Will The Military's New Blended Retirement System Trigger a Human Capital Crisis?
Disclaimer: These views are my own and do not represent the views of the Armed Forces of the United States.
Starting on January first, the military will undergo a drastic change in its retirement system by switching to the “Blended Retirement System” (BRS). Prior to the BRS, members of the military enjoyed a pension plan after 20 years of service. About 81% of the people who join the military leave the service before reaching retirement eligibility. Those people receive no retirement benefit under the current system. Under the BRS, members that do not serve 20 years will receive an optional matching contribution that they can roll into an IRA when they leave service. For those reaching 20 or more years, there is an annuity, but is is less generous than the current plan.
The BRS is predicted to save the government billions of dollars. But will it trigger a human capital crisis in the military? Will the most talented and best trained people leave for opportunities elsewhere? Will BRS create a middle management gap as those people depart? WIll BRS help recruit exceptional members who will join for only a single term?
Without doubt, for members that intend to only stay for a single term, the BRS is an improvement on the current system. Something, after all, is better than nothing. And BRS may also be a better fit for how Millennials and Generation Z view their careers. Rather than working for one or two employers, people are increasingly mobile, viewing each stint with an employer as an opportunity to gain a specific experience. BRS may offer an opportunity to integrate military service with other long term career goals and retirement planning.
But what about those with 4-12 years of service? In the 2017 Millennial Survey by Deloitte, only 31% percent of respondents indicated a desire to stay in their job over 5 years. People with over four years of service have received a significant investment of military training and are considered experienced in their specialties. Yet they are young enough to make a career change easily and are attractive to outside employers. BRS offers them a way to leave service without losing their retirement earnings. To entice people to stay, BRS offers a one-time “Continuation Pay” (CP) bonus equal to 2.5 months pay at 12 years of service.
A Rand study on incentives and the BRS states that if “members are forward-looking, CP provides an inducement for those with fewer than 12 years to stay until year 12.” This is a flawed assumption, evident by their own admission that job-specific bonuses will still be needed to keep people in critical jobs. Cash incentives work when they are immediate. High performing members will not be motivated by a small cash payment eight years after their first enlistment. The study also ignores potential competing opportunities in the private sector which may offer other benefits in addition to higher salaries. Finally, the study acknowledges that Continuation Pay, though effective for retaining enlisted members, is almost completely ineffective in retaining officers.
Services may be able to shore up losses to specific specialty fields through other incentive programs, but BRS may very well result in massive attrition to the middle of the workforce. These mid-career enlisted and officer ranks are critical to effective leadership and training of the force. If the 12 year mark incentive fails to do its job and the most well-trained and talented personnel depart, BRS could create tangible negative impacts to readiness.
If BRS makes it easier for people to leave the military, perhaps we should look at adjusting how people can enter service. Currently, people start their careers at the junior ranks and work their way up. The only way to replace people that leave mid-career is to accelerate promotions for those below them. When people are promoted too quickly they don’t always receive the developmental experiences needed to perform well. Very few programs allow for people to enter the middle ranks from outside the service.
Many military specialties have no civilian equivalent, but some fields such as information technology and cybersecurity could benefit from an injection of outside experience. Perhaps the answer is to create opportunities for people with valuable skillsets to enter at a relatively mid-level pay grade to make up for those that leave. Another answer could be to simply make it easier for those that leave to re-enter at the rank they left. As careers become more fluid, the ability for trained personnel to enter and leave military service may become more important. The reserve components may find an expanded role in managing member affiliation between active service and civilian employment.
For many of my peers, BRS is universally seen as a raw deal. I should note that my peers are Generation X career military members that came in under the old system. BRS will not affect us. BRS is for the generations of people following us. For them, this program may offer the flexibility they need the craft their own careers. It may create an inducement to join the military if only for 4-8 years. The military is in competition with the private sector to recruit and retain America’s best and brightest. We may have to change many of our traditional systems to do that, including recruitment and separation.
What do you think about BRS and the impacts upon the workforce?
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