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Veterans benefits changes could mean 10% cut to pensions, but new defined-contribution options.

Veterans benefits are facing a multitude of changes, including reducing pensions and offering more commercial health insurance options rather than TRICARE benefits.The idea of active-duty military families barely scraping by, either here or abroad, is hard to fathom: just how could our legislatures, super-select commissions and agency heads, allow this to happen?

To some, it may be equally unfathomable why veteran benefits should be tinkered with at all. But the rif today over possible veterans benefits changes comes from the fed’s ongoing strategy to meet new military budgeting requirements.

Veterans Administration Pensions

For example, cuts to the traditional pension payouts is seen as a way to help fund a yet-to-be-approved 401(k) for those retirees leaving military service “without receiving any retirement pay.”

No surprise, but the ongoing proposals to make these changes to the existing military benefit’s system has brought together a swirl of concern from vet advocacy groups; the latter has their own take on how any proposed change will do harm, or actually help retired/retiring vets.

Unfortunately, there is no hope of returning to the traditional way vets have received their health and pension benefits. Indeed, the tsunami of modifications stem from the congressionally Military Compensation  and Retirement Modernization Commission.

Beefing up the Thrift Savings Plan

One proposal has to do with the military’s Thrift Savings Plan (TSP). Amendments would require automatic enrollment for military personnel, allowing full vesting after two years of service. The backbone TSP’s fund offerings would include default investments deemed “age-appropriate” by choosing among a number of target-date funds.

Underlying these broad range of proposals will be a renewed commitment to promote better “financial literacy,” not only when it comes to retirement options, such as lump-sum payments, but also in understanding the workings of their health plan.

Possible ‘age-appropriate’ target date funds.

Overall, the ‘winners’ in this new development could well be those vets who have put in their 20 years of service, thereby making them eligible for their military benefits, but who need to rely on a their defined-contribution plan instead of the traditional military pension.

Consequently, their retirement would consist of a 401(k), including a proposed 5% match, to help fund their retirement during civilian life; this, with a ‘rollover option’ into a sponsored plan within the private sector—a financial fiduciary akin to a Vanguard-or-Fidelity-type institution.

But the possible outcome from changing the existing defined-benefit pension plan could be numbing. Under current law, officers and the enlisted who exit the military after 20-years of service, are set to receive one-half of what’s considered their “final basic pay.” Furthermore, they can count on that payment for their lifetime.

Reducing the traditional pension by 10%

But the commission is drilling-down on ways to balance the proverbial ‘budget’ by proposing to reduce it from 50 to 40 percent; this, to help fund those “eight in 10 service men” who leave the military without any retirement benefits.

A major disincentive might well be fewer ‘re-ups,’ or extended military service beyond the current 20-year requirement to receive benefits

Veterans Benefits Health care

Why would anyone want to try to change the mother-of-all health care packages provided to military personnel: TRICARE benefits, given the wide range of family coverage; the medical outlets and medical services for the retiree and their survivors?

A move is under foot by the ‘reserve associations’ to actually deep-six Tricare. This may seem beyond extreme, but by offering a slew commercial insurance options, the association feels their members would be better served (One member on a blue-ribbon panel said a common phrase that characterizes Tricare is “try-to-find care.”)

But the commission will not let Tricare go silently into the night without a heap-more discussion on the impact of severing this plan. Ultimately, though the goal might be to mirror the present-day Federal Employee Health Benefits plan.

With veteran benefits facing a multitude of changes, it might well make a lot of sense to sit down with an experienced Elder counselor to help explain the changes as they happen. Contact us for more guidance in this area, and to start the discussion about your estate planning goals.

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