What a distraction, this military pension debate; pandering to a small entitled constituency and using misdirection to play to an emotional and uninformed public. The discussion is superficial. Always missing is the financial rationale for the military retirement system. This change is being called a cut. But is it really?
When you compare the retirement benefits of a Viet Nam era military retiree, even with the cost of living (COLA) adjustment reduction of a percent a year, at current pay scales very few future retirees would receive less compensation in real dollars than those who retired in 1970. In fact, the vast majority would receive significantly greater compensation, not only after the COLA is restored after age 62, but even during the years of the COLA adjustments. In real dollars, enlisted personnel start retirement at compensation amounts that are 12 to 19% higher (commissioned officers 5 to 6% greater) than their Viet Nam era contemporaries. And job prospects are significantly better for these retirees who are better educated and connected than their predecessors ever dreamt.
Fewer than 10% of all veterans are military retirees. Congress does little more than pay lip service to the remaining 90%, many of whom go unacknowledged beyond gratuitous platitudes during campaigns. With this approach, those whose service resulted in debilitating injury often end up relying upon the kindness of strangers.
Although politicians frame this as a veterans’ issue, it isn’t. Consider that not many military veterans are retired. Next, the pension program in place is a conscription era relic the Reagan administration tried to reform. The recent aborted attempt by Republicans to hold the debt ceiling hostage leveraging military retirements failed because members of Congress know that even “reduced,” this retirement system is more than generous.
Of the over 21 million military veterans, some 2 million or less are retired from the military. One third of all military veterans served during the Viet Nam era, before the all-volunteer force. The conscription era pay and benefits of military personnel were at a significant discount to private sector salaries. That helped justify the generous pension of 50% base pay after twenty years of service. That arbitrary 50% figure can be traced back to the American Revolution when Washington, wanting to motivate his officers to remain on active duty for the duration of the war, appealed for a post-war pension of half-pay to be paid for seven years after termination of service. There is little more formal justification.
In the mid 1980’s, not long after military salaries were increased so that the all-volunteer force could compete with the private sector for talent, the downstream effect on entitlements was recognized. The Military Reform Act of 1986 contained all the DNA of the current retirement changes, including the COLA increase limits tagged to the Consumer Price Index minus 1% provision, but went much further, including the option to trade a $30,000 bonus at 15 years of service for a reduced 40% pension at 20 years. In the end, like today’s new calculations, at age 62, retirement pay reverted back to where it would have been without all the fancy footwork along the way. That was discarded following the First Gulf War for no better reason than it was politically expedient then too.
- Generally, military rank and pay are a function of potential demonstrated by past performance and time in service
- The current retirement system rewards sustained service
- Any retirement that provides income equal to about 50% of pay at 20 years and 75% at 30 years is very generous
- A vested retirement after 20 years of service is a substantial entitlement
- Current military retirement calculations are a tradition of an entitlement program with no financial rationalization
It can be argued that the current budget adjustment to retirement COLA increases actually provides an incentive for better performance and sustained service, reducing personnel costs associated with the loss of experienced personnel. Military retirement decisions are based on any number of factors. One of them is service limits based upon advancement. Where in other nations’ militaries, service to age 55 is mandatory for a pension, ours employs an up or out philosophy. Those whose performance does not merit continued service are the ones whose short-term retirement benefits may diminish the most; maybe there is justification for that. Those whose promotions offer them the opportunity to continue service beyond 20 years find themselves at a fork in the career road at that point. But that is part of the calculation of risk all of us face in life and the individual must analyze the trade-off. Nevertheless, those allowed to remain on active duty have the option to always receive greater compensation than their Viet Nam era contemporaries at any point despite the COLA adjustment.
It should be noted that those service-members who have been retired disabled as a result of service-related injuries have been excluded from the COLA adjustment. That is all well and good. But what can only be explained by a deficient allocation of resources are the number of charities that have proliferated to care for those who have been wounded. Why should they even exist unless the government is failing our obligation to compensate them sufficiently for their sacrifices?
Where is that discussion? Where is any substantive discussion about the military retirement system at all?
And no, this isn’t a pension cut. It is a bandaide on a rupturing military budget.