The current military retirement system has been integral to sustaining the All Volunteer Force (AVF). Mounting federal budget challenges, however, have raised concern that the program may become fiscally unsustainable. While several restructuring proposals have emerged, none have considered the implications of these changes to the broader issue of manning an AVF. Changes to the existing system could create military personnel shortfalls, adversely affect servicemember and retiree well-being, and reduce public confidence in the Armed Forces. With the right analytical framework in place, however, a more holistic system restructuring is possible, one that avoids these negative effects while significantly reducing costs. A comprehensive framework is provided, as well as a proposal that stands to benefit both servicemembers in terms of value and the military in terms of overall cost savings. …Our proposal is called the 10-15-55 plan. Service members and the military contribute to a 401(k) account as soon as they enter service. At any point, a service member may leave the military with his or her contributions to the 401(k). At 10 years of service, the service member controls 50 percent of what the military contributed to the 401(k). That percentage increases by 10 percentage points each year for 5 years until the service member reaches 15 years of service, at which time the service member controls 100 percent of employer contributions. In addition to the 401(k) account, service members who continue to 20 years of service also receive the DB pension plan as it currently exists, with the exception that they may not receive payments until they turn 55 years of age. While all current service members would be grandfathered under the existing pension system, new entrants would be covered by the 10-15-55 proposal. The 10-15-55 proposal would likely be more desirable to new entrants than the existing pension plan because of the uncertainty that most new recruits face about serving a full 20-year career. When evaluated against the pension framework provided in this monograph, the 10-15-55 pension proposal has many attractive features. …
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Abstract
Executive Summary
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A Framework for Restructuring the Military Retirement System
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