Combat Veterans Support Offering Troops a 401(k)-Style Retirement Plan

Organizations that represent U.S. combat veterans are getting behind a controversial proposal to offer troops a 401(k)-style retirement plan.

Officials from the Veterans of Foreign Wars of the United States and the Iraq and Afghanistan Veterans of America told lawmakers on Wednesday that many of their members would support such a change to the military's retirement benefit.

"It is fundamentally unfair that one could serve 10 or 12 years, with three, four, five or more deployments, and leave the military with absolutely no retirement benefit at all, yet a careerist who possibly never even deployed could be entitled to a full benefit package," said Chris Neiweem, a legislative associate for IAVA.

The retirement overhaul is one of 15 recommendations from the congressionally mandated Military Compensation and Retirement Modernization Commission. In January, after nearly two years of review, the panel released the proposals designed to give troops, retirees and their families more benefits options while saving the Defense Department $12 billion a year in personnel costs by 2040.

Several veterans groups offered differing views on the recommendations during a hearing Wednesday of the House Armed Services Committee's Military Personnel Subcommittee, headed by Rep. Joe Heck, R-Nevada. Much of the debate centered on the proposed changes to the military's retirement and Tricare health care system for families, reservists and working-age retirees.

Offering troops a 401(K)-style retirement plan, with matching contributions of up to 5 percent and full vesting after just two years, "will dramatically improve the current retirement system," Brendon Gehrke, senior legislative associate for the Veterans of Foreign Wars, said during the hearing.

Under the existing defined-benefit plan, most officers and enlisted personnel who serve 20 years receive annual retirement pay equal to half of their average basic pay over their last three years of service. The panel proposed cutting that figure from 50 percent to 40 percent, in part to fund a 401(k)-like defined-contribution plan for the more than eight in 10 service members who leave the military without getting any retirement benefit.

Gehrke cited the story of former Marine Cpl. Quintin Graves, who deployed twice to Iraq and received two Purple Hearts for injuries he received during the war. Graves thought about re-enlisting, but didn't think he'd survive another tour, he said.

"Despite his sacrifices, he didn't receive any retirement contribution from the government," Gehrke said. "However, if Cpl. Graves would have been employed by the private sector -- or in the military under the commission's proposed plan -- he would have received approximately $6,500 in an employer-sponsored retirement plan. This relatively small investment by the government would have compounded to nearly $100,000 for Mr. Graves when he reaches retirement age."

Mike Hayden, director of government relations for the Military Officers Association of America, the largest officers' association, warned lawmakers the new retirement option would be far less predictable than the current model and include, for example, assumptions about investment returns.

"If they get a 7.3 percent rate of return, that's wonderful and it will be a richer benefit," he said. "If you only get a 5 percent rate of return, you'll never make up the difference. There will still be a gap."

What's more, he said, "For those who stay beyond 20 years of service, they don't make up the difference." Of bigger concern, Hayden said, "By providing a transportable career device, does it incentivize more people to leave or more people to stay?"

Heck pointed out that the commission included a special "continuation" payment around the mid-career mark as a force-shaping tool to encourage service members to remain in the military. Under the proposal, after 12 years of service, troops would be eligible for a lump-sum payment equal to 2.5 months of basic pay, provided they agree to stay in the military for another four years.

Meanwhile, organizations representing enlisted members and families were receptive to the idea of replacing the existing Tricare program with a choice of commercial health insurance options.

Scott Bousum, legislative director for the Enlisted Association of the National Guard of the United States, praised the commission's work for including "flexible mechanisms for future service members, current service members, and their families to choose health care and retirement packages that fit their individual needs."

The commission proposed doing away with the three Tricare plans for military families, reservists and working-age retirees, though retaining the Tricare for Life program for elderly retirees.

The new health care program, called Tricare Choice, would be similar to the one for federal civilian employees, allow recipients to choose from a list of commercial health care plans, and be run by the Office of Personnel Management rather than the Pentagon. Participating insurers would be required to include military treatment facilities as in their provider networks, with reduced co-pays and deductibles at military hospitals and clinics.

Karen Ruedisueli, deputy director of government relations for the National Military Family Association, said the proposal "merits further study and serious consideration." It "has the potential to provide military families with a more robust and valuable health care benefit -- one that would address many beneficiary complaints about the current system," she said.

Her group, however, wants more analysis done before fully endorsing the proposal. Members remained concerned about how the health care change would impact service at military treatment facilities and out-of-pocket costs.

Under the proposal, military families and working-age retirees would have to pay co-pays at base facilities. Their share of health plan premiums would increase 1 percent a year from 5 percent initially to 20 percent eventually -- until they're eligible for Medicare and Tricare for Life.

The panel proposed creating a new Basic Allowance for Health Care to cover the cost of most, if not all, out-of-pocket health care expenses. It would be based on the costs of average medical, dental and vision plans available in a given location.

It would be set at a level designed to cover health care costs or even afford a surplus, like with Basic Allowance for Housing (BAH). It could also be used to purchase health care through a spouse's employer.

"Active duty families worry how a health care allowance based on averages will support larger-than-average families or those with special needs," Ruedisueli said.

-- Brendan McGarry can be reached at brendan.mcgarry@military.com