Conversion of the Military Retirement System to a 401k Nearing Completion
The sellout of the military retirement system to Wall Street is almost complete:
The old, reliable military retirement system is about to be retired.
House and Senate lawmakers are moving ahead with dramatic plans to replace the current 20-year, all-or-nothing deal with a “blended” compensation system, complete with a 401(k)-style investment plan that promises all future troops will leave the service with some money for retirement.
The moves echo recommendations from the Military Compensation and Retirement Modernization Commission earlier this year, which pushed for changes to recognize the estimated 83 percent of service members who leave the military with no retirement benefits.
But some outside advocates still worry that, while well-intentioned, the change could decimate the senior noncommissioned and officer ranks, by giving them too much incentive to start a civilian career earlier and not enough incentive to stay to 20 years. [Army Times]
You can read the rest at the link, but can you imagine how much money the Wall Street crew is going to make from transaction fees for doing little to nothing to manage all the money that will be flowing to them for these 401k’s? They are going to have a financial windfall at the expense of less money going into the pockets of US servicemembers.
… imagine how much money the Wall Street crew is going to make from transaction fees for doing little to nothing to manage all the money that will be flowing to them for these 401k’s?
——————————–
One of the nice things about the Thrift Savings Plan is that it has very reasonable service fees. I don’t see why this new program would be any different.
The issue is the Thrift Savings Plan augments your pension. Wall Street stocks could crater and folks would still get their pension. There are some things which are inherently a government responsibility. I would think taking care of retired service members would be very near the top of the list.
#1
You’re right. This new program is very much like the TSP (401k). The problem is that it is all the military will be offering, which leaves service members with limited incentives and more uncertainty.
The current retirement system offers service members a defined benefit annuity. You stay in 20 years and you can retire with a known percentage of your income for the rest of your life. With the change in retirement system that goes away. You are left with only the TSP.
The TSP is a transferable 401k as they all are. You’re finished a 4 year enlistment or commissioning contract and see a marginally civilian opportunity you go for it, taking your accumulated 401k with you without skipping a beat. There is no incentive to stay in the military for 20 years. Even if you do stay in the military for 20 years, the value of your 401k at the time you plan to retire will be very unpredictable; determined by the tides and droughts of the markets.
Will the military be able to compete for and keep good people with the much more technologically advanced systems it’s planning under this system?
No doubt about it – future retirees are getting screwed. I’m just saying that if what they do receive is like the TSP, at least they won’t get screwed again by paying exorbitant transaction fees – which is a dirty little secret on Wall Street.
The 401k was originally developed as a tax-deferred way of saving extra money for retirement. It was created for the purpose of supplementing — not replacing — pension plans. Of course, we’ve seen over the past few decades how that has worked out. In the military, the biggest incentive for people to join the all-volunteer force and to work to make a career out of it was the guaranteed retirement at the end of at least 20 years of service. Now we’re saying that’s not a good idea, apparently. How many GIs have we known who were so pleased to make it to retirement, because they knew they would have guaranteed income and medical benefits for the rest of their lives? For people going in now, that sense of relief at the end of a good career will disappear.
The motivation here has to be to line the pockets of Wall Street, because the military certainly isn’t going to see any kind of a cost savings as a result of this action. The cost of training military members is already significant, and by removing the incentive for people to stay in, more people will have to be brought in and trained to replace the ones who leave. In the civilian sector, when companies decided to dump their pension plans and actually encouraged higher rates of employee turnover, their internal training costs went up as a result. Their solution was to eliminate the internal training and shift the blame for a lack of improperly trained people to colleges and universities. The result of this was an exponential increase in the number of commercial schools that provided job training, but called it an “education.” We’re now finding out that a lot of those institutions were overcharging their students and making false claims about job placement success. When military turnover increases, causing training costs to increase, what is Congress going to do? Outsource military training to private companies?
According to the story. Staying past 20 years still gives one the monthly annuity…but at about 20 percent less….in the proposal
Wall Street has recovered under Obama about 10,000 points, if a GOP candidate for president wins(could take a decade or more) all you servicethemselfmembers will loose your arses on Wall Street.
@6- The annuity at 20% less is something new that has been proposed to lessen the concerns people have been making about retention. What hasn’t been said is when the annuity would start? If it starts immediately after retirement this would be a big improvement over just having the 401k.
@4- Just the amount of people that would be automatically enrolled into this 401k program means that even small fees is going to add up to big money. I would not be surprised if over time the Wall Street crowd is able to get the fees raised.
In 2014, the TSP’s net expense ratio was .029% or approximately 29 cents per $1,000 of investment. The average 401(k) plan participant pays about 20 times as much for a stock mutual fund.
In spite of a long history of fiscal bumbling, the US gov’t got it right with the TSP. I don’t know why they would do it differently as a retirement program for military.