Even as Washington policymakers begin to ponder a new, far-reaching proposal to redefine the military retirement system, a previous overhaul of the benefit is dying a slow death.
It's been 15 years since service members were first given the choice of taking a $30,000 lump-sum cash payment in exchange for accepting a lower retirement pension for the rest of their life under the so-called REDUX retirement option.
It was popular initially. As recently as 2003, almost half of the troops eligible to take the REDUX option did so, accepting that cash bonus — along with lifetime monthly retirement checks worth about 20 percent less than under traditional retirement.
But these days, virtually nobody takes the deal, which results in a long-term loss of pension payments estimated at more than $300,000.
According to the latest Defense Department data, the number of service members opting for the $30,000 "Career Status Bonus" during their 15th year of service plummeted to about 11 percent last year, from 45 percent in 2003.
The REDUX retirement option, designed decades ago as a way to reform the military compensation system, is fading into obscurity at a time when Congress is ramping up a new effort to reform military retirement.
A blue-ribbon panel in January sent a detailed proposal to Capitol Hill that would shrink the size of the military pension while offering a lump-sum cash retention bonus at the 12-year mark. The plan also calls for creating a new benefit for the vast majority of troops who separate before serving 20 years by giving them cash contributions to 401(k)-style retirement accounts.
REDUX was approved by Congress in 1986 and took effect in 2001. It's based on a basic principle similar to the current proposals: that troops ultimately prefer cash up front now and will accept a smaller pension in exchange for some lump-sum payments during their active-duty career. The Defense Department saves money when troops opt for front-loaded benefits.
Experts say REDUX is widely shunned now for several reasons.
"It's a terrible pay-day lending scheme. You are preying on the ones who are vulnerable and who need the cash immediately," said Mike Hayden, director of government relations for the Military Officers Association of America. "At the end of the day are you taking advantage of the troops in order [for the Pentagon] to take long-term savings in the retirement fund."
Experts say one reason for the growing unpopularity of REDUX is the fact that the $30,000 bonus was never linked to inflation, so its value has eroded considerably over time. In 2003 dollars, that $30,000 is now worth less than $23,000 — a drop of about 25 percent.
What's more, the bonus is fully taxable unless received while a service member is deployed in a tax-free combat zone, which lops about $7,000 right off the top.
And just like most Americans, troops' faith in financial markets was damaged by the stock market crash of 2008-09, when the Dow Jones Industrial Average lost more than half its value before recovering slowly in the ensuing years. That has made some service members far less optimistic about potential future returns even if they decided to invest the bonus for the long term.
Retired Army Sgt. 1st Class Jeff Deuitch said he opted for REDUX and the bonus in 2008 just after returning from a deployment to Iraq, at a time when he was in the midst of a divorce and deep in debt.
"What I used [the bonus] for was really trying to rebuild my life again," he said in a interview.
He said most enlisted soldiers know little about managing money. "When you're living paycheck to paycheck, you just don't know about that. You don't really care, you just don't have that mindset," he said.
And the Army didn't do much to fill in his knowledge gaps about REDUX. "I think they sat me down once and talked about it," he said.
Looking back, Deuitch now says taking REDUX was a mistake. But, he quickly adds, he's doing fine these days — he retired in 2013 and now, at age 43, has returned to his hometown of Michigan City, Indiana, where he works in the mayor's office helping to investigate complaints about human rights violations and discrimination.
Soaring personnel costs — in the 1980s
Congress crafted REDUX in the 1980s. Lawmakers grandfathered all troops serving at that time under the traditional retirement system but decreed that all troops who entered service after 1986 had to accept REDUX. The plan was viewed as a way to contain military personnel costs that were already rising little more than a decade into the all-volunteer era.
The savings would come from a reduction in the "multiplier" used to calculate retirement payments. At that time, the traditional retirement benefit offered 50 percent of a service member's final basic pay for 20 years of service. Under REDUX, that would drop to 40 percent.
However, by 1999, as the first generation of troops approached the 15-year mark under the new system, the Pentagon feared keeping REDUX mandatory would exacerbate growing morale and retention problems. So Congress amended the law to give troops a choice of REDUX or a slightly modified version of traditional retirement.
The program has succeeded in saving the government more than $2 billion in future military retirement payments, according to a study published in 2014 by the Naval Postgraduate School.
Its dramatic fadeout, experts say, can be attributed to a rising level of financial literacy among service members — promulgated in large part by the services themselves.
"Most service members realize that it is a poor deal. It comes with a high price tag in retirement," said Scott Spiker, CEO of First Command Financial Services, a Texas-based company that specializes in helping service members and veterans manage investments.
Spiker said REDUX has "obvious parallels" to the new proposal for overhauling military retirement.
"The falling 'take rate' for the REDUX retirement option suggests that many of today's service members realize that a guaranteed annuity is the better financial choice" than front-loaded retirement benefits, Spiker told Military Times in an email.
No regrets for some
Army Chief Warrant Officer 4 Mark Trepanier says he has no regrets about taking the REDUX bonus when he became eligible for it in 2004.
"I did a lot of research, fully understood what the ramifications were," he said in an interview.
Trepanier remains on active duty and lives at Fort Belvoir in northern Virginia. He and his wife squirreled away his REDUX bonus, establishing college savings accounts for their two young children and putting some other cash in an investment account.
He acknowledges that the long-term value of his military retirement benefits may be diminished, but also says his family has appreciated the peace of mind knowing that they have a nest egg of cash if they need it.
"I don't regret the decision," he said. "If the need was there to put a down payment on a house, the money was available."
Richard Parkllan, a retired chief Navy diver, hit the 15-year mark in 2002 and was among the first service members to sign onto REDUX and its bonus.
At the time, his brief second marriage had just fallen apart and he was deeply in debt, still paying off credit card bills he and his wife had rung up in the course of furnishing a home. He also had a hefty car payment for the 2002 Acura he had just bought.
One factor that figured into his decision was that he was deployed on a classified overseas mission at the time he hit his REDUX decision point, so he could grab the $30,000 bonus without paying taxes on it.
"I was like, 'I'll pay off my debt and have a fresh start,' " Parkllan said in an interview.
He recalls people telling him it was probably a bad idea. "There was a lot of information going around the Navy, through emails, I think there were some master chiefs on top of it. And I calculated what they calculated and I go, OK, well if you get out at 20 and you take the REDUX, yeah, I can see how this is a really bad deal. But if you stay in to the end until 30 years it's not such a bad deal.
"I had just made chief and I thought, 'Well, I'll stay in for 30 years.' "
Parkllan was referring to the fact that the value of retirement benefits under REDUX rises for each year of service beyond 20, to the point that at 30 years of service, the payout is virtually the same as under traditional retirement.
Parkllan took the bonus and paid off his debt. But he soon learned that he didn't like being a chief as much as a blue shirt and he retired from the Navy after 24 years.
That decision puts his current after-tax monthly retirement checks at about $2,000. Had he not chosen to go with REDUX, those checks would now total about $2,500 — a difference of about $6,000 a year.
In hindsight, Parkllan feels he made a mistake. But at age 47, he's also doing fine, living in sunny San Diego and using his GI Bill benefits to get an undergraduate degree in political science from San Diego State University. With income from his wife's job and his GI Bill student housing allowance, he has few financial anxieties.
"I don't really let my bad decisions in life get me down," he said.
Still, if he could go back in time and relive his REDUX decision, "I would say, 'No, I'm not going to take that.' "