An influential senator said he supports the idea of modernizing military retirement, but wants to take a close look at the research and analysis underpinning the latest proposal for historic change.
Sen. Lindsey Graham, R-S.C., a colonel in the Air Force Reserve, leads the Senate Armed Services Committee's personnel panel, making him one of Washington's most important figures in the emerging debate about overhauling military retirement.
Graham signaled cautious approval for the new proposal that would shrink the size of traditional military retirement pay by about 20 percent and also add a new defined-contribution benefit for troops who serve fewer than 20 years.
"This committee wants to embrace modernization, but it won't be punitive," Graham said at the close of a two-hour hearing on the topic. "What I am worried about is: Does the math add up? Sounds like a good deal. But let's test it."
The Military Compensation and Retirement Modernization Commission's January report suggests that financial markets will help small investments grow over time, making the hybrid retirement plan more valuable in the long run.
But Graham acknowledged that some veterans advocates are skeptical and believe the plan ultimately shifts money away from careerists who serve 20-plus years to pay for a new retirement benefit to the vast majority of troops who leave long before that milestone.
"The idea that you're paying for this on the back of the people past 20, I don't really buy that. But I want to know more about it, because you can't create a new benefit helping the 12-year guy, the eight-year guy, without something giving. And I don't want to punish somebody because you're helping somebody else," Graham said.
The details of the commission's proposal include cropping the "multiplier" that the Defense Department uses to calculate traditional retirement pay from 2.5 to 2.0, effectively reducing the initial value of retirement checks by 20 percent. A retiree who leaves after 20 years under the proposed system would see checks equal to 40 percent of final basic pay rather than the current system's 50 percent.
In addition, the new plan would have DoD contribute up to 6 percent of basic pay into individual troops' retirement savings accounts. A 1 percent contribution is automatic, and DoD would further match service members' contributions up to 5 percent. The money would be held in a Thrift Savings Plan, or TSP, the government employee's version of 401(k) retirement accounts.
Graham expressed confidence that the financial markets could help bridge the 10 percent gap between today's military retirement pay equal to 50 percent of base pay and the proposed plan that would amount to 40 percent.
"If you're halfway decent at managing your money, you'll make up the 10 percent," Graham said.
Yet he also acknowledged critics who say the proposed plan is based on a rosy assumption that service members will contribute a lot of their own money. Graham said he wants to see an analysis of how much a service member might accrue if he or she opted not to contribute his or her own money and relied only on the automatic 1 percent contribution.
"We're going make sure the 1 percent is modeled out because a lot of people live paycheck to paycheck. So I'm going to take the most conservative estimate of 1 percent and see how much of the 10 percent that makes up," Graham said at the hearing.
Today's service members would be grandfathered under the current system; Graham said he has no qualms about changing the system for future recruits.
"If you're going to enlist in the military the day after we reform the system, you are going to know on day one that the defined-benefit plan is 40 percent. If that is not a good deal for you, don't join — go somewhere else," Graham said.
After hearing from a panel of veterans advocates, Graham offered them assurances that any changes would get a thorough review and ultimately be fair to service members.
"If you need time to run the numbers, you're going to get it, because this is a transformational change and we want to do it thoughtfully," he said.
"A 40 percent defined benefit is a pretty good deal. There are not many deals like this in society today. But what we are asking people to do is an incredible thing and that is to get shot or get killed. So I'm going to make sure you get a good deal."
Andrew Tilghman is the executive editor for Military Times. He is a former Military Times Pentagon reporter and served as a Middle East correspondent for the Stars and Stripes. Before covering the military, he worked as a reporter for the Houston Chronicle in Texas, the Albany Times Union in New York and The Associated Press in Milwaukee.
