Mike Kueber's Blog

September 28, 2011

Military pensions

Filed under: Military — Mike Kueber @ 4:28 pm
Tags: , ,

There is a lot of talk about reforming military pensions as one way to reduce America’s defense costs.  The argument is that, like other government pensions, they are too generous.

A well-written op-ed piece in the NY Times describes the key issues, and I especially like its recommendations that (a) partial pensions should be made available to those serving less than 20 years, and (b) payments should begin at the normal retirement age.  Both recommendations are imminently reasonable, but I wonder why I have never heard the Times extend this same reasoning to its sacred cows – pensions for police and fire personnel.

Although most of the Times analysis is solid, I disagree with two points:

  1. The Times argues that “a 401(k)-type plan for future retirees, is the wrong way to go. Military pensions should not be held hostage to stock market gyrations.”  I believe that, just because the stock market goes up and down, it remains the best place to grow your money.
    Furthermore, 401(k) plans always give investors the opportunity to avoid risk by putting their money into cash or bonds.  Fixed-benefit pensions are rapidly going the way of the dinosaur, and there is no need to maintain an exception for military personnel.
  2. The Times argues that military pensions are too generous.  I believe that is clearly true of civilian government-employee pensions, especially police and fire, but not true of the military pensions.  When pensions (and other benefits) are too generous, the free market dictates that you will have an abundance of people seeking and holding on to the positions.  That is why there are long lines of people
    wanting civilian government jobs, especially police and fire, and very few people leaving those jobs before attaining the retirement benefits.  By contrast, there are not enough people wanting a job in the military and a lot of the military personnel leave before their so-called “generous” pension is vested.

The military pension needs to be reformed, perhaps with some money being shifted from pension to compensation, but the problem isn’t that America is spending too much on its military personnel.  Once the economy recovers, we will find that patriotism isn’t enough to keep our ranks filled, and we will have to spend more or re-institute a draft.