Congressional negotiators finalizing plans for an historic overhaul of the military retirement system left in a controversial lump-sum payout for troops who have served 20 years that outside advocates have blasted as a bad deal for military families.
The retirement reform plan, included in the fiscal 2016 defense authorization bill, would replace the current 20-year, all-or-nothing system with a "blended" compensation plan featuring 401(k)-style investments into individual troops' Thrift Savings Plans.
The result would be a retirement system that gives all troops who serve at least two years some retirement benefits after they leave service. Pentagon officials estimate that only about 17 percent of troops leave service with retirement payouts under the current system.
Lawmakers based their plan off recommendations from the Military Compensation and Retirement Modernization Commission earlier this year. It would reduce the traditional post-20 -year payout by about 20 percent but offer a "continuation pay" bonus for service members who stay in beyond 12 years.
In addition, the new system would provide an automatic federal payout to troops' investment accounts totaling 1 percent of their base pay, and matching federal contributions of up to 5 percent of troops' contributions.
The match is meant to mirror corporate-style retirement incentives, and would be paired with a host of new financial literacy training to help troops make responsible investment decisions over the course of their careers.
House and Senate lawmakers compromised on a 26-year sunset for those matching contributions, a timeline staffers said covers all but a very few senior military officials. Outside advocates had pushed for a match beyond 20 years, arguing that model would not give service members much incentive to stay past that milestone.
However, negotiators did not concede to critics of the lump-sum payouts, which would allow service members to cash out their entire retirement benefit at 20 years at just a fraction of its total value.
The Pentagon's proposal offered earlier this year specifically omitted a lump-sum option because defense officials believe that would not be a very good deal for many troops. Outside advocates have criticized the option as tempting troops with quick cash to sacrifice tens of thousands of dollars in future long-term payouts.
But congressional staff said lawmakers kept the lump-sum option in their plan approved in the authorization bill because they believe such payouts would allow more flexibility for separating troops who are starting a business, paying for college or facing other immediate expenses.
The new retirement system would be mandatory for all new troops who enlist after Jan. 1, 2018. Troops who served fewer than 12 years at that point would be eligible to opt into the new system if they choose to, but they also could remain under the traditional 20-year system.
Hill staffers said troops who have served more than 12 years when the new system launches likely would not see a financial benefit from a change, but could be granted exemptions under exceptional circumstances.
The authorization bill still must be signed into law for the retirement plan to go into effect. President Obama has threatened to veto the legislation over Republicans' use of temporary war funds to get around mandatory spending caps, a move that would also sideline the retirement plan.
House lawmakers are expected to vote on the compromise measure on Thursday. No date has been scheduled for a Senate vote.
Leo covers Congress, Veterans Affairs and the White House for Military Times. He has covered Washington, D.C. since 2004, focusing on military personnel and veterans policies. His work has earned numerous honors, including a 2009 Polk award, a 2010 National Headliner Award, the IAVA Leadership in Journalism award and the VFW News Media award.
