Ask The Blogster: Your military pension is not safe. It might not be paid or may be substantially reduced.

Friday, September 30, 2011

Your military pension is not safe. It might not be paid or may be substantially reduced.

Military pensions are on the chopping block

and

you may lose all or part of your military pension.

The US Department of Defense Business Board (DBB), an advisory board whose mission is to provide independent advice and recommendations to the Department of Defense, has proposed the reorganization of current and future military pensions. In general, they have said:

Military retirement is more generous and expensive compared to the private sector (meaning we are giving soldiers too much money).
The current retirement plan is unfair because you have to be in the service for 20 years to be eligible.
It is unaffordable and inflexible.

So, they want to replace it with a new Defined Contribution Plan in which:

Soldiers will pay for their own retirement instead.
Is not payable until 60 to 65 year of age (rather than after retirement)
Will pay much smaller amounts ($3,600 compared to $24,000 per year for E7 age 40)
Is mandatory
Will be similar to a 401K plan (invested in the stock market)
But, the government will pay some.

Their argument is that all soldiers would be eligible for a Military pension after the vesting period rather than being limited to only those soldiers who have 20 years of service.

However, they fail to highlight that the current pensions are:

Currently 100% Free to All Soldiers.
There is no risk of losing this benefit.
Important factors in military retention.

A review of the credentials of the members of the DBB indicates that many are associated with the Mergers and Acquisition (M&A) industry, including the Chairman and Vice Chairman. The job of the M&A industry is to financially restructure and merge companies. In return, the M&A receives large sums of money. Many other members are associated with money management firms and investment banks. So, their proposal is based on their own self-interest goal of making money off the soldiers retirement income.

The DBB proposal advocates that both the government and soldiers contribute to the new Defined Contribution Plan. This means that someone needs to manage this amount of money. So, all or part would be managed by one or more private investment financial companies who would take portions of the contributions as payment for their services. Under their proposal,

Career soldiers would receive much smaller pensions
Money is at risk of being lost in the stock market
Soldiers would get poorer
The financial industry would get richer.

I believe that pensions for teachers, policemen, firefighters and soldiers are well deserved. Soldiers in particular do not earn a large amount of money. Making them pay for their retirement would be a financial hardship to them. If this plan was passed by our current administration, it would probably result in an immediate decline in the recruiting and retention of our military forces. Remember:

Soldiers put their life at risk every day

so that we can be safe.

They can be killed at any time.

Their retirement is the least we can do as Americans to say thanks!