When I read the July 21 proposal by the Defense Business Board, I wondered how far behind would be a Federal Worker Obama panel that ends Federal defined benefits retirement and replaces that benefit with a savings account.  Meanwhile we keep down the Federal body count by hiring private guards at our bases for 2 to 3 times the cost of a recruit, just like we outsource much that was once civil service at a cost much greater than civil service pay.

http://www.airforcetimes.com/news/2011/07/military-dod-panel-calls-for-radical-retirement-overhaul-072511/

The Defense Business Board proposes a transition, discussed below, similar to Obama’s proposed Social Security “no one over 55 affected” idea.  New hires, recruits in military talk, would get out of boot camp with no direct incentive to stay for 20 years and would not get a fixed-benefit pension. But hey, they’d get annual contributions to a Thrift Savings Plan account and could leave service at any time with that money vested and available to spend at some specified age (currently the savings become available at age 59½ if you want to avoid a penalty, except in certain specified circumstances, same as your IRA or 401k).

Only 17% of current recruits stay the 20 years to qualify to receive the 50% of pay pension, so the Obama change sales point is, as with GW Bush private accounts for SS, getting some cash to the 83% who do not get anything in terms of a pension from their first 20 years.  But that problem was solved in the private pension market with vesting at 24 months in some cases and never taking more than 5 years.  Why must the defined benefit at 20 years that has been around for generations be ended.  Unlike police and fire pensions, the non-officer military pension at 20 years is not enough to actually retire (average pay over 3 years is usual calculation), meaning taking your career as a tail gunner into the job market place.  The constant moving required in the military means you do not develop the job contacts the police and fire folks have at retirement, so job search becomes GI Bill education and hope, or living rather cheaply. Since most GI’s are forced to retire in their 40’s or 50’s the retirement calculation is based on income well below that of the Federal retiree, and comes at a time when they still have school age children and may be unlucky enough to even a mortgage.

What is really happening is the Iraq and Afghanistan wars are ending and the Navy has too many ships and personnel, so “no-conflict” Obama wants folks to leave – but leave voluntarily. And he throws in a minor but flashy sales point – he will be able to give more money to troops who deploy frequently, accept hardship assignments or serve in high-demand jobs. Indeed incentive pension contributions gives the services a new lever to incentivize some troops to leave or stay on active duty longer. The other sales point is the “fairness” of savings accounts compared to making sure you have a benefit at retirement.

The proposed transition has cliffs for current military at 5, 10, 15, and 20 years where one would get 25%, or 50%, or 75% of the previously promised 20 year benefit provided you made 20 years – otherwise you get nothing – no defined benefit – just the savings account. The proposed change would have no affect on current retirees or disabled veterans.

And the old canard of military retirement costs soaring because of rising life expectancy is trotted out – despite the minor effect that increase has actually had.  The real reason is that “financial executive”, a Mr. Spencer chosen by the Obama team for the Business Board panel, noticed that while private businesses only contribute 4 percent to 12 percent of salary (the lower amount if it is a savings account based rather than a defined benefit plan based contribution) of salary into an employee’s retirement savings account, the current military retirement benefit for those who ultimately get it amounts to a 75 percent contribution each year – which is a con since the 12% is based on all employees and not “for those that get it”.

Rejected Obama board ideas were cliff vested at 20 years pension not being paid until some age like age 65, or reducing pensions to 40 percent of regular pay rather than the current 50 percent; or calculating retirement pay based on the average pay over a member’s last five years in uniform, rather than the three years under the current system – saving about $254 billion over 20 years. By claiming they will pay a higher matching contribution to the savings account the Obama board is able to be “moderate” and “centerist” and claim they are saving less that that amount.  Of course the DoD recently changed the military cost of living to exclude food and energy costs from the figures so that there is now no increase in the cost of living – shades of chained CPI for Social Security. I am not sure the DoD/Obama will be trusted on their matching contribution promises.  But if part of Catfood 2, there may be no stopping this change.

papau

papau

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