Did you know that under the current military retirement system 83 percent of enlisted servicemembers and 51 percent of officers never receive any retirement funds, unlike their civilian counterparts? Under the proposed Military Compensation and Retirement Modernization Commission, 100 percent of servicemembers would be eligible for retirement savings.
The commission’s legislative proposal would establish a Thrift Savings Plan (TSP) with an automatic 1 percent DoD contribution at entry and matching contributions up to 5 percent for all servicemembers.
The MCRMC “blended” proposal would also allow retiring members of the National Guard and Reserve to receive a portion of their retirement pay after 20 years of service without requiring them to wait to age 60.
Here is how the blended retirement proposal works:
Year 1 – The government contributes 1 percent of basic pay into a Thrift Savings Plan upon service entry date, and servicemembers are automatically enrolled to contribute 3 percent of their basic pay to the TSP (servicemembers can also to opt out of their TSP participation and end their contribution).
Year 2 – 5 percent of a monthly basic pay contribution will be matched by the government and servicemembers will be vested so they can keep the retirement fund after completion of the second year.
Year 3-11 – the government will continue to match funds but there are no program changes that occur during this period.
Year 12 – continuation pay is given to all servicemembers who obligate for an additional 4 years. The continuation pay amount will be determined by each service secretary to maintain the force profile needed for manpower requirements.
Year 20 – servicemembers qualify for a military retirement annuity after 20 years of service (YOS) (2% x 20 YOS x pay base). Based on the servicemember’s contributions this retirement annuity can exceed the amount that would be paid under the current retirement system. It would also allow retiring members of the National Guard and Reserve to receive a portion of their retirement pay after 20 years of service without requiring them to wait to age 60. The lump sum payment would be described in regulations addressing the actuarial basis for determining the lump sum amount.
Year 21 – the servicemember will no longer qualify for a government matching funds. ROA believes government matching funds should continue for the full amount of military service.
The commission recommended allowing servicemembers to contribute up to 17 percent of their base pay with a cap on the government contribution of 1 percent plus up to 5 percent matching funds. Additionally, they believe any servicemember who is in the current retirement system should be able to change to the blended retirement system.
The MCRMC retirement proposal will help more servicemembers than any other initiative since the World War II GI Bill.
In conjunction with Recommendation 1, we also support Recommendation 3, which will help servicemembers establish a retirement plan and develop sound financial management skills. It will help to ensure servicemembers and their families understand and are equipped to engage in sound financial planning for their retirement.
The Air Force Association, Enlisted Association of the National Guard of the United States, National Guard Association of the United States, Veterans of Foreign Wars of the United States and ROA, representing more than 3 million members, have met with the House and Senate Armed Services Committees to express their support of Recommendation 1 and Recommendation 3.
Recommendation 1: Help more service members save for retirement earlier in their career, leverage the retention power of the traditional Uniformed Services retirement, and give the Services greater flexibility to retain quality people in demanding career fields by implementing a modernized retirement system.
Recommendation 3: Promote Service Members’ Financial Literacy by Implementing a More Robust Financial and Health Benefit Training Program.
We believe that these recommendations enhance the current retirement system and will be a valuable recruiting tool for a new generation of warfighters. Whatever Congress passes should maintain the overall value of the retirement system and should not weaken retention; further, the TSP match should continue throughout a servicemember's career.