April 8, 2015

Proposed Changes to Military Retirement and Health Care: How Might they Affect You and Your Family?

The Military Compensation and Retirement Modernization Commission (MCRMC) released its long-awaited final report in late January, which included 15 recommendations for changes to military pay and benefits. As the administration, Congress and the Department of Defense (DoD) consider these recommendations, the Fleet Reserve Association (FRA) and other military advocacy organizations have been studying the proposed reforms to determine how the recommended changes will affect active, Reserve, retired, and veteran service members.

The commissioners testified that their mandates were not to cut costs or reduce compensation and retirement benefits, but to “modernize” the system in order to ensure the long-term viability of the all-volunteer force. FRA has serious apprehensions about these proposals and has shared its concerns with the commission and lawmakers during public hearings, one-on-one meetings and in correspondence.

Here are the basics:

Pay and Retirement
Currently, uniformed personnel are entitled to “retainer” or retired pay after 20 years of service, which begins immediately after retirement. These payments are calculated via a formula equating to 2.5 percent of active-duty base pay times the total number of years in uniform. The changes proposed by the MCRMC include replacing the current 20-year cliff-vesting military retirement system with a blended defined benefit and the Thrift Savings Plan (TSP), a 401k-style retirement package. The MCRMC recommendation would allow service members who serve as little as two years to leave with a personal retirement account (401k), but it creates more uncertainty for those who serve 20 years or more. In fact, the MCRMC retirement recommendation takes away from the benefits earned by service members who serve 20 years or more to pay for proposed benefits for those who serve less than 20. The new retirement benefit would be calculated at two percent of active-duty base pay times the total number of years in uniform. This means a 10-percent reduction in retired pay (40 vs. 50 percent of base pay) for members who leave the service after a 20-year career. For those serving 30 years, this equates to a 15-percent reduction (60 vs. 75 percent of base pay) in retired pay.

The commission envisions a plan where DoD would contribute one percent of service members’ basic pay to the federal government’s TSP and match member contributions up to five percent. The military would also provide continuation pay at twelve years of service in order to help incentivize service members to remain in uniform for a full career. Assuming a government match of five percent and a five-percent rate of return in the TSP, estimates show that an E-7 retiring with 20 years of service under the new proposal could lose $262,000 in lifetime retirement value, compared to the current retirement formula. However, if the same E-7 stays for 30 years and is promoted to E-9, the lifetime loss in retirement rises to $740,000. It is important to note that all current service members would have the option of being grandfathered into the existing system or switching to the new one.

FRA supports a retirement benefit for those who serve less than 20 years, but adamantly opposes the MCRMC’s proposed retirement structure that reduces the benefit for careerists who serve 20 years or more.

Health Care
The MCRMC’s most controversial proposal is its recommendation to eliminate the military’s TRICARE health network for military families and working-age retirees, and replace it with a variety of commercial health care plans. Active duty service members will still be seen at Military Treatment Facilities, but their family members will be covered under the new plan. The commission proposes to implement a Basic Allowance for Health Care (BAHC) that would be used to pay dependents’ out-of-pocket expenses, including premiums and co-payments for services. This plan would be similar to the current Basic Allowance for Housing (BAH) that used to be calculated to cover 100 percent of average out-of-pocket housing costs. (It’s important to understand that Congress reduced the allowance to 99 percent for 2015 and plans to gradually reduce it over the next four years so that it only covers 95 percent of housing costs. Working-age retirees will have access to the same commercial health care plans as active duty family members, but the cost will be greater than what they currently pay for TRICARE Prime coverage. (The MCRMC report asserts that retirees will pay more, but will also receive better coverage.) Retirees over age 65 and their dependents are unaffected, as TRICARE for Life will remain as-is.

FRA has serious concerns about how the program will be executed. Questions about access to care, maintaining a cadre of qualified medical personnel to support warfighters in the field, and ensuring providers’ proficiency to treat combat injuries are just a few of FRA’s concerns. And there’s no doubt the increased cost for retirees amounts to another reduction to the current retirement benefit. FRA opposes shifting cost to the beneficiary because health care is a benefit that has been earned through years of dedication and service.

Merging Commissaries and Exchanges
The MCRMC has also recommended consolidating the commissary and exchange systems. The commissary system currently receives federal funding that is consistently in Congress’ budgetary crosshairs. The structure of military exchanges (BXs and PXs) varies from service to service, as does the way in which each service distributes profits to Morale, Welfare and Recreation (MWR) accounts.

FRA opposes the consolidation of these services. Although consolidation may seem like a logical move on the surface, a restructured and/or centralized procurement system is not guaranteed to increase efficiency or reduce costs, and will likely result in a decrease in choice of goods available to shoppers. It is also unlikely to preserve the current distribution of profits to other programs, which could result in reduction or elimination of MWR services.

We continue to monitor these proposals and will keep our members updated if and when these proposals become legislation. We urge all military members to stay involved and informed by subscribing to our weekly legislative update, NewsBytes (to subscribe, please e-mail with "Subscribe" in the subject line and your name and address in the body), and sharing your views with your elected representatives via our Action Center (

Stephen TassinAbout OnWatch

OnWatch is a quarterly news update for active duty and Reserve personnel, written by Stephen Tassin. He recently transitioned from active duty to service as a Chief Warrant Officer 2 in the Marine Corps Reserve Force, and has a personal interest in these matters. As the assistant director of Legislative Programs for the Fleet Reserve Association (FRA), he’s also committed to FRA’s mission to maintain and improve the quality of life for Navy, Marine Corps and Coast Guard personnel and their families. He looks forward to keeping you up to date on FRA’s legislative efforts to protect and enhance your earned military and veterans’ benefits.