Modernizing Pension Eligibility
for the U.S. Military
JOHN A. T URNER
is the director of the
Pension Policy Center
in Washington, DC.
jaturner49@aol.com
BRUCE W. K LEIN
is a senior research
associate at the Pension
D
Policy Center in
Washington, DC.
brucewklein@aol.com
116 MODERNIZING P ENSION ELIGIBILITY FOR THE U.S. M ILITARY
JOR-Turner.indd 116
JOHN A. TURNER AND BRUCE W. KLEIN
The military retirement system is arguably the best
retirement deal around. Unlike most retirement plans,
the Armed Forces offer a pension, with benefits, that
starts the day you retire, no matter how old you are.
That means you could start collecting a regular retire-
ment pension as early as 37 years old.
Military.com [2015]
espite a reform in 2015, taking
effect in 2018,1 the U.S. mili-
tary pension system has unusual
features that make it an ineffi-
cient, expensive, and inequitable way of pro-
viding retirement benefits. It is unfair to most
enlisted personnel, and thus it is unfair to the
young men and women who fight America’s
wars. In particular, two aspects of the retire-
ment benefit eligibility requirements—the
vesting requirement and the length-of-
service requirement that determine the age at
which benefits can be received—are outdated
and should be modernized. Vesting requires
20 years of service, at which point retire-
ment benefits can be received regardless of
age. Congress has not changed the pension
eligibility requirements for U.S. military per-
sonnel for nearly 70 years.
The cost entailed by the current mili-
tary retirement benefit eligibility require-
ments has increased over time because of
increases in life expectancy. Life expectancy
has risen more than one year per decade since
Congress enacted the current retirement
age requirements for the military shortly
after World War II. In 1950, a man aged 40
could expect to live 30.9 more years, based
on period life tables, while in 2010, that man
could expect to live 37.5 years, an increase
in life expectancy of nearly 7 years over a
60-year period (Bell and Miller [2005]).
A man retiring in 2010 at age 40 after 20 years
in the military would expect to receive mili-
tary pension benefits for nearly twice as many
years as he had served in the military.
Military personnel costs are not just an
issue of hypothetical or academic concern;
they currently consume about half of the
Defense Department budget. If they con-
tinue to grow at the rate they have grown
since 2001, while the military budget grows
at the rate of inf lation, personnel costs will
consume the entire military budget by 2039
(U.S. House of Representatives [2013]).
One measure of the expense of military
pensions is the “normal cost”—the term actu-
aries use for the accrual of pension costs asso-
ciated with a person working an additional
year. For a military pension, the normal cost
is 44% of basic pay.2 This figure compares to
a normal cost to the federal government for
the Federal Employees Retirement System
(FERS) basic annuity for employees hired
after 2013 of 9.6% of pay (Isaacs [2014]).3
Thus, military pensions as a rough approxi-
mation are more than four times as expensive
relative to pay as civilian federal government
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 pensions. However, because only 17% of enlisted persons
stay in the service for the 20 years necessary to receive
a pension, for the great majority of enlisted personnel,
the value of their pension is zero. For those receiving a
military pension, the value of the pension may exceed
the lifetime value of their pay.
This article analyzes policy issues relating to the
retirement benefit eligibility requirements for members
of the U.S. military. It focuses on the earliest age at
which members of the military are eligible to collect
retirement benefits, but it also considers vesting, two
aspects of the military pension system not addressed by
the 2015 reform. The article examines both the costs
and the benefits of raising the military retirement benefit
eligibility requirements and changing vesting require-
ments. To provide evidence on the feasibility of a higher
retirement age, it examines international experience
relating to military retirement ages.
The article is structured as follows. It first provides
a more detailed discussion of the cost of military pen-
sions. It then describes the current eligibility require-
ments for the U.S. military pension, other aspects of the
current military pension system, and the latest reform.
To provide evidence on retirement ages that are fea-
sible in a modern military, it surveys retirement ages for
military in other countries with similar military com-
mitments. It then presents an analysis of the costs and
benefits of a policy change that would raise the age at
which military pensions can be received. The last section
summarizes the article.
THE COST OF MILITARY PENSIONS
The normal cost calculation for military pensions
of 44% of basic pay is an average for all military per-
sonnel, including those who will not receive a pen-
sion. The Department of Defense estimates that 49% of
officers and 17% of enlisted personnel currently in the
military will receive pension benefits (Department of
Defense [2011]). For the nearly half of the officers who
receive a pension, the expected lifetime value to them
exceeds the total value of their pay. Thus, the pension
is exceedingly generous for those who receive it, and
that generosity is largely due to the low age at which it
can be received.
Ultimately, the relevant analysis relating to the
generosity of compensation would be at the level of
total compensation, rather than the replacement rate.
