Sunday, February 21, 2016

The bad plan might get even worse!

Notice that it's all single dollars...compounding interest takes time. Image from http://401kcalculator.org
A while back I blogged about new changes to the military retirement system.  While I proved that you could in fact beat the old retirement system, you would have to maximize the investment in the early years, but it could be done.  The assumptions were many, but at least it was possible.  I didn't like it in the end because the overall risk was shifted to the military member, in what I felt was a way to save money for the DoD.

Now it seems we're trying to place even more burden on military members.  Military Times just revealed that inside the DoD budget request are requested changes to the new retirement system...and they aren't good.



Military Times has all sorts of "gotcha" headlines, so I found the actual DoD Budget Request.  In the overview document, you can go to section 6 to see what proposals affect military compensation.

The first thing I noticed is that DoD is requesting a 1.6 percent, vice a 2.1 percent, pay increase.  The 2.1 percent is required by law and is set by the Employment Cost Index, a way of trying to make pay increases track with private sector wages.  Last year DoD requested, and Congress approved, a 1.3% increase.  They are being requested again to provide this, something that is likely to catch flak, especially during an election year.


And since everyone will suddenly talk about the raise being the lowest in history, here is some historical military pay raise information.

After that, the military wants to encourage more people to use Military Treatment Facilities instead of going out in town, as it saves them money.  Good plan, except that:

- Many facilities are already overbooked for appointments.
- When doctors make mistakes, it is increasingly hard to hold them accountable.
- Heck, when they downright sexually abuse people, the military has a poor track record of punishing them.
The situation at EVERY MTF ever.
I would love to see utilization numbers showing how full our Military Treatment Facilities already are before we go stuffing them with more retirees.

The retirement changes are listed on page 6-7:
  • The Department seeks flexibility in the application of continuation pays in order to shape the force vice the NDAA, which provides a minimum continuation payment to all members at 12 years-of-service (YOS)
  • The Department seeks to increase TSP matching to 5 percent for a total contribution of 6
    percent. The NDAA provides a 1 percent automatic TSP contribution to the Service member and up to 4 percent in TSP matching contributions for a total of 5percent
  • The Department seeks to amend the start date for matching service member TSP contributions to the first day of the fifth YOS generally aligning the start date with a service member’s second enlistment. The NDAA begins matching the first day of the third YOS
  • The Department seeks to extend TSP matching contributions until the member’s retirement, similar to civilians covered by the Federal Employees Retirement System,while the NDAA ceases TSP matching contributions at 26 YOS.
Bullet one is no surprise.  The military wants more ways of force shaping to get the right force.  But many of these already exist, including forced manning conversions and early separation reviews.  Messing with compensation is a nasty way of doing that.

I like increasing the matching for TSP, and I'm OK with matching until the person retires.
Especially when you see your "retirement." From Pintrest.
But then we request to not match until 5 YOS.
Said no Sailor ever
This is purely financially driven, and squarely hits young enlisted members who leave at around the 4 to 5 year mark.  So the average E-1 that leaves after 5 years would have a whopping ~$6,700 in TSP (assuming he saves 5%, see picture above), which could grow to ~$160K by 65, which is not a lot (although ideally he leaves and gets a better plan).  Considering how much I heard that we're trying to cover the 83% of the military that doesn't get a retirement plan because they don't stay till 20, handing them 6,700 dollars of their own money at the end of the first enlistment seems like a kick in the junk.

This plan keeps getting worse.  At what point will we just admit that we're trying to strip away the retirement benefit?

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