January 25, 2017

The Military Compensation and Retirement Modernization Commission is set to release its recommendations within the next week. It will be interesting to see whether the Thrift Savings Plan will play an enhanced role in a modernized military retirement reform package.

The commission has been studying compensation for over a year now, and their report is due by Feb 1.

The outgoing defense secretary has been making the rounds the last few weeks, letting folks know that the commission’s report is completed and that “this will be as big an issue…over the next year as there is…”

As this forum has noted, a past study found that providing a match for TSP contributions did not enhance retention. Even though the secretaries of each service were empowered to offer TSP matches as an incentive for particular skills, matches were not implemented on a wide scale.

But this is no longer about retention in the narrow sense, that is, an attempt to retain individuals in certain military occupations through calibrated incentives. This is now about controlling the long-term costs of military retirements, particularly as life expectancies continue to increase.

It’s also about fairness. While every member of the armed forces can contribute to the TSP, those contributions are out of the paychecks of those service members that choose to do so. They are sacrificing pay in the short term to gain in the long term, which is not easy to do on military pay especially at the lower ranks.

Also, only after 20 years of service is one eligible for retirement benefits, but no sooner. You serve two or three enlistments, for example, you get no retirement benefits.

(This is all conveniently and exhaustively spelled out in the Commission’s interim report on military compensation.)

The TSP with a match would be one convenient way to solve this issue, perhaps together with a reduced retirement pension benefit along the lines of the FERS or FERS special, with the pension perhaps deferred until a later age. (One possible version is discussed here.)

Just speculation on my part, but it would make sense both for future service members and taxpayers to add a TSP match to a modernized military compensation formula.

Related topics: military-investing