An Analysis of the Military Retirement System

The cost of the current Department of Defense (DoD) defined-benefit retirement plan has long been a source of consternation within Congress and the DoD (Freedberg, 1999:35). Billed as being too costly in the private sector, many firms have elected to switch from defined benefit plans to defined contribution plans, most often a 401K retirement plan (Chassen, 1990:18). This thesis attempts to capture the effect of the current military retirement plan on rates of retention. The goal of this study is to be used as a tool should the Department of Defense decide to move from a defined-benefit plan to a defined-contribution plan. Previous studies (e.g., Asch et al., 1998) have explored different methods in comparing various retirement systems, largely based on organizations meeting their retention and performance goals. The model introduced in this study will test the extent to which the rate of return associated with the current military retirement system influences the organization's retention goals while simultaneously helping the individual meet his or her long-term financial security goals.