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For example, it could be that military pensions are high
relative to wages to compensate for low wages, and that
the total compensation is reasonable. For example, the
Tenth Quadrennial Review of Military Compensation
[2008] argues that military compensation would be
more efficient, meaning more highly valued by most
military personnel, if pay were higher and pensions
lower. The current approach results in a large differ-
ence in total compensation per year of service between
service personnel who receive a pension and those who
do not. As well as being inefficient, this difference is
unfair between service personnel who do multiple tours
of duty in war zones but do not stay in the military for
20 years, compared to other personnel who may not
spend any time in a war zone but stay in the military
for 20 years and receive a pension.
Whatever the appropriate mix of current and
deferred compensation may be, the high normal cost
per person serving in the military translates into a high
aggregate cost. In 2012, spending on military retire-
ment benefits for current retirees was $52.9 billion,
nearly as large as the spending on military pay for cur-
rent active duty members of the military, which was
$57.5 billion, or 0.4% of gross domestic product (GDP),
and 1.6% of federal government expenditure. That
year, the military services contributed $21.9 billion
toward the payment of future benefits, and the Trea-
sury Department contributed $70.1 billion, for a total
contribution of $92.0 billion (Department of Defense,
Office of the Actuary, [2014b]). This was not much less
than the spending of $110 billion (in 2013) on procuring
weapons (Hegseth [2014]).
The contributions toward future pensions are
almost twice as much as the pay received by the mili-
tary, in part because the contributions from the Treasury
Department include the amortization of unfunded
liabilities, ref lecting insufficient contributions in past
years. To our knowledge, the military pension plan has
the largest unfunded liability of any employer-provided
pension plan in the United States. The unfunded lia-
bility for military pensions, as valued by the Depart-
ment of Defense actuaries, is nearly a trillion dollars
($934 billion in 2012) (Department of Defense, Office
of the Actuary [2014b]).4
By way of comparison, the combined unfunded
liability for the Civil Service Retirement System and
the FERS, the two systems that cover most federal
government civilian employees, was $789.8 billion in
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 2012—also substantial, but less than for the military
(Office of Personnel Management [2014]). The larger
unfunded liability for the military pension is not due to
the difference in the number of employees; the Federal
government currently has about 2.7 million employees
versus 1.5 million full-time military personnel.
For further comparison, the unfunded liability for
all multiemployer plans in 2013 in the United States was
$490 billion (Schilling and Wiese [2015]). Yet despite
its large amount of underfunding, the military retire-
ment system has received relatively little attention in the
economics and public policy literature.
CURRENT RETIREMENT AGE AND PENSION
PLAN FOR U.S. MILITARY
The current 20-year requirement for eligibility for
retirement was enacted during the demobilization of
military personnel after World War II, almost 70 years
ago. The requirement implies that a person who joins
the military at age 18 has a benefit eligibility age of 38.
The military retirement system applies to mem-
bers of the Army, Navy, Marine Corps, Air Force, and
Coast Guard, all of whom are covered by a defined
benefit pension plan. Those who entered the military
after August 1, 1986, qualify for benefits equal to 50%
of the three highest years of base pay after 20 years of
service.5 The benefit increases by 2.5 percentage points
per year of additional service, so that a person serving in
the military for 40 years receives 100% of the average of
his or her three highest years of base pay (Department
of Defense [2014b]).
U.S. Army Reserve and Army National Guard
personnel and Reserve personnel in the other branches
of the military can receive a retirement pension when
they have accrued 20 qualifying years of service and
reached age 60 (Department of Defense [2011]). Thus,
members of the military who leave active-duty status
and enter the National Guard or Reserves can still
qualify for a pension, but at an age roughly 20 years
older than had they stayed on active duty.
Veterans of active-duty military service hired
into civilian federal employment after September 30,
1982, can receive civil service retirement credit for post-
1956 military service if they pay the government an
amount covering the pension credits for their military
service. Employees hired in 1984 or later participate in
the FERS. For them, the required payment to receive
118 MODERNIZING P ENSION ELIGIBILITY FOR THE U.S. M ILITARY
JOR-Turner.indd 118
pension credit is 3.0% of their military pay. Military
service can be credited toward a civilian pension only
if the person is not eligible for a military pension based
on that service (Isaacs [2014]).
Members of the military have contributed to Social
Security since 1957. They can receive Social Security
benefits at age 62, just like other workers.
Regular military compensation is a better mea-
sure of compensation for comparing military replace-
ment rates to those in the private sector than is basic
pay (Department of Defense, Office of the Actuary
[2014a]). It is the sum of: (1) basic pay, (2) the housing
allowance, (3) the subsistence allowance, and (4) the tax
advantages accruing to these and some other allowances,
because they are not subject to federal income tax. For
a person retiring after 20 years of service, basic pay is
approximately 66.5% of regular military compensation.
