DoD proposes military benefits overhaul

| March 10, 2014

The Department of Defense has proposed revolutionary new changes to the military benefits system that ultimately would pay servicemembers more up-front but shrink future pension payments. The proposal was unveiled at the Pentagon on Thursday, and first reported by

If this proposal is enacted, it would look something like this:

  1. TSP account for all troops. After two years of service, DoD would provide an annual direct deposit equal to 5 percent of basic pay. Full ownership of these accounts would transfer to individual service members after they reach six years of service.
  2. Retention incentive payment for troops – with stipulations. Those who clear a midcareer milestone, most likely the 12-year mark, would receive the bonus. At this point, it looks to be equal to two months’ pay for enlisted troops and six months’ pay for officers.
  3. Transition Pay. Lump-sum “transition pay” would be provided upon retirement to those who serve 20 years or more.

Building on these three incentives, the Pentagon offers two options for a complete retirement overhaul, both of which involve reducing the yearly multiplier used to calculate military retirement pay (currently 2.5 percentage points of average high-three basic pay for each year of active-duty service). They are:

  1. One-tier option. Retirees would begin collecting pension checks immediately upon separation and continue receiving those payments, with minor annual COLAs for life. The multiplier in this scenario would be reduced to 1.75 percent, for a monthly check approximately 35 percent of high-three. A lump sum transition payment would probably be equal to one-half or three-quarters of one year’s basic pay.
  2. Two-tiered option. Retirees would be offered partial monthly payments immediately after separating from the military, probably capped at 25 percent of high-three. This benefit would shift after the individual reaches a traditional retirement age, probably 62. In this scenario, the multiplier might remain at 2.5 or be lowered to 2 percent. A lump-sum transition payment would be made that amounts to about 2-1/2 or 3 years of basic pay.
  • Under the 2 percent version, troops retiring after 20 years would receive about 40 percent of their high-three after age 62.

Proposed Changes to Disability Pay
The proposal would eliminate the policy that prevents wounded servicemembers from collecting disability from both DoD and the VA.

The proposal would also change the qualifications for disability retirement benefits by eliminating the current disability rating of 30 percent requirement for those servicemembers with at least 12 years of service.

This payment would be based solely on years of service.

Proposed Changes to Survivor Benefit Program
The premium that retirees pay for coverage would be increased. The premium cap for retirees would be raised from 6.5 percent of each monthly retirement check to 10 percent. The maximum payout for beneficiaries would be reduced to 50 percent of retired pay, down from the current 55 percent. Two options:

  1. Full benefit. This would cost 10 percent of gross monthly retirement pay and would continue to pay beneficiaries 50 percent of the military pension.
  2. Half benefit. This would cost 5 percent of gross monthly retirement pay and continue paying beneficiaries 25 percent of the military pension.

The proposal calls for eliminating the offset policy that reduces SBP payments if the survivor is also receiving benefits from the VA.

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