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Proposed changes to the Military Retirement System

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Military Retirement Plan Likely Changing to 401(k)
The House and Senate are moving toward a new military retirement plan that would
scrap the old plan, which requires 20 years’ service to get any pension at all, and
replace it with a civilian-style 401(k) plan that would give all service members with
more than two years of service a fully vested retirement fund for when they leave the

The move largely follows recommendations from the Military Compensation and
Retirement Modernization Commission and would ensure that the 83 percent of
military enlistees who leave before 20 years of service would be left with something
instead of nothing.

The current retirement plan pays out 50 percent of base pay after 20 years, with an
increase of 2.5 percentage points for every year served after 20. The new plan
would lower that to 40 percent of base pay after 20 years, with 2 percentage points
added for each year served after that, or 60 percent of base pay after 30 years
instead of the current 75 percent, the Colorado Springs Gazette reports.

The new plan would give a service member who participates fully and leaves after
four years a $4,400 savings plan, and an eight-year service member $13,000, the
Gazette notes, while saving the government over $30 billion through 2021.

Rep. Joe Heck, R-Nev., told Military Times, “For too long, if you didn’t serve 20, you
left with nothing. This plan recognizes the service of everyone.”

Not everyone is happy with the plan, which effectively would privatize the military
retirement system. The Daily Kos commented, “That doesn’t mean that dumping the
military into the kind of privatized, vulnerable to stock market crashes, 401(k) system
that has so many Americans headed for poverty-stricken retirement is a good idea,
but it’s what the House Armed Services Committee is considering.”

The Military Officers Association of America (MOAA) and the American Legion said
in a joint statement, “Although we support providing a transportable career device for
those who leave the service prior to attaining 20 years of service, MOAA has serious
concerns that the commission’s blended retirement benefit will fail to provide the
necessary draw to retain service members to 20 years of service,” Military Times

The plan involves a 1 percent government contribution into service members’
accounts, and if they chose to opt into the plan, the government would match up to 5
percent of basic pay, and would work to encourage retention by offering a lump-sum
payment to those who stay beyond 12 years of service.

The plan also calls for financial literacy training for service members who would
control their own investments, Military Times notes.

Troops enlisting after Oct. 1, 2017, would be required to enter the revised plan,
whereas those already in service, or re-entering after that date, would be given the
option to stay under the current retirement plan or switch to the new plan.

Military Retirement