For most service members, military pay and benefits is an emotional issue, especially when talk turns to cutting military compensation, as it has in Washington in recent years.
But it's also an economic issue, particularly from the long view that takes retirement into account, says Tim Kane, a former Air Force officer turned research fellow at Stanford's Hoover Institution.
From that perspective, Kane says the military system has been faltering for years and needs fixing — and he has a proposed alternative.
In a recent op-ed published in War On The Rocks, "Military Retirement: Too Sweet A Deal?" Kane writes that Defense Department officials have warned that the military's retirement benefit — only earned after 20 years of service — is growing more expensive.
But Kane says an equally important issue is that the current system's 20-year "cliff vesting" model is also unfair.
"Why put in 20 years? Why not five?" Kane told Military Times on March 2. "It's insanely coercive to leave a bunch of money out there and have people vulnerable to being laid off before they hit that cliff. And in fact, that happens in the military — somebody could serve, 10, 12 or 15 years and they don't have any legal claim on that retirement.
"There should be a lower cliff. It may not be as generous, and maybe the amount that's contributed increases as the years go up, but it still shouldn't be all-or-nothing" at 20 years, said Kane, who served for five years.
Kane says in his article that it's about "modernizing talent management," noting that criticism of the 20-year cliff vesting system stretches back decades, citing as an example the 1970 final report from the Gates Commission, named after its leader, former Defense Secretary Thomas Gates.
Kane noted that the Gates Commission cited the military system's immediate payouts upon retirement as another problem.
"These sweet features distort work incentives on both sides of the cliff. Too many personnel stay in uniform before the 20-year cliff, and too few stay after," Kane said.
"If you want to build a system based on maximizing national security and respecting the career choices of active-duty troops to give them more career control, I think you have to end this completely ... the 20 year cliff retirement," Kane said. "The system is not designed to be flexible, it's designed to lock people in service."
Kane said he plans to publish a larger study in coming weeks, and has also launched a survey, asking businessmen and women in the private sector to share details of their job performance and organizational structure so he can compare their data to the military system.
Military Times' interview with Kane has been edited for clarity and brevity.
Photo Credit: Courtesy photo
Q. What would your military retirement system alternative look like?
A. One saving plan idea: Starting at year five, when someone is going to decide whether to stay in or not, at that point begin a generous match. Automatically have the services give 25 percent of your pay in addition to your base pay; then add another 25 percent match on top of that, but set it aside as a savings asset much like a 401(k), which could be portable and you could take with you any time you leave, whether that be seven years or 19 years. Even though service members begin accumulating that benefit sooner, don't let retirees draw that money until about age 60. And then those retirement payments could even be higher later on after the money accumulates.
Q. In what ways could the military enhance "talent management"?
A. Could you bring people back into the service? Say members leave after seven years and go to work at a high-tech firm and learn cybersecurity in a way they would never learn it in the military. ... I think we would need to suggest they come back in. In the military, again, it's all or nothing: Learn these skills here but only practice them here. It's a huge loss. Bring them back onto active duty.
Q. How would this affect the management of force shaping that the services use now?
A. Think about it like a football team. You have 11 positions. [Many more] people are on the roster ... [but] . Instead of making it seniority-based or whatever, you pick the 11 that are best. for each position. And that's not saying anything about the individuals who aren't picked, it's just saying, "Not this year. Come back and reapply for those positions next year." Right now [in the military], it's centrally managed based on year-groups ... the services look at which year-groups they want to shave. To me, that's just ridiculous, to push one person out who's been in, say, 17 years but not another one because they're in the 15-year cohort, so they're fine. It's just divorced from reality about what talent you want "out there on the field."
Q. How could your savings and retirement model apply to the families of service members?
A. In one proposed model, if, say, someone passes away, the savings asset would be inheritable.
Q. Have you proposed your ideas to the Pentagon, or other officials?
A. The most frustrating thing about the latest Military Compensation and Retirement Modernization Commission is that the report didn't do this, and I was kind of surprised. Officials were advocating for much stronger reform four years ago, which seemed consistent in all reports until this one. The latest MCRMC has one alternative. They didn't say, "Hey, here are three alternatives or seven alternatives or ways you could do it," or give something for Congress to think about. And the one alternative did include a savings asset portion but ... it's dysfunctional. Their recommendation trims the monthly benefit by one-fifth and adds a small savings asset, but that wouldn't change the status quo on how to keep talent. So I guess, as an economist, it's my job to be proposing an alternative and not just assume the commission's going to do all the heavy lifting. I just want to propose, in my upcoming working paper for the Hoover Institution, a clean alternative.