Consequently, a member who retires with 20 years of
service and is entitled to 50% of basic pay would receive
33.25% of his or her final three years of regular military
compensation, while a member with 30 years of service
would receive 50%.
As a comparison, federal civilian employees par-
ticipating in the FERS who retire at age 62 with 20 years
of service would receive a replacement rate of 22% of the
average of their highest three years of basic pay (Office
of Personnel Management [2015]). They would also
receive a benefit from the Thrift Savings Plan (TSP),
which is the 401(k)-type plan for federal government
employees. The Federal government contributes an
automatic 1% of pay for all employees, and for employees
contributing 5% of pay, it matches for an additional 4%.
Including the TSP contributions of employees and the
government would affect the comparison of the amount
of retirement benefits received.
This comparison suggests that the military pension
system is generous for those officers who receive a ben-
efit from it. For example, for those retiring from active
duty in the Army in Fiscal Year 2013, the average annual
retirement benefit for nondisabled commissioned officers
was approximately $64,020, while it was approximately
$28,980 for nondisabled enlisted personnel (calculations
from Department of Defense, Office of the Actuary
[2014a]).6 These benefits would be received from the
point of retirement from the military, which generally
would be when the service member was in his or her
early 40s.
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 The retirement benefits are price-indexed, so they
keep pace with inf lation. Survivor benefits are automati-
cally provided but require the payment of a monthly
premium once the service member is retired, and they
can only be waived with the agreement of the spouse.
Since 2001, members of the military have been
able to participate in the TSP. While the federal govern-
ment contributes to the TSP accounts of civilian per-
sonnel in the Federal Employees Retirement System,
it has not contributed to the TSP accounts of military
personnel in the past.
The 2015 reform increases the role of the TSP
while reducing the generosity of the defined benefit
plan, with new recruits receiving 40% of final pay from
that plan after 20 years of service, instead of the current
50%. The 2016 Defense Authorization Act containing
the military pension reform passed both the House and
Senate in late 2015 and was signed into law by President
Obama.
The provisions of the law are mandatory for new
recruits; current military personnel can opt into the
new system if they have less than 12 years of service
as of January 1, 2018. Starting then, new recruits will
automatically have 3% of pay deducted and contributed
to the TSP, with the government also contributing 1%
of pay. The default investment is an age-appropriate
life-cycle fund. New recruits have the option of opting
out, but will be re-enrolled after one year. They will
vest in their own contributions immediately and vest in
the government’s contributions after two years. After
two years, the government match will rise to 5% of pay
for service members contributing 5% (Stars and Stripes
[2015]). These plan features are similar, but not iden-
tical, to the features of the TSP for most civilians cur-
rently joining government service (i.e., in the Federal
Employees Retirement System).
Workers accrue pensions as part of compensation
while working. The new law will provide most enlisted
personnel with an annual government pension contribu-
tion of a few percentage points of basic pay, at most 5%.
By comparison, the roughly half of officers ultimately
receiving both defined contribution and defined benefit
pension benefits will likely receive an annual compensa-
tion value of retirement benefits roughly equal to 100%
of basic pay.
Although there is no minimum retirement age as
such, in practice a minimum retirement age is deter-
mined by the standard entry ages for enlisted personnel
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and officers. To enter the military, a person must be at
least age 17 and have a high school diploma or General
Educational Development certificate. An enlisted person
thus could enter the military at age 17 and retire at age
37, receiving a pension benefit for the remainder of his or
her life. For most officers, the earliest age at which they
can retire is a few years higher because civilians entering
Officer Candidate School must have a four-year college
degree. Thus, most officers would be able to retire as
early as age 41 or 42.
Most people who serve in the military do not
receive a military pension; less than 19% of people
(including both enlisted personnel and officers) who
enter the military meet the 20-year vesting requirement
and receive a pension (Department of Defense [2014a]).
As noted earlier, the percentage varies greatly, however,
between officers and enlisted personnel. The Depart-
ment of Defense estimates that 49% of officers and 17% of
enlisted personnel currently in the military will receive
pension benefits (Department of Defense [2011]).
Thus, assuming that combat veterans do not serve
longer on average than other personnel, most military
personnel who serve in combat do not ultimately receive
a retirement pension. Officers are nearly three times
more likely than enlisted personnel to receive a pension.
This arrangement, which so disproportionately benefits
higher-paid personnel, would be considered abusive in
a private-sector plan and would not pass the nondis-
crimination tests that are designed to protect lower-paid
workers.
