House Passes Military-Retirement Overhaul

The House on Friday passed a major bill that would allow non-career military service members to boost their retirement nest eggs.

The fiscal 2016 National Defense Authorization Act would automatically enroll new troops into the Thrift Savings Plan at 3 percent of their pay with a 1 percent government match, similar to the way it works now for federal civilian employees. Military members currently can contribute to the TSP, but are not enrolled automatically and do not receive a matching contribution from the government. Under the provision, the government match could go as high as 5 percent, if the service member contributed that amount.

Under the bill, service members who stay in the military for 20 years, and are thereby entitled to a retirement pension, would receive a less generous calculation for their annuity. The provisions “would modernize the current uniformed services retirement system by blending the current defined benefit, cliff-vesting retirement plan with a defined contribution plan, lump sum career continuation pay, and retention bonuses paid at defined career milestones, while continuing a 20-year defined annuity,” the legislation said.

The House bill passed on a 269-151 vote, after contentious debate throughout the week. It is silent on a pay raise for service members, which effectively allows President Obama to move forward with the 1.3 percent boost he called for in his budget.  By not suggesting an alternative, committee members are embracing an automatic cost-of-living adjustment of 2.3 percent for service members in 2016, but also tacitly allowing Obama to intervene. Service members have received a 1 percent raise in each of the last two years.

(See also: How Reforming Benefits Could Undermine the Pentagon’s Future)

Rep. Ruben Gallego, D-Ariz., unsuccessfully offered a last-minute amendment to the Defense bill that would have specifically given service members a 2.3 percent pay raise in 2016, and ensured they were paid on time if the government shuts down.

The Senate Armed Services Committee on Thursday reported out its version of the fiscal 2016 Defense authorization act with similar provisions overhauling military retirement. The Senate panel’s bill specifically calls for a 1.3 percent pay raise for service members.

President Obama has threatened to veto the House bill, and House Minority Leader Nancy Pelosi, D-Calif., urged Democrats to vote against it. Among other things, the bill does not repeal sequestration but instead bolsters the department’s budget by labeling billions in permanent funding part of the overseas contingency operations account, which is not subject to the budget caps.

“Shifting base budget resources into OCO risks undermining a mechanism meant to fund incremental costs of overseas conflicts and fails to provide a stable, multi-year budget on which defense planning is based,” the White House said in a statement opposing the bill. The White House also objected to a provision in the House bill that would repeal cuts to per diems for service members and Defense civilian employees on long-term government travel, calling it “counterproductive to a growing governmentwide trend toward implementing flat rate per diems for long-term travel.”

The nine-member Military Compensation and Retirement Modernization Commission in January recommended increasing the role of the TSP in troops’ retirement benefits, along with several other proposals to overhaul the military’s compensation system. The commission argued for a more blended retirement plan for a better mix of benefits and retention rates. The House Defense authorization bill aims to help both new career and non-career service members accrue more retirement benefits as a result of the increased role of the TSP.  

Personnel who serve less than 20 years—about 83 percent—currently do not receive a defined retirement benefit, which some believe is unfair given their multiple deployments during the wars in Iraq and Afghanistan. Those who do spend a career in the military can hit the 20-year mark relatively early, retire from service in their 40s or 50s, draw a pension and work elsewhere for a while. About 17 percent serve 20 years or more in the military.

Service members would be fully vested in their retirement plans after two years of service under the House bill. To encourage members to stay in the military, the House measure includes a commission proposal to provide “continuation pay” after 12 years of service.

(Read more: White House Teases Its Support for Military Compensation Reform)

The White House said it was “still evaluating how the more complex recommendations -- such as the blended retirement system and reserve component duty statuses -- would affect the all-volunteer force, and expects to provide the committee with further views on these proposals in the coming months.”

The new blended retirement system as laid out in the House Defense authorization bill would only affect new service members. The Pentagon would have to give Congress an implementation plan by next March. Current service members are grandfathered into the current system, but could opt into the new one. The legislation also calls for a program to educate troops about the modified retirement system.