The recommendations are part of the second volume put out by the 10th Quadrennial Review of Military Compensation.
The first volume -- released in March -- looked at cash compensation. Retired Air Force Brig. Gen. Jan D. "Denny" Eakle was director of the panel, and she briefed the press during a Pentagon news conference today.
Eakle said critics of the current military retirement system say it is not equitable, it is not flexible, and it is not efficient.
"There is a perception that the system we have today is inequitable because only 15 percent of all enlisted personnel and less than half of officers will ever receive anything in the system," she said. Reserve-component personnel also believe the current system discriminates against them, especially at a time when reserve forces are being called on more, she said.
The retirement proposal would offer a defined benefit, defined contributions, "gate" pays and separation pays.
The defined benefit would be 2.5 percent of the average basic pay for the highest 36 months of the individual's career multiplied by the number of years of service, with servicemembers vested at 10 years of service. Payments to retirees would begin at age 60 for those with less than 20 years of service and at age 57 for those with 20 years of service or more.
Servicemembers could opt for an immediate annuity, but the payout would follow the Federal Employee Retirement System methodology -- a 5 percent penalty per year for early withdrawal.
The defined contribution portion would be an automatic government-funded Thrift Savings Plan. Servicemembers would not have to match any government payment. The government would not put any money in for the first year, but would put in 2 percent of base pay for two years of service, 3 percent for three and four years of service, and 5 percent for five and more years of service. Again, this would be vested after 10 years of service.
The military also would make "gate pays" to servicemembers who reach specific years of service. These would vary by years of service and skills, Eakle said.
"This is a payment made for achieving a particular year of service," she explained. "And within the services, they would have the flexibility to vary this by year of service as well as by skill. That way, they could begin to shape the skills by dragging people further into their career by offering them an incentive."
Finally, the system would include separation pays to servicemembers that would also vary by years of service and skills.
"The separation payments would be made available by the service to members that they wished to entice to leave," Eakle said. This would be a permanent tool services would have available, she added.
The panel used a Rand Corporation computer model to test the recommendations, but Eakle said the panel members would like a large-scale test in the Defense Department.
"Therefore, the recommendation of this QRMC is that the Department of Defense conduct a multi-year test of this system," Eakle said. "The way the test would work is this: All four services would be asked to identify some skills that have different types of retention patterns -- some that stay not very long, some that stay longer periods of time -- and ones they wish to influence."
The test would offer people in those skills in the first eight years of service an opportunity to volunteer.
"If someone was selected for the test, they would be paid all of the TSP that they should have earned up until that point, and it will be put in their TSP account for them," she said. "The program's vesting rules would in fact apply to all those individuals. So should they achieve 10 years of service while they are in the test, they would fully own it."
At the end of the test period, people who are in the new system who wish to revert to the original retirement system would be allowed to do so, she said.
Any change in the retirement system would require action by Congress. DoD officials said they will carefully examine the panel's recommendations and then decide if they should move forward. The study will take at least six to 12 months, so any decision would be made by the next administration, DoD officials added.