For those who leave the military with a pension,
the average age at retirement in Fiscal Year 2013 for
active duty nondisabled personnel was 46.9 for officers
and 43.1 for enlisted personnel (Department of Defense,
Office of the Actuary [2014a]). The median age, which
is not available, would be a more telling statistic, because
it is not affected by outliers retiring at substantially older
ages. Thus, the median age would be expected to be
lower, suggesting that a fairly large share of military
personnel retire close to the earliest possible date. The
average number of years of service at retirement in Fiscal
Year 2013 for active-duty nondisabled retirees was 23.9
for officers and 22.6 for enlisted personnel. Here again,
the median would be lower, and would probably indicate
that most enlisted personnel retire once they’ve served
for 20 years.
The military also has regulations that determine
mandatory retirement ages. Mandatory retirement ages
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 for officers are higher at higher ranks, but they start at
28 years of service. Mandatory retirement for permanent
professors at Service schools, such as the Naval Academy,
is age 64. Generals in the Army and senior officers in
other branches of the military also have mandatory retire-
ment at age 64. Military Service Secretaries can defer the
mandatory retirement age for health professionals and
military chaplains to age 68 (RAND [2011]). Thus, in
its retirement-age policies, the military recognizes differ-
ences by rank and job category in the age of mandatory
retirement. This practice could be carried over to poli-
cies concerning the earliest age for receipt of retirement
benefits, as is done, as shown later, in other countries.
INTERNATIONAL EXPERIENCE
While police and firefighters also have dangerous
and physically demanding jobs and generally have older
retirement ages than the military, arguably the best com-
parison group for evaluating the feasibility of higher
retirement ages would be the military in other countries.
The group we select is NATO allies that have military
forces that have shared responsibilities with the U.S.
military. The experience of these countries provides evi-
dence as to retirement ages that are feasible in a modern
military.
Comparable Countries
In comparing the military retirement ages of other
countries to the retirement ages in the United States, we
consider the military commitments of different NATO
countries. We take the ratio of military expenditure to
GDP as a rough indicator of the military commitments
of a country (Exhibit 1). On that basis, we have selected
the criterion for countries with substantial military
expenditures as being those with military expenditures
of at least 2% of GDP. Most countries in NATO spend
less, while the United States spends more.
The comparison countries in Exhibit 1 with mili-
tary expenditures greater than 2% of GDP are France,
the United Kingdom, Portugal and China (not in
NATO). The average eligibility ages for military pen-
sions for enlisted personnel and officers in those four
countries are 49.5 and 52, respectively. Thus, in those
countries, which have somewhat similar military com-
mitments as the United States, the average eligibility
age for retirement benefits is roughly 10 years higher.
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JOR-Turner.indd 120
EXHIBIT 1
Minimum Benefit Eligibility Ages for Enlisted
Personnel and Officers and Percentage of GDP
Spent on Military, Selected Countries, 2015
Note: For many countries, this exhibit is a simplification of the actual
rules of the military pension regime. When no age requirement is set, so
that the minimum age reported in this exhibit is determined by the years-
of-service requirement, it is assumed that the person entered the military
at age 18. The eligibility age for officers in the United States that is listed
in the exhibit is based on the requirement of college graduation.
Sources: Text and references; World Bank (2015) for expenditure data.
In Exhibit 1, we provide data on a range of coun-
tries, not just those with relatively high military expen-
ditures. For the six countries in the exhibit with military
expenditures less than 2% of GDP—Canada, Belgium,
Ireland, Poland, Sweden, and Germany—the average
eligibility ages for enlisted personnel and for officers are
53.5 and 54.8. The eligibility ages for the six country
group are actually somewhat higher than those for the
four countries with military commitments deemed
similar to those of the United States. The difference
might ref lect the inf luence of the strength of military
commitments on pension policy, but it remains the case
that both groups of countries have eligibility ages that
typically are 10 or more years higher than those of the
United States.
While we have screened the countries we compare
in an attempt to find countries where the military argu-
ably has similar responsibilities to the U.S. military, some
analysts may believe that the combat responsibilities of
the U.S. military are unique, and that international com-
parisons for the point of evaluating military retirement
ages are thus not useful. A full analysis of that hypothesis
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 is beyond the scope of this article. Nonetheless, a fur-
ther indicator we examine concerning comparability of
military responsibility is the ratio of a country’s military
deaths in Afghanistan to the size of the country’s mili-
tary. In this respect, we compare the United States to the
United Kingdom and Canada (Exhibit 2).
The first point to note is that military deaths
cumulated over the course of the Afghanistan conf lict
are less than 0.5% relative to current levels of military
personnel in all three countries. The second point is that
the U.S. military is not unique with respect to military
deaths; the risk of death is actually marginally higher in
the military in the United Kingdom. While this indi-
cator can be criticized as imperfect, it nonetheless is
suggestive that experience in other countries, such as
the United Kingdom, may be relevant.
