A new Military Retirement Plan is in the works. Using a computer model, the current system will offer “piles of cash” at critical career points to entice service members to stay or leave the force depending on the critical skills of the service individual. Citing cost efficiencies, the plan offers a fairly large lump sum payment of $30,000.00 cash at the 15 year mark which would cut a service member’s lifetime retirement benefit by more than $300,000.00
The recommending agency believes the current system encourages the services to keep too many people they don’t need while losing too many people with critical skills to early retirement. 20 year retirement is too short a period for the agency who asserts that statistics show that less than 50% of officers and 15% of enlisted personnel stay long enough to retire in the current system.
The new plan would apply to active duty and reserve component service members and consist of 4 major features:
Defined benefit annuity – 2.5% of base pay for the 3 highest years x number of years served. Vesting occurs at 10 years but not paid before age 57 after completing 20 years or more.
Defined Contribution – Gov’t funded Thrift Savings Plan (TSP) that would begin in year 2 at 2% of base pay, 3% in years 3 & 4, 4% in year 4, and 5% from year 5 and beyond. TSP vesting occurs after year 10.
Gate Pays - at year 12 and year 18 equal to 15% of base pay used to entice members to stay.
Separation Pay – equal to 1 year’s base pay who retire between 20 to 26 years of service.
Stay tuned for the next installment to highlight some of the thought processes that went into developing these retirement plan guidelines.
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