ment savings — one of those quirky little options in the byzantine tax code that employers seized upon as a way to save money while pretending that they were doing the right thing by their employees.” The increasing shift to defined contribution plans in the private sector accelerated after the dot-com bust of the late 1990s, according to Robert Merton’s Harvard Business Review article, “The Crisis in Retire- ment Planning.” A 2014 Forbes article, “Companies
Prepare To Dump Pension Plans,” further explains the shift: “U.S. pen- sion plans sponsored by S&P 500 companies were fully funded (mean- ing they had enough banked to meet future obligations to retirees) but got hammered in the Great Recession of 2007 when stock values dropped and interest rates declined. There are two big cost factors to keeping pensions that are motivating employers to consider dropping them. First, there’s a dramatic rise in Pension Benefit Guaranty Corporation (PBGC) premi- ums on the horizon starting in 2015; employers have to pay a premium into the PBGC pot for each plan partici- pant each year. Second, longevity is a factor: New IRS [Internal Revenue Service]-mandated mortality tables will make keeping pensions on the books more costly.” These shifts in investment strat-
egy reflect a conscious shifting of a company’s liability for an employee’s future security onto the worker. As a result, employees have shown de- creasing levels of company loyalty ever since. The Bureau of Labor Statistics has found today’s average worker in the U.S. will hold some- where between seven and 11 jobs in his or her lifetime. This is a marked shift in employment mentality of earlier generations, who often stayed with an employer for decades. One of the reasons for diminishing company loyalty in the private sector
64 MILITARY OFFICER FEBRUARY 2015
was the Great Recession, which led to mass company layoffs regardless of tenure, an erosion of company benefits, a lack of training opportu- nities to fill critical skills gaps, and a lack of promotion opportunity for employees who remained. However, military recruitment and
retention levels tend to be counter- cyclical to that of the private sector. While opportunities in the private sector were eroding, retention rates in the military were strong. Many servicemembers weren’t willing to separate and enter an uncertain job market. As the economy shows signs of recovery, servicemembers are more apt to take their skills elsewhere and enter the job market.
Although the portability of a
401(k) plan might be appealing to many young people, the adoption of a 401(k) plan might not be in the best interest of servicemembers and, ulti- mately, of our national defense. A key strength of the current re-
tirement system is its predictability. A 401(k) system would gravely impede servicemembers’ ability to identify and quantify the annuities they could expect for the potentially unlimited sacrifice of service. It simultaneously makes servicemembers bear the en- tire brunt of any miscalculation about variable benefits and the performance of the stock market.
The services could suffer from a
mass exodus of highly trained per- sonnel when they face tough career decisions, such as choosing another deployment away from their homes and families.
Responding to system criticism Criticism of the retirement system is not new; allegations of the retirement system being unaffordable and un- sustainable have been around for de- cades. A 1978 report of the President’s Commission on Military Compensa- tion included the following extract
Hazardous duty, fre- quent moves, extend- ed family separations, ... forfeiture of many personal freedoms most civilians take for granted, and an “up- or-out” promotion system result in high attrition rates. ... It, therefore, requires a unique retirement sys- tem to reflect those career.
challenges.
from the minority report of then- Commissioner Lt. Gen. Benjamin O. Davis Jr., USAF (Ret): “Unfortunately, the commission
has embraced the myth that retire- ment costs will soon rise so high — from $10 billion this year to $30 bil- lion in the year 2000 — as to become an unacceptable and unfair burden on the American taxpayer. Such as- sertions fail to point out that by using the same assumptions, today’s aver- age family income of $10,000 will be $36,000 in the year 2000. The aver- age cost of a home will be $171,000; a compact automobile will cost $17,000; and the overall U.S. budget will have increased from $500 billion to some amount in the trillions.” Such numbers might appear quaint today, but they make two telling points. First, long-term pro- jections that sound dire today often prove far less ominous as years pass. Second, after budget-driven retire- ment cuts in 1986 seriously damaged retention, Congress restored the cur-
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