Hallmark said such
a steep discount rate would be a bad deal for troops, Hallmark warned,
appealing primarily to those who don’t
understand what they risk losing or who face such financial hardship they simply don't have another choice
"Those who accept lump sum amounts determined at higher personal discount rates," he wrote, "are likely to either not understand the financial value of their annuity benefits, or have an immediate financial need that cannot be met through the annuity payments," he wrote." Hallmark
also questioned the military compensation commission’s suggestion that different discount rates should apply to officers and enlisted troops, resulting in
enlisted troops receiving
far less money. The commission based that recommendation on studies
suggesting enlisted troops would be more eager to take the cash up front and therefore won't require
the Defense Department does not need to offer as
to take an option that, ultimately, would saves the government money.
Veterans advocates have criticized the disparity, likening it to a payday loan — one that
calling it that a "payday loan mentality" that
with less financial education and fewer options for a traditional bank loan.
Many make the comparison to a gallon of gasoline, which typically costs a few dollars, yet someone stranded on the roadside with an empty tank likely would be willing to pay far more for that same gallon of gas.
The American Academy of Actuaries said the Pentagon should set a fair and across-the-board discount rate similar to those applied by large corporations
and should avoid a "personal discount rate" which reflect individual preferences
In selecting the appropriate personal discount rate under the Act, we
encourage the department to carefully consider the extent to which the discount rate should reflect a service member’s financial sophistication and immediate financial needs, or whether the discount rate should be independent of these considerations," Hallmark wrote. "Furthermore, we believe consideration should be given to whether all service members should be offered lump sums based on the same discount rate and whether that discount rate should be comparable to the discount rate required for lump sum payments from corporate pension plans
," he wrote
of the discount rate used,
we strongly encourage the department to provide a full and thorough disclosure about the discount rates used to calculate the settlement offers. Such a disclosure should include comparisons to settlement amounts that are calculated based on widely used discount rates and/or comparisons to what it would cost to replace the foregone pension benefits in the financial markets
," he wrote
The Pentagon has never explicitly supported the use of "personal discount rates." Instead, a Defense Department spokesman noted that applying the rate is required by the retirement reform law passed by Congress. "The department has made no decisions on personal discount rates and is working with outside experts on this issue," said Air Force Maj. Ben Sakrisson
, the spokesman, said Friday
The partial lump-sum payout would replace a portion of the retiree's monthly pension checks until the recipient reaches age 67. After age 67, military retirees would receive full retirement checks regardless of whether they opted for the lump-sum payout.
takes effect in 2018, a
ll current troops will have the
would have a grandfather clause and a
choice to remain under the current system or opt into the new one. Future recruits joining the military in 2018 and beyond will
have no choice other than the new system.
The new plan also
would, for the first time, give almost every service member some retirement benefits when they leave the ranks, rather than only the one in five who stay in uniform for at least 20 years. The new plan
give almost all troops who serve for more than two years
some retirement benefits, via a new 401(k)-style investment account, to almost all troops who serve at least two years
upon separation from the service. vested 401(k)-style investments into their Thrift Savings Plan accounts
Career troops would receive the same 401(k)-style benefits, plus
as well as
a traditional pension that is 20 percent smaller than the current one.
Andrew Tilghman is the executive editor for Military Times. He is a former Military Times Pentagon reporter and served as a Middle East correspondent for the Stars and Stripes. Before covering the military, he worked as a reporter for the Houston Chronicle in Texas, the Albany Times Union in New York and The Associated Press in Milwaukee.