Military Pension Reform 2.0

The U.S. military’s current benefit system is unsustainable. Health care and retirement costs are spiraling upward as a percentage of the Pentagon budget, and the trajectory is already crowding out war-fighting capability. The government spent $143 billion on military health and retirement in fiscal year 2013 – significantly more than the $110 billion spent on weapons procurement that year. If this continues, the Defense Department will eventually be a health-care and pension provider that also happens to fight wars.

The Defense Department in March released informal recommendations to overhaul the military’s pension system. Though the proposals didn’t make it into the Obama administration’s 2015 budget, the report begins a conversation on how to fix the flawed way the U.S. offers benefits to members of the armed services.

The system is inequitable as well as expensive. Only members who serve 20 years of active duty are eligible for lifetime retirement pensions and military health care – known as Tricare. The vast majority of enlistees leave the armed forces earlier. That means a U.S. Marine could serve three tours of duty in Iraq or Afghanistan, under combat conditions, and not qualify.

Meanwhile, another member of the military who never experiences direct combat or repeated deployment can qualify for full retirement benefits after 20 years. All military service is honorable, but there’s something amiss when the majority of combat veterans leave the service with no long-term benefits.

The reforms in the Pentagon report would address this inequity by converting pensions into portable retirement plans, similar to 401(k) plans offered in the private sector. Such an approach would be efficient, equitable and would help limit long-term Pentagon personnel costs. These plans could be sheltered from market variance and not applied to those still serving or currently retired.

These reforms would end the all-or-nothing system of retirement pay at the 20-year mark. Instead, all service members would be eligible for a portable 401(k)-style individual retirement account after two years. At six years of service, full ownerships of that account transfers to the service member; after 12 years of service they would be eligible for a generous retention bonus; and at 20 years, they would transition to retirement with a lump-sum payment and long-term pension.

The changes would set the military retirement system on a more sustainable path. Moreover, a revised system would offer more flexibility both to members of the military and to Pentagon leaders who may need to make spending adjustments to respond to changing circumstances.

Many of my colleagues in the veterans’ and defense community may reflexively oppose these reforms, arguing that changing retirement programs will harm recruiting and retention. But if handled properly, these reforms would actually bolster retention at certain career benchmarks, while creating well-earned extra income for men and women who choose to leave the service earlier. If any proposal hurts recruiting, retention or readiness – I wouldn’t support it. But this proposal would improve all three.

Any overhaul of military retirement, however, should be part of larger government reforms to spending programs such as Social Security, Medicare and Medicaid. The proposal to cut cost-of-living adjustments (COLA) to military retiree pensions that Congress passed in 2013 was not. It laid most of the burden on veterans, rather than requiring broader reform to ever-growing entitlement programs.

The COLA cuts were also misguided because they hit current retirees and military members, breaking faith with our veterans. The reforms outlined here would only apply to those who have yet to sign a contract with the government. Those currently serving could “opt in” to the new system if they choose but otherwise would be exempt from the changes. We can control long-term costs without breaking promises to veterans.

America cannot continue to face 21st-century challenges with a defense apparatus rooted in the last century. The Pentagon has opened up a valuable – and long overdue – avenue for discussion. Americans who believe in a strong defense and sound fiscal future should give these military retirement reforms serious consideration.

Mr. Hegseth is CEO of Concerned Veterans for America, and a Fox News Contributor. He is an infantry officer in the Army National Guard and has served tours in Afghanistan, Iraq and Guantanamo Bay.