House GOP Backs 401(k)-Like Military Retirement Plan, More Pay and BAH

A key defense panel in the Republican-led U.S. House of Representatives proposed offering troops a 401(k)-style retirement plan, as well as giving them higher pay raises and housing allowances.

The House Armed Services Committee's Personnel Subcommittee, led by Rep. Joe Heck, R-Nevada, included the proposals in its version of the 2016 National Defense Authorization Act. The legislation, which sets policy goals and spending targets for the fiscal year beginning Oct. 1, was released on Wednesday and will be debated in hearings on Capitol Hill this week.

The panel's version of the bill embraces one of the most controversial recommendations from a congressionally mandated panel in offering service members a 401(k)-style retirement plan with matching contributions and full vesting after just two years. The legislation would also support a 2.3 percent troop pay raise and temporary increase in some basic allowances for housing (BAH).

Related: Let your elected officials know your thoughts on the proposed plan to overhaul military benefits.

The proposals, which will be debated by the subcommittee in a hearing scheduled for 9:30 a.m. Thursday, are a vital part of "supporting and protecting our warfighters with the care and benefits they need, deserve, and have earned," a release accompanying the draft legislation states.

401(k) Plan

The subcommittee surprised many observers by including the provision to overhaul the military retirement system, a mainstay of the benefits package for the past several decades.

The retirement change was one of 15 recommendations released in January by the Military Compensation and Retirement Modernization Commission. The panel, which studied the issue for nearly two years, said the proposals would give troops, retirees and their families more benefits options while saving the government $12 billion a year by 2040.

Under the existing defined-benefit plan, most officers and enlisted personnel who serve 20 years receive annual retirement pay equal to half of their average basic pay over their last three years of service. The legislation would support the commission's recommendation to reduce that figure from 50 percent to 40 percent, in part to fund a 401(k)-like Thrift Savings Plan for the more the 80 percent of service members who leave the military without getting any retirement benefit.

The bill would "begin to reform the military retirement system to provide service members with a portable 401K-like benefit while retaining a defined retirement benefit at 20 years of service in an effort to help recruit and retain the best and the brightest in our Armed Forces and to ease their transition into civilian life," the committee's press release states.

Organizations that represent combat veterans, such as the Veterans of Foreign Wars of the United States and the Iraq and Afghanistan Veterans of America, support the retirement change. Others, including the Military Officers Association of America, have been cool to the idea, in part because the commission called for matching contributions to end after 20 years. The House subcommittee's legislation would alter that by continuing the payments after that time.

Higher Pay Raise, BAH

The legislation also includes the commission's other recommendations to adopt financial literacy training for troops, create a joint medical command to oversee medical personnel and equipment across the armed services, keep the commissary benefit for military families and retirees, and improve collaboration between the Defense Department and Veterans Affairs Department to provide job training and transition assistance to those leaving the military.

The bill doesn't address the panel's proposals to replace the existing Tricare program with a choice of commercial health insurance options. But it supports a higher pay raise and housing allowance for troops than the Pentagon proposed.

The Defense Department's spending plan calls for giving troops and civilians a 1.3 percent raise, slightly more than the 1 percent bump they received the past two years. The increase is well below the 2.3 percent estimated increase in private-sector wage growth, which it's supposed to match by law. The subcommittee tacitly endorsed the higher level by not specifying a figure in the draft version of the bill. They were more explicit when it comes to the housing allowance.

The Pentagon proposed slowing the growth of basic allowances for housing by another 4 percent over the next two to three years, in addition to the 1 percent approved for the current fiscal year. Therefore, if the plan were approved, service members would eventually pay an average of 5 percent of the costs.

The subcommittee's version of the bill "would extend for 1 year the authority of the Secretary of Defense to temporarily increase the rates of basic allowance for housing in areas impacted by natural disasters or experiencing a sudden influx of personnel."

It wasn't immediately clear which bases or locations may be eligible for the higher benefit.

-- Brendan McGarry can be reached at Brendan.McGarry@military.com.