An Affordable and Equitable Retirement System for Our Veterans
January 08, 2014
Author: Peter Jeffrey, W’16
The US military retirement system is arguably one of the most important elements of the US defense budget because it provides benefits for veterans who have honorably fought for the United States in order to protect the country’s freedoms and interests around the world. Unfortunately, this system is incredibly flawed and in dire need of reform.
In 2011 the US passed the Budget Control Act, which will effectively reduce the Defense Department’s budget by $1T over the next ten years. During negotiations for this bill, leaders on both sides of the aisle refused to include military retirement pay in the proposed cuts.
However, on Wednesday, December 18, 2013, the US Senate passed a bipartisan budget designed to responsibly lower the national deficit. Included in that budget was a provision that reduces the costs of the military retirement system by imposing a one-percent reduction in the cost of living adjustments for the retirement pay for retirees who are of working age.
While it is good that Congress attempted to lower the long-term costs of this program, it may not be the best way to address the growing costs of the outdated, unstable, and inequitable military retirement system.
According to the Department of Defense Office of the Actuary, annual payments to military retirees will increase by $64.7 billion, more than a 223 percent increase, by 2035. These costs are currently unfunded, and may create a liability that will hinder the US military from effectively utilizing and optimizing all of its resources. This could also create a significant problem for a sector of the government that is already subject to the uncertainty of military conflict.
Moreover, the current structure of the retirement system, which only gives benefits to retirees who have served for 20 years or more, impedes the ability for the US military to shape its forces in two ways.
First, the system encourages service women and men, who serve for 20 years or more, to retire from the system early. Such an expectation can be detrimental to the many military jobs that inherently require years of experience. Second, the system makes it tough to reduce personnel with 15 years of experience, because the DOD protects them from being fired before they reach 20 years— even when troop reductions are needed to maintain a lean military. Such inflexibilities can create a greater problem in the military because of our nation’s constantly changing defense demands.
Additionally, only 17 percent of the women and men who serve in the military remain in the military long enough—20 years—to receive a pension. Moreover, only 13 percent of enlisted personnel have received a pension, which means that the majority of men and women who serve in combat do not receive any form of retirement benefit. Thus, the US is spending a lot of money on a military retirement that does not even help a majority of veterans.
Therefore, Congress should enact fundamental reforms to the military pension system. Those reforms should create a solvent and affordable military retirement system that reduces the constraints on the military, and ensures that all veterans receive retirement support.
Congressional leaders should adopt the defined-contribution plan that the Defense Business Board suggested in 2011—which is similar to a 401(k) where the currently serving service men and women receive a retirement contribution from the government each year.
This plan would prodigiously reduce the future liabilities and constraints of the Pentagon, without affecting the retirement plans of current retirees or fully disabled veterans.
Moreover, this plan would ensure all veterans receive a retirement contribution from the government.
Congress should be committed to guaranteeing the existence of a quality retirement system for all of the selfless veterans, while also reducing the constraints on our military defense program.
Committee for a Responsible Federal Budget. “Understanding the Defense Retirement Reforms in the Bipartisan Budget Act.” CRFB Blog. Web. 16 December 2013. http://crfb.org/blogs/understanding-defense-retirement-reforms-bipartisan-budget-act.
Defense Business Board. “Modernizing the Military Retirement System.” Web. 21 July 2013. http://dbb.defense.gov/Portals/35/Documents/Reports/2011/FY11-5_Modernizing_The_Military_Retirement_System_2011-7.pdf.
Inside Business. “Military pension system needs overhaul, board says.” Web. 5 August 2011. http://insidebiz.com/news/military-pension-needs-overhaul-board-says.
Montgomery, Lori. “Senate passes bipartisan budget agreement.” Washington Post. Web. 18 December 2013. http://www.washingtonpost.com/politics/senate-poised-to-pass-bipartisan-budget-agreement/2013/12/18/54fd3a1a-6807-11e3-a0b9-249bbb34602c_story.html.
Thompson, Mark. “Air Force: Firing For Effect.” Time Magazine. Web. 3 January 2012. http://nation.time.com/2012/01/03/air-force-firing-for-effect/.
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