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Blended Retirement System: Opinion and Facts.

Opinion


Starting 01 January 2018 all new accessions into the service were enrolled in the new Blended Retirement System. Additionally, any service members with less than twelve years of service were given the option to migrate to the new system or stay with the legacy pension plan. The civilian sector made this move years ago as pension plans became more and more unsustainable in the out years. While the full effect of this move will not be seen for years, here are a few opinions.

First, you will no longer have that gotcha moment when a service member hits that ten to twelve year “halfway mark” where they are looking at a lifelong retirement benefit. Normally at that point the services can take some risk in what they offer in the way of incentives and job choices based on the expectation that service personnel are motivated to get to the 20-year milestone. Now service members will vote with their feet and take their retirements with them if their service is not offering work that they view as desirable. Remember the “old” system was 20 or nothing.

Second, the services are really going to have to target bonuses at the right personnel at the right time. Long gone are the days of just shot gun blasting a whole swath of personnel in year groups and specialties time with bonus money after trends are forming (sometimes it is too late and you keep the wrong people). They are going to have to target the right personnel at very specific timelines with bonuses and other incentives to keep healthy paygrade pyramids for all the force structures. Continuation pay at the 12-year mark is part of the plan, but still too early to see if continuation pay timing and amounts will have the desired effect.

Lastly, the services will have to work on making it easier for service members to come back into the service not only the Reserves and Active Component, but also from one branch to the next. I would argue that a good F-35 mechanic in the Navy would also be a good F-35 mechanic in the Air Force. Good luck making that happen quick in today’s current construct if at all.

Retention is a leadership issue and leading is not easy at any level, but when the service members that came in under the new Blended Retirement System start hitting decision points in a few years it is going to get even tougher on our Armed Forces leaders.


I understand that the old system was not perfect, but it worked. I am not sure we will be able to maintain the talent we want and need to keep preserving strong leadership in our ranks. In the end it all comes down to money. Pensions are expensive and the DoD decided it was cost effective to change the system. In the long run, I wonder if this money saving effort will cost us far more than just dollars?


Facts:


The military retirement system looks completely different than the older Veterans remember. Prior to this change, members who have served 20 years or more received a monthly retirement based on their total years of active service. The “old” retirement system paid 50% of base pay at 20 years and then an additional 2.5% for every year after with a few exceptions. Veterans also had the option of making use of the Thrift Savings Plan (TSP) to save for retirement. The TSP is a government run 401(k) retirement account for members to invest their money in the stock market and/or government securities.


The new BRS combines these two options for new members. The BRS continues with the monthly annuity based on years of service and now the Department of Defense (DoD) will automatically contribute 1% to the service members’ TSP.


Additionally, the BRS has two brand new features: continuation pay and a lump sum option.


How does the new BRS work?


The retirement payment will be 2% times the number of years of service. For instance, if you retire with 20 years of service you will receive 40% of your final base pay. If you are eligible, you will get the option of receiving your full retirement or elect to receive a lump-sum which will provide you a reduced monthly retirement check until you are 67 years old.


The average of a service member's highest 36 months of basic pay times 2.5% of their years of service, but the 2.5% is adjusted downward by half of a percentage point, from 2.5 to 2%. To compensate for this reduction, the government will contribute to the member’s TSP.


Once a member has served for 60 days, they will be enrolled in TSP and the government will automatically contribute 1% to their account monthly. Members will automatically be enrolled to contribute 3% of their funds each month, but you can make changes or stop this at any given time.


Additionally, after two years of service, the DoD will match the service member’s contributions up to an additional 4%, meaning that members can receive up to 5% of the government matching contribution plus what they contribute on their own. For instance, if a member contributes 5%, the government will match it resulting in a 10% contribution to their TSP. However, keep in mind that the maximum that the government will contribute is an amount equal to 5% of the member’s basic pay.


Important note: You will always have the option to stop contributing to the TSP, withdraw your money from the account, or seek a loan on your TSP balance.


For continuation pay: When a member serves for 12 years and then commits to 4 more years, you will be eligible for a cash incentive of 2.5 to 13 times your regular monthly basic pay when you are on active duty and 0.5 to 6 times while you are in the reserves.


The lump sum option, as briefly described above, will give you the option to receive a payment of either 25% or 50% of your estimated retired pay in smaller monthly checks when you retire. If you take the 25% option, your monthly check will be 75% of the normal full retirement pay and if you take 50% lump-sum, it will be 50% of the retirement pay.


It is important to keep in mind that your lump-sum payment is discounted by an amount that changes every year and is taxable. As of 2020, the discount rate is 6.75%.


For more information please visit https://militarypay.defense.gov/BlendedRetirement/ and

https://militarypay.defense.gov/Calculators/BRS/