Reforming Military Retirement: Analysis in Support of the Military Compensation and Retirement Modernization Commission
Abstract
The National Defense Authorization Act of 2013 mandated an independent commission the Military Compensation and Retirement Modernization Commission (MCRMC) to review the military compensation and retirement systems and make recommendations to modernize them. The MCRMC proposed a blended system consisting of a defined benefit (DB) plan, a defined contribution (DC) plan with matching, and a continuation pay in the 12th year of service, to replace the current DB-only system. MCRMC engaged the RAND National Defense Research Institute for analytical support during its internal deliberations regarding the form and details of its retirement plan. We based our analysis on the RAND Dynamic Retention Model, a dynamic programming model of individual choice regarding active-component (AC) retention and reserve-component (RC) participation that has been estimated based on longitudinal data and with significant capability to simulate alternative compensation policies. An important criterion of the analysis was whether a reform could sustain the current force size and shape. We found that the MCRMC plan could do so; this was the case by service, for officer and enlisted, for AC and RC. Further, the MCRMC plan would decrease cost. We estimated cost savings in the steady state ranging from $2.3 billion to $7.7 billion per year, depending on the DC plan contribution match rate and the lump sum versus second-career annuity choice, with an intermediate example showing cost savings of $4.3 billion a year. The report also discusses how our estimated savings figures compare with those reported by the MCRMC.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jan 01, 2015
- Accession Number
- ADA621477
Entities
People
- Beth J. Asch
- James R. Hosek
- Michael G. Mattock
Organizations
- RAND Corporation