COMMENTARY | The U.S. military is mulling a radical overhaul of its pension system with a view of saving about $250 billion over the next 20 years. The proposal runs the risk of getting flack from veterans’ groups, according to CBS News.
Currently, a serviceman or woman gets a pension at half of his or her salary after 20 years of service. The military is considering replacing that system with a 401K to which the military will contribute. Troops will be able to contribute to their accounts, as well take money from their salaries. More money will be contributed for those serving under combat or other hazardous conditions.
The private sector has been moving away from pensions to 401Ks for the past few decades. However, even considering the idea of creating the same arrangement for the military is likely to create unhappiness among veterans groups, which jealously guard pensions and benefits.
A 401K system would have certain advantages and disadvantages.
Retiring members of the military would not be able to access their 401K money until reaching regular retirement age. Currently, a retiring veteran gets to collect his/her pension upon separating from the service after 20 years.
On the other hand, those who serve for less than 20 years would be able to take their 401K earnings and, presumably, roll them over to civilian job retirement funds. The ultimate value of a military 401K would depend on market conditions, though many can be arranged that would gradually shift money from more risky investments, such as common stock, to the more conservative kind, such as some mutual funds and bonds.
One objection to going to a 401K system is the military pension arrangement is seen as an incentive for members of the military to stay in for their full 20 years, thus providing the armed forces with the benefit of their experience. More people might be tempted to cash out and separate from the armed forces should they be able to take some retirement money with them.
The Defense Department has not made any decisions about this proposal yet. But the idea of saving $250 billion that might otherwise be cut out of armaments or training is a great temptation indeed.
Sources: The Military Retirement System, Military.Com
Radical overhaul of military retirement eyed, Sharyl Attkisson, CBS News, August 15, 2011