By Debbie Gregory.
Career troops who have served for 20 years will have choice to make under a controversial retirement system approved by Congress. Retirees can opt for the traditional pension checks, or alternatively, they can choose to receive up to half the promised pension benefit in the form of a one-time, lump-sum cash payment.
The Defense Department and many veteran advocates are criticizing the option as a bad deal for military families, tempting troops with quick cash and sacrificing tens of thousands of dollars in future long-term payouts.
But nonetheless, lawmakers have included it in their final 2016 defense authorization bill. They believe such payouts would allow more flexibility for separating troops who are starting a business, paying for college or facing other immediate expenses.
Congress is leaving it up to the Defense Department to determine exactly how that lump-sum cash payment is calculated, which will require Pentagon officials to peg a number to the present value of a promised military retirement pension and its annual cost-of-living increases.
The proposed compensation plan features a 401(k)-style investment into individual troops’ Thrift Savings Plans. This gives all troops who serve at least two years some retirement benefits after they leave military service. Under the current system, t is estimated that only about 17% of troops leave service with any retirement payouts.
Some studies show that enlisted troops are far more eager than officers to take lump-sum payouts. That suggests the Pentagon could consider giving officers a better discount rate simply because academic-style studies show they are more skeptical of the lump-sum options.
The new military retirement system would take effect in 2018. All current troops would have a grandfather clause and a choice to remain under the current system or opt into the new one. Future recruits joining the military in 2018 and beyond would have no choice other than the new system.