Last week the political director for a presidential candidate asked me about veterans’ policy ideas. After watching the two Republican presidential debates, I can understand why. With debate moderators focused on other issues, a crowded field has so far offered platitudes about taking care of our vets, fighting the Department of Veterans Affairs bureaucracy, and fixing the broken system that allows veterans to die waiting for medical care. Audiences applaud, candidates smile, and the show goes on.
Maybe the next debate will have fewer candidates that focus more time on veterans’ specifics, but I am not holding my breath. So here is a specific veterans’ policy recommendation particularly relevant to current events in Congress.
For more than five decades, a National Defense Authorization Act (NDAA) authorizing national security expenditures and policies has been annually signed into law. Despite rumblings to the contrary, this year will likely be no different.
A retirement reform provision in this year’s pending NDAA will establish Thrift Savings Plan (TSP) accounts for service-members entering the military in 2018, similar to those that many federal employees use for retirement savings. And similar to many civilian 401(k) retirement savings plans, this plan would include matching contributions, provide full vesting after a minimum period of service, and automatically re-enroll service-members who decline participation on an annual basis.
This retirement provision builds on the earlier recommendation of the congressionally-created Military Compensation and Retirement Modernization Commission (MCRMC). Their report noted that the 83% of troops that do not serve 20 years are ineligible for regular military retired pay, and argued that they are deserving of some form of retirement benefit for their service. Beyond this policy argument, many senior cabinet, congressional, and military leaders have also made the case that rising personnel costs such as defined benefit pensions are unsustainable and should be overhauled.
This NDAA retirement reform purports to better compensate all veterans, particularly non-retiree veterans, with a more equitable retirement benefit. If Congress is sincere about maintaining faith with veterans, then it should consider amending the NDAA language to allow future veterans to directly deposit disability compensation into their TSP accounts that this year’s legislation will establish.
Once separated from the service, current and future veterans are unable to further contribute to their TSP accounts unless they are employed by the federal government. Many veterans, particularly enlisted men and women serving one or two enlistments, find post-service employment that does not offer a defined contribution retirement savings plan such a 401(k). Veterans using the post 9/11 G.I. Bill are also largely unable to contribute to a 401(k) style savings plan until after having secured post-graduation employment, losing the investment benefit of compounded interest during their years of schooling.
As nearly 40% of separated veterans that deployed to or in support of operations in Iraq or Afghanistan are receiving tax-free disability compensation, many veterans would benefit from investing their disability compensation into a TSP account for future retirement. Especially when their employment or schooling situation would not otherwise allow for it.
The potential retirement benefits that would accrue to veterans allowed to invest their disability compensation in TSP accounts is tremendous. The below chart illustrates potential retirement savings achieved using 2015 disability compensation rates for unmarried veterans with no dependents (90-100% disabled veterans would be able to contribute up to the current annual TSP contribution limit of $18,000, which is closely reflected in the 80% column below). All returns are premised on the same 7.3% annualized return used by the MCRMC in its report and recommendations.
The 4 million veterans currently receiving disability compensation have these tax-free payments directly deposited each month into a bank account of their choosing. Using the above example, an unmarried veteran with no dependents and a 20% disability rating receives $263.23 a month in disability compensation. If he were to be discharged from the military at age 26 and begin investing that $263.23 every month into a TSP account until he reaches 62 (the earliest age social security payments can be collected), he will have saved $522,710 for retirement.
Such an investment opportunity would be even more beneficial to veterans because Congress annually mandates cost-of-living adjustments (COLA) in VA disability compensation identical to Social Security Administration (SSA) benefit increases. Over the last 40 years, the annual SSA COLA has averaged nearly 4%. That means that the dollar amounts in the above chart, although predicted for the future, would be annually adjusted for inflation and are therefore roughly equivalent to constant 2015 dollars.
As an honorably discharged Marine Sergeant in 2009, I was lucky to already have an undergraduate degree and find employment offering a 401(k) plan. I also was lucky enough to have had parents and friends that understood and could explain the benefits of defined contribution retirement savings plans. Most commissioned officers separating from the service will likewise have similar peer influencers to recommend the benefits of a civilian 401(k) plan. With college degrees, they also will be more likely to find employment opportunities that offer defined contribution retirement savings plans.
But many, if not most, separating young enlisted men and women do not have such immediate good fortune. Fiscal responsibility can be an alien concept for young service members to grasp when their horizon is measured in future patrols and deployments. The common knowledge of the privileged will often camouflage itself to the untrained eye.
When Congress votes this week to pass the pending NDAA it will be clearly expressing its confidence in the ability of service-members to choose to invest in their future through TSP. It should likewise have confidence in veterans who have borne the battle to do the same. Five sitting United States Senators are running for their party’s nomination for President. Championing NDAA language to allow veterans to deposit their disability compensation into TSP accounts is a tangible way to help many veterans and give candidates an opportunity to substantively move the debate beyond the limited platitudes heard so far.
Dave Goldich served two tours in Iraq as a Marine rifleman. He is a senior consultant at Gallup. He can be contacted at firstname.lastname@example.org.