International Survey
To obtain more detailed information about retire-
ment ages for military personnel in other countries,
we surveyed experts in the European Network for
Research on Supplementary Pensions, as well as pen-
sion experts in other countries, and researched infor-
mation available on the Internet. The four countries
surveyed, with expenditure ratios that exceed 2% of
GDP, form a convenient sample survey composed
of China and three NATO countries. The survey is
intended to provide examples of policies in other high-
income countries rather than to be representative of any
group of countries.
The pension system for military personnel in each
country tends to be complex. This survey focuses on the
age and length-of-service requirements to be eligible to
EXHIBIT 2
Military Deaths in Afghanistan, Selected Countries
Note: Military deaths since the start of the conflict in 2001 after the
September 11 attacks, as of May 24, 2015.
Source: Wikipedia (2015a, b).
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JOR-Turner.indd 121
receive a pension. We do not discuss other aspects that
do not affect eligibility for retirement, such as benefit
levels.
France. Privates enlist usually for a maximum of
three or five years, but they can renew. Until recently, if
they had less than 15 years’ service, they did not acquire
pension rights in the military pension. Instead, they
acquired pension rights in the social security pension,
which is less generous. In particular, they can retire
at age 60 or older. If they reach 15 years of service,
they can retire immediately with a military pension.
Noncommissioned officers usually enlist for 15 years
and can retire under the same conditions. Officers
usually enlist for 25 years and can retire after 25 years
of service.
Since a reform in 2010, the retirement require-
ments have been increased by two years: the requirement
is now 17 years of service for noncommissioned officers
and 27 years for officers. The condition of 15 years of
service for vesting has been reduced to two years. If mili-
tary personnel serve fewer years (but more than two),
they can receive a reduced pension at age 60.
Portugal. The benefit eligibility age for members
of the Portuguese army is age 60, independent of the
years of military service. However, they can become
“in reserve” at age 55 with 36 years of service and
receive retirement benefits. To be in reserve means the
person can leave active service but may be called back
if needed.
The United Kingdom. In 1975, the United
Kingdom instituted a military pension system that
provided an immediate pension for a person retiring
with 16 years of service as an officer or 22 years as a
non-officer. Persons with two or more years of service
who did not meet those requirements for an immediate
pension could receive a deferred pension at age 60
(United Kingdom Government [2008]). In 2005, the
United Kingdom closed that plan and instituted a new
one, under which a person leaving military service at
age 55 with at least two years of service is eligible for
an immediate pension. Some groups, such as doctors,
have a higher eligibility age. A person who leaves before
age 55 can receive a reduced pension at age 65 (United
Kingdom Government [2012]).
In 2012, the United Kingdom again announced
changes in the age of retirement for its military, starting
in 2015. Under the new arrangement, members of the
military are able to claim a reduced pension at age 55
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 with 20 years of service, and a full pension at age 67
(Harding [2012]).
The new U.K. pension legislation also includes
early-departure payments for persons who leave the
military at age 40 or later but before their normal retire-
ment age and have at least 20 years of service. These
are monthly payments, but are not classified as pension
payments (United Kingdom Ministry of Defense [2014]).
China. Though not a NATO country, China is
included in this survey because it has the world’s largest
military, with approximately 3 million members (Leckie
[2011]), compared to 1.5 million active-duty and full-
time reservists in the United States (Department of
Defense, Office of the Actuary [2014a]). Regulations
enacted in 1981 provide that military personnel can
retire at age 55 for men and 50 for women, or after
30 years of service, if that is earlier.
The survey of the four countries, as well as the
summary statistics of Exhibit 1 for other countries, show
that, with the exception of enlisted personnel in France,
the United States has the lowest benefit eligibility ages
of the countries surveyed. The difference between the
United States and most of the other countries is striking.
Among these countries, while nearly all have benefit eli-
gibility ages for the military that are substantially higher
than in the United States, most have eligibility ages that
are younger than age 60. Raising the benefit eligibility
age in the United States to age 50, for example, would
still place the United States in the bottom half of the
countries of Exhibit 1.
Several lessons can be gained from the interna-
tional survey. First, a number of countries have reformed
their military pensions, raising the ages at which a pen-
sion can be received. Second, a number of countries
have established retirement eligibility ages that are sub-
stantially higher than those of the United States. Third,
some countries have higher retirement eligibility ages
for commissioned officers than for lower-ranking per-
sonnel, presumably in recognition of the differing phys-
ical demands at different ranks.
