The Defense Department’s new retirement system will affect some 2.2 million people who all need to get smart on what it will mean.
Two subject-matter experts from the department’s personnel and readiness branch described the issues involved to DOD News: Army Sgt. Maj. Luther Thomas Jr., senior enlisted advisor to the Defense Department’s Manpower and Reserve Affairs Division, and Wayne Boswell, DOD’s director of financial readiness.
Thomas described the four-phase overall training program planned for the Blended Retirement System, or BRS, as “a very comprehensive financial education strategy.”
The leader training module is available now on the Joint Knowledge Online portal and the MilitaryOneSource website, and on DVD at deployed, shipboard and other remote locations. Thomas, who has reviewed the module, said he’s impressed with the tools available in the training.
“I’m going to have service members whose situations are all different. … I can go up online to JKO, click ‘launch the class,’ and then look in the glossary and get the specific information I need to be able to talk to my service member one on one,” he said.
Thomas said that while leaders are required to take the first round of training, it’s also available to those who aren’t yet in leadership roles. Boswell noted that the online availability also will help family members learn about the new retirement system.
“We know a lot of these decisions will be made around the dinner table, with families’ input in terms of the impact of lifelong financial decisions,” he said.
The training is designed to inform leaders about BRS “to be able to translate this for their members,” Boswell said.
Modules and milestones
The learning strategy for BRS includes four separate modules:
• Leader training starts June 1;
• Training for installation and command financial counselors rolls out in the fall;
• Opt-in training for current service members begins in January 2017; and
• Service members who join after January 2018 will receive training during their first months of service.
Everyone serving as of December 31, 2017, will be grandfathered under the current retirement system. Service members who have served fewer than 12 years on active duty or accrued fewer than 4,320 retirement points in the reserve component will have the option of remaining covered under their current retirement system or enrolling in BRS. Those with greater than 12 years on active duty or more than 4,320 retirement points in the reserve component will stay under their current system.
Both men emphasized that while training will happen at all levels, the decision on whether to opt in belongs to the individual. Leaders will be informers of — not advocates for — the new system, they said.
Service members who join on or after Jan. 1, 2018, will automatically be enrolled in BRS. Members eligible to opt in to BRS will have until Dec. 31, 2018, to decide if they want to switch to the new plan.
More benefit for more troops
“Under the current system only about 19 percent of service members actually leave with some type of retirement benefit, and 81 percent of service members don’t,” Thomas said. “We believe under this new system, about 85 percent of those who serve, if they serve two years or longer, will be able to