Panel would shrink troops’ retirement pay, offer 401(k)s

Panel would shrink troops’ retirement pay, offer 401(k)s

A detailed proposal to revamp military retirement that was sent to Capitol Hill would shrink the size of future troops’ pensions and end the 20-year, all-or-nothing aspect of the current benefits package by starting 401(k)-style investment funds with government contributions for lower-ranking troops.

After a two-year study, the Military Compensation and Retirement Modernization Commission on Jan. 29 publicly unveiled 15 major recommendations that would give individual troops far more control over shaping and managing their own retirement packages.

One stunning feature of the new proposal is to give individual troops the option to forgo immediate monthly retirement checks and instead receive a lump-sum payment for the total value of their working-age retirement benefit between the time they leave service and the time they become eligible for their normal Social Security benefits, usually starting at age 67.

At its core, the new proposal would scale back the size of military pensions by 20 percent. Yet it preserves the current structure by continuing to offer the option of monthly checks immediately upon separation for those who serve 20 years.

To supplement that diminished pension, the proposal calls for government contributions to a 401(k)-style investment account — matching up to 5 percent of base pay — as well as a new lump-sum “continuation pay” for troops who go beyond 12 years of service.

According to the commission’s calculations, the proposed retirement benefit’s total value could be higher than the current system if service members contribute at least 3 percent of their basic pay and also their lump-sum 12-year continuation pay to their TSP account. The total value of the proposed package would be significantly lower for troops who chose not to invest portions of their basic pay and continuation pay.

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