LENGTH OF TIME SINCE THE RETIREMENT
AGE WAS RAISED
As we noted earlier, it has been nearly 70 years since
Congress enacted a change in the eligibility require-
ments for military pensions. Since that time, life expec-
tancy has increased substantially. Exhibit 3 provides the
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JOR-Turner.indd 122
EXHIBIT 3
Year of Last Change in Military Pension Eligibility
Age, Selected Countries, 2015
Sources: See text and Acknowledgments.
date of the last change in the benefit eligibility age for
the military pension in selected countries. Among the
military programs listed in the exhibit, the U.S. military
pension has by far the longest period since the retire-
ment age was raised, with a number of countries having
raised the retirement age for military pensions since the
year 2000.
COSTS AND BENEFITS OF RAISING THE
RETIREMENT AGE FOR THE U.S. MILITARY
Before turning to the specific issue of the retire-
ment age, we review a number of high-level commis-
sions and independent studies that have proposed changes
to the system of military pensions, beginning with the
Grace Commission, formally known as the President’s
Private Sector Survey on Cost Control [1984], which
was established by President Reagan. The Grace Com-
mission report recommends that the eligibility age for
military benefits be raised to age 55 for reduced benefits
and age 62 for unreduced benefits—the earliest age at
which Social Security old-age benefits can be received.
Leonard [1988] analyzes the incentive effects of the
military retirement system on recruitment and reten-
tion of military personnel. He stresses that proposals
for retirement benefit eligibility should be evaluated
in terms of their effects on recruitment and retention
as well as their cost. He finds that the military retire-
ment system is expensive, and he questions whether
the expenditure is cost-effective in terms of its effects
on recruitment and retention of military personnel.
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 Howe and Jackson [1999] argue that raising military
pay would be more effective than the current military
pension system in encouraging recruitment and reten-
tion. Christian [2006] provides an overview of previous
proposals for military reform, including ones that argued
for raising the benefit eligibility age and lowering the
vesting requirements.
Asch, Hosek, and Mattock [2014] analyze a pro-
posal under which a smaller defined benefit plan for the
military would be combined with the TSP. Military
retirees would be able to claim benefits from the smaller
defined benefit plan at the same age as under the current
system. The TSP benefits could be collected at age 59½.
This change would thus push back the age at which part
of military pensions could be received.
Mackin [2014], among others, argues that reform
of the military pension system is needed to promote
equity so that more people entering the military will
receive a pension, to control costs, and to encourage
longer tenure for personnel in highly technical areas that
require extensive training. He proposes 10-year vesting
and a benefit eligibility age of 55.
Every four years, the Department of Defense com-
missions a complete review of military compensation,
including pensions. The Military Compensation and
Retirement Modernization Commission [2014, 2015],
which is the latest quadrennial commission, released its
final report in January 2015. The report recommends
major pension changes that would improve the equity of
the treatment of enlisted personnel, but does not address
the issue of the age at which the defined benefit pension
can be received. The proposals in its final report are
similar to Asch, Hosek, and Mattock [2014], in that they
recommend that the TSP be made an automatic part of
the retirement benefits of the military by providing a
small automatic government contribution. The report
formed the basis for the 2015 reform.
In the rest of this section, we focus specifically
on the costs and benefits of raising the retirement ben-
efit eligibility requirements and lowering the vesting
requirements for the U.S. military. We consider both the
costs and benefits for the Defense Department and for
military personnel. In evaluating the costs and benefits
of a change in the benefit eligibility requirements for
military retirement, at least two possible consequences
of reform should be considered: first, the effect on com-
pensation, and second, the effect on the ability of the
military to recruit and retain the personnel it needs.
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JOR-Turner.indd 123
We analyze the effects of an increase in the retirement
benefit eligibility requirements, while maintaining
other aspects of the military retirement system, such as
the 20-year vesting. For example, the benefit eligibility
age could be raised to age 50, or a more complex system
would be to raise it to age 55 for people with less than
20 years of service, and to age 50 for people with 20 or
more years of service.
We also consider an increase in the retirement ben-
efit eligibility requirements along with a reduction in the
vesting requirement to 10 years. Because we do not have
an actuarial model for analyzing the costs and benefits,
we provide primarily a qualitative analysis, but we also
refer to cost studies for similar proposals.
Costs
As noted, only 17% of enlisted personnel ulti-
mately receive a pension. Attrition of military personnel
is fairly noticeable during the first few years of service,
but between 10 and 20 years of service relatively few
people leave the military (Macklin [2014]). If all those
who entered military service could accurately predict the
length of their military service, only 17% of enlisted per-
sonnel would expect to be affected by an increase in the
retirement age. Since relatively few enlisted personnel
ultimately receive a pension, it would appear likely that
most would consider the pension a benefit designed pri-
marily for officers and would not have entered the mili-
tary with the expectation of receiving a pension. Thus,
we argue that raising the retirement benefit eligibility
requirements would have relatively little effect on the
recruitment and retention of enlisted personnel.
