beyond age 85, the annual withdrawal amount would have to be reduced.
After age 60, it should be pretty obvious that a military retiree will have had to find a job that supplies a second retirement. There is no way in hell that you can live of $13,600 a year. And, consider this, most military spouses don't have retirment plans of their own. They have not been able to work 'careers' while following their husband or wife and by the time their spouse retires, their work record is so spotty that getting hired in a 'career' job can be very difficult.
To help entice people to serve longer, the QRMC envisioned a series of cash bonus payments (shown as three bars on the chart). The first two bars ($4.6K and $7.1K) reflect bonuses (before taxes) equal to 15% of annual basic pay at the 12 and 18 years of service points. In addition, the QRMC envisioned a separation bonus equal to a multiplier of 1 X monthly basic pay X years of service before taxes -- 20 months of basic pay at 20 years of service.
And this is key - to help entice people to serve longer. Because that is what is missing from this equation - the current retirement system is a huge recruitment tool. A similar but less ambitious plan to change military retirement happened under Defense Secretary Weinberg. He warned Congress that it would be difficult to retain great officer and enlisted without a good retirement program. Congress didn't listen, and passed the plan. A few years later, they had to change it back to it's original form. Secretary Weinberger had been correct and the military found itself unable to retain quality people.
This time around, we don't have a Secretary of Defense defending the current system. The Pentagon and the Congress seem to be on the same page this time. President Obama is calling for serious cuts in the defense budget and the Republicans are ready to agree. According to some officials, this is the way to get the most serious cuts in the defense budget without harming our war-fighting machine.
Why should you care? Well, several reasons.
Attacks to our military retirement are a continuation of the attacks on pension plans nationwide. One of the main arguments made by the Defense Business Board is that the military pension plan is far better than any civilian plans currently around. That wasn't true when my husband joined 20 years ago. It was starting to be true a decade ago. Today? Almost everyone invests their own hard earned money in a 401(k) and companies provide some kind of matching fund. We have a nation gambling with their future compensation.
We want a quality military and that means quality people. Quality people are for more important than quality weapons systems. I want smart folks in charge of our nuclear arsenal. As much as many of you hate the idea of a military at all, we do not live in a world where it is yet possible to disarm ourselves unilaterally. I, for one, want a military comprised off a broad spectrum of Americans, not just those willing to serve for patriotism and damn the benefits. I don't want zealots running the show. When we remove a retirement plan that provides an actual living for old age, we lose the ability to attract a large portion of the American population.
Furthermore, we want to keep men like my husband in the service. Without a good retirement program, he would have left the service at about the 10 year point (I was pushing for it at that time). He loved his job; he didn't want to leave. And he was able to point to that great retirement, only 10 years away, that would help us launch into the next step of our lives. We could use that retirement salary to start a new business, to get a foothold in a poor economy, or to help send our kids to college. We could use it to help pay a mortgage on the house we don't yet own.
Under the new plan, can you imagine our conversation at 10 years? Add in a war and multiple deployments? The government will have to come up with some way to keep enough of the force in... bonus payments of some kind and not the few thousand dollars mentioned in the above graph. Today's soldiers understand how far a few thousand dollars will go in today's economy... not far enough.
My husband makes another good point. Many of you know that we live in Argentina. We know many military officers here. Their military pension sucks. Royally. The military force here is small, so a great retirement plan isn't needed for recruitment. Most military join out of a sense of duty and of family tradition. Many of them stay in years longer than needed so that they can continue to draw a salary (civilian options are few in the current economy). The system leaves wide room for corruption. Imagine that you have a colonel who could retire but doesn't because he will lose too much. His pay goes from a full salary to a pittance the day he gets out. A private corporation has huge leverage to get this individual on their payrolls. But before they hire him, they ask him to help out with a few things. They ask him to write a few reports about the need to privatize a portion of the military. Or they ask him to request a contract for new weapons, for new armor, for new toilet seats. The promise of a good job already sways too many decisions in our current military but what happens when that good job is the only way to continue earning a decent salary?
Do I have you concerned? Keep your eyes and ears open. If it wasn't for Danang65, this would have slipped my noticed a little longer... the report was released a week ago while I was on vacation. Living overseas and not hanging out with other military families means my news on the ground comes slowly. But how many of us are not paying attention this summer? How many of us are looking in the wrong direction?
When you call your Congressman to tell him or her how to vote on this debt limit - ask them if the cuts are coming from the pension plans of our active duty military? If they don't know the answer, tell them to find out before they vote.
UPDATE - Today's Military Community Openthread is about how Military Community Members, and others, can take action to prevent massive cuts to our benefits programs - for both veterans and active duty military. Take a look.