Military Retirement Legislation: Why Should You Care?

By: Pete Zubof

During a recent family get together, my father-in-law commented that he was starting to think about his retirement plans.  I responded that I, too, was thinking about retirement and would be happy to plan a co-retirement party for the both of us.  He was not amused.  You see, my father-in-law entered the workforce some twenty years before me and is not entirely convinced that my military retirement is a worthwhile investment to him, the taxpayer.  I have tried (in vain) to make a rational argument for the merits of the military pension system.  Now that Congress is putting the future of that system to a vote, I figured I would also pitch my argument to you, my fellow young, Jewish professionals.

For those of you with little interest in politics, let me recap how this has become an issue worthy of discussion at all.  During recent negotiations, the architects of the Federal budget quietly slipped in a provision that reduced the cost of living adjustment for military pensions by one percent under the rate of inflation. (Currently it adjusts with inflation.)  This was done without consultation with military leadership (civilian or uniformed) or the Armed Services Committees of either House.  What Senator Paul Ryan called a “modest” adjustment actually compounds over time to result in an estimated 20 percent reduction of lifetime pension earnings for most retirees.  This is largely due to the unique structure of the military retirement system.

I won’t bore you with all the details of the military pension system.  Suffice it to say that it is a defined benefit system in which retirees receive a percentage of their pay, based on the time spent in service, as pension.  The rub of this system, from an outside perspective, is twofold.  First, the system only rewards service members who remain on active duty for a full 20 years.  Fall short, and there is no pension plan at all.  Second, military retirees, unlike most pensioners, are entitled to collect their pensions immediately upon retirement rather than waiting until the Federal retirement age of 62.

Why, you may ask, would we want to maintain such an undeniably unique and expensive retirement system?  The answer lies in retention of talent and a concept called “lateral entry.”  Lateral entry is relatively simple to explain but somewhat harder to visualize in action.  It is the idea that employees are able to enter the workforce of an organization, at varying levels of experience, based on the skill set that they acquired through another organization.  For example, if a middle manager from organization A leaves, he can be replaced by hiring a manager who received his training and experience from organization B.  Most jobs in America have skill sets which are transferable in this way.  For that reason, most employers can manage retention by hiring from outside of the organization.

The military is not this way.  A significant percentage of military occupations are unique to the military.  If a service member leaves the military, there is no organization B.  Therefore, once a member leaves, his or her training and experience are gone, not to be replaced unless and until you grow that replacement within the military.

I will use my own experience to further demonstrate the functionality of the current system.  I entered the Navy in 1999 after college.  I spent the first two years of my service learning how to fly high performance aircraft and land on aircraft carriers.  The next year I spent in specialized training on my particular aircraft.  I was then obligated, due to my aviation contract, to serve seven more years as an operational pilot.  This brought me to a key career crossroads.  With 10 years of service behind me and ten remaining until I could get my pension, I could get out of the Navy and use my valuable skillset flying for the airlines or remain in the service and utilize my experience there.

I have heard that individuals join the military for patriotism and stay in the military for the pension.  I would say that it certainly applied to my case.  If the military pension plan was more akin to the civilian sector, i.e. a “401k-ish” defined contribution plan, I might have gotten out of the Navy at the ten-year mark.  This would have been largely because I would already have been vested in that pension plan (most vest at five years) and the cost/benefit analysis would have weighed largely in favor of pursuing employment in the private sector, which tends to have higher direct compensation rates.  With the current retirement plan, however, I was already half-way to retirement, an enticing prospect.  That allure for many, including myself, was enough to convince me to remain in the service.

Why should you care whether or not someone like me is convinced to remain in the service for another 10 years?  You, dear taxpayer, have invested a great deal of money in my training and benefited from the experience I have gained in operational flying (combat, etc.)  After 10 years, the only way to replace me is to start over with another fresh college graduate, pay for his or her training, and hope he or she gets similar experience.[1]  You would lose your financial investment in my education and training while having to reinvest in a new, novice pilot.

If I am so valuable to retain, why wouldn’t you set the retirement bar higher and make me stay longer?  Instead of 20 years, why not 30…or even the age of 62 like most other careers?  The answer is simply fatigue.  The business of being in the military takes a toll on the service member and, more importantly, on the service member’s family.  I consider myself lucky to have “only” moved fived times in 15 years.  I have friends who have moved doubled or tripled that number.  I have, however, deployed six times to combat zones and spent nearly three years of my life in Iraq, Afghanistan, or onboard an aircraft carrier at sea.  I’ve missed birthdays, holidays, and special occasions.  That said, after 10 years of service, I was “over the hump” and could see the light at the end of the tunnel.  Toss on another 10 years or more for a total of more than 30 years before I could reap the fruits of my labors?  Forget it.

You may ask why I decided to address this issue on the (401)j blog.  (401)j is more than just an organization of Jews…it’s an organization of young professionals.  We are the current and future driving force behind American politics.  It seems likely that Congress will reverse these pension reforms…for now.   For your part, however, you should understand what you are (or are not) getting for your taxpayer dollar.  I won’t say that the military pension system should not be reformed in the future, but as citizens, you should insist that your elected officials do their due diligence in order to understand the long-term effects of their back-room deals as they apply to military recruiting, retention, and ultimately national security.


[1] The question may arise: Why can’t civilian pilots (airline pilots) be used as lateral entry candidates to replace military pilots?  Military aviation skills are relatively easy to adapt to the civilian world but the reverse is not true.  The specific skills required to land on aircraft carriers and operate high performance aircraft simply aren’t taught in the civilian aviation environment.

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