The analysis is different for officers. Currently,
49% of officers entering the military ultimately receive
a pension. Raising the retirement benefit eligibility
requirements could have two effects for officers. First,
it could encourage some officers to stay in the military
longer. Second, because the pension would be received
for fewer years, it would be less generous in terms of
lifetime benefits. The pension, however, would still be
generous relative to wages compared with civilian pen-
sions. We argue that the high degree of generosity of the
military pension that would remain under a reformed
system would still provide a substantial incentive for
recruitment and retention. Further, if officers stayed in
the military longer, with more years of service, their
annual pension benefit would be increased.
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 With the current system of 20-year vesting, a
change in the promised start date of a pension presum-
ably has relatively little effect on military personnel
with 10 to 15 years or more until vesting because of
the discounting of distant future events. A tendency
to discount the future significantly may explain why,
because of problems retaining drone pilots, the Air Force
in 2015 started a program providing a $15,000 annual
bonus to drone pilots with at least six years of service
who agree to an additional five-to-nine-year commit-
ment (McGarry [2015]). This program is designed to
encourage the retention of these officers and is presum-
ably necessary because the length of time to vesting
causes a future pension to provide relatively little incen-
tive to stay in the military. A change to 10-year vesting
would increase the incentive for these officers to stay in
the military for at least 10 years.
If the retirement benefit eligibility age require-
ments increased, for some people who serve in the
military but leave before the higher age, work in the
federal government in law enforcement would become
an option. The Transportation Security Administra-
tion, for example, advertises that many of its employees
formerly served in the military. Military personnel in
the federal government receive preferential treatment in
hiring. However, for federal law enforcement jobs, there
is a maximum age at entry of 37 (Department of Justice
[2012]), making it impossible under 20-year vesting
to qualify for a military pension before entering those
jobs. A decrease in the years for vesting in the military
pension and an increase in the maximum entry age for
federal law enforcement would facilitate post-military
employment.
Benefits
The policy benefits to the Defense Department
of raising the military retirement benefit eligibility
requirements are primarily the cost savings that would
be incurred, but also the correction of the incentive for
some people to retire from the military in their early 40s.
Alternatively, if the cost savings were used to finance
the cost of earlier vesting, there would be no net cost
savings to the pension plan, but the policy would still be
desirable because it would correct the incentives associ-
ated with receiving a retirement benefit at an early age.
In addition, the retirement from the military of
persons in their early 40s results in the loss of human
124 MODERNIZING P ENSION ELIGIBILITY FOR THE U.S. M ILITARY
JOR-Turner.indd 124
capital gained from training and experience, resulting in
the need for training for replacement personnel. Though
more difficult to quantify, the cost in lost human cap-
ital to the military may substantially increase the eco-
nomic cost of the early military retirement age, and thus
increase the benefit of raising it.
Though not a cost borne by the military, the early
age at which retirement benefits can be received also
results in a cost for the government and the economy.
While many in the military have second careers, to the
extent that people collecting a military pension stop
working, they do not benefit the economy and the
nation through productive activity, and they are not
paying as much in income taxes and Social Security
contributions as they would if they were working.
In addition to changing the age at which benefits
can be received, a decrease in vesting would increase the
chances that enlisted personnel, most of whom do not
now qualify for a pension, would achieve some degree of
financial security in retirement. If vesting were reduced
to 10 years, more enlisted personnel presumably would
remain in the military that long in order to qualify for
a military pension.
It is not possible to provide budget-quality cost
estimates of the types of changes discussed here without
an actuarial model and full specification of the changes.
Costs would depend not only on the details of a spe-
cific proposal but also on the effects of that proposal
on the recruitment and retention of personnel (Mackin
[2014]). Nonetheless, some studies have costed similar
proposals. One estimate of the steady state cost savings
for a proposal that would include vesting after 10 years
and benefit eligibility at age 60 for those with less than
20 years of service, and age 57 for those with 20 or
more years of service, is a 7% reduction in pension costs
once the system is fully in place. Personnel with 20 or
more years of service would be eligible for a pension
at younger ages, with the benefit amount reduced by
5% for each year the retirement age falls below age 57.
That proposal was calibrated so as to replicate the cur-
rent force structure in terms of personnel retention rates
(Tenth Quadrennial Review of Military Compensation
[2008]).
Simulations of a similar proposal to reduce vesting
to 10 years and raise the benefit eligibility age to 57 for
those with 20 or more years of service, and 60 for those
with less than 20 years of service, suggest that the per-
centages of military personnel staying until 10 years and
WINTER 2016
20/01/16 1:40 pm
 20 years would decline. However, that decline could
be reversed if the reform package also included special
service bonuses of 50% of basic pay that would be paid
after 10, 15, 25, and 30 years of service. This proposal
would slightly increase the average length of service,
reducing the number of people the military would need
to recruit, reducing recruiting and training costs (Tenth
Quadrennial Military Retirement Commission [2008]).
ENACTMENT STRATEGY
Typically, when a pension system reform raises the
age at which benefits can be received, the changes are
phased in over time (Turner [2007]). While a phase-in
has the disadvantage of postponing the cost savings, it
also has the advantage that groups with similar retire-
ment dates are not treated substantially differently, which
would raise questions of fairness in the treatment of dif-
ferent cohorts of workers. If a phase-in approach were
adopted, the earliest age at which a pension could be
received could be raised over time for new recruits from
37 to, say, 50 by one year of age per year of time. Thus, if
this change were enacted in 2016, it would not take effect
fully until 2029. While this was happening, a reduction
in the vesting requirement, for example, to 10 years,
could also be phased in. However, because this is an
improvement in benefits, an alternative would be that the
reduction in vesting would take effect immediately and
would also apply to people already serving in the military.
CONCLUSION
Military pensions in the United States are expen-
sive. At the same time, they are unfair to enlisted per-
sonnel. In part because of their high normal cost, the
military pension plan has the largest unfunded liability of
any employer-provided pension plan in the United States.
Nonetheless, the military pension plan has received rela-
tively little attention in the economics literature.
The problem of the expense of the system results
from the suboptimal pension design, whose high cost
is due to a large extent to the age at which benefits
are first received. With current life expectancies, U.S.
military personnel retiring at age 42 with 20 years of
service can expect to receive a pension for nearly twice
as many years as they served. This statistic presents the
essence of the argument for why the military retirement
age should be raised.
WINTER 2016
JOR-Turner.indd 125
The eligibility requirements for receipt of a mili-
tary pension in the United States have not been adjusted
for nearly 70 years. Over this time period, life expec-
tancy has increased substantially, raising the cost of pro-
viding military pensions. This situation of policy inertia
contrasts with that in a number of countries that have
reformed their military pensions over this period.
The United States now provides military pensions
at younger ages than many other NATO countries—
by more than a decade in the case of some countries.
Thus, the experience from other job environments with
similar requirements suggests that the retirement benefit
eligibility requirements for the U.S. military could be
raised. Higher requirements would affect relatively few
enlisted personnel because few receive a pension. The
effect would be more significant for officers because they
have a much higher probability of receiving a pension.
A further problem with the military pension system
is that it is unfair to enlisted personnel. The 20-year
vesting requirement for the defined benefit pension, and
the resulting effect that officers are nearly three times as
likely as enlisted personnel to receive a pension, would
be considered abusive for any other pension plan, and
would violate vesting and nondiscrimination rules that
apply to private sector pensions. Raising the retirement
benefit eligibility requirements, and using the cost sav-
ings to reduce the number of years required for vesting,
would raise compensation for workers who currently
would not receive a pension but after this change would
vest and ultimately receive one.
This change would provide a more valuable option
for most new recruits than the current arrangement, and
thus could be effective as a recruitment tool. It would
provide more equitable treatment for the enlisted men
and women who serve in the military. While the 2015
reform assures that most people entering the military will
receive at least a small 401(k)-type pension, it still leaves
in place a military pension system that is highly inequi-
table in its treatment of enlisted personnel compared to
officers, and is highly inefficient in its effect of causing
retirement from the military at relatively young ages.
ENDNOTES
We have received valuable input concerning military
retirement systems from Tianhong Chen, Johannes Hagen, and
from the following country experts in the European Network
for Research on Supplementary Pensions: Arnauld d’Yvoire,
THE JOURNAL OF R ETIREMENT 125
20/01/16 1:40 pm
 Noriyasu Watanabe, Heinz-Dietrich Steinmeier, Adam Sam-
borski, Michelle Maher, Paul Roels, Eskil Wadsenjo, and
Maria Clara Murteira. Sandy Mackenzie, Benjamin Jones,
and David McCarthy have provided valuable comments.
1
The reform is contained in the 2016 National Defense
Authorization Act.
2
The normal cost is calculated based on the aggregate
entry age cost method.
3
This does not include the cost to the federal govern-
ment of its contributions to the Thrift Savings Plan for fed-
eral government employees. The compensation base for the
military does not include a housing allowance.
4
The discount rate used is 5.5%.
5
The Congressional Budget Office (2012) provides a
more detailed explanation of the complexities of the calcula-
tion of retirement benefits.
6
Including beneficiaries receiving disability pensions
and reserve retirements would lower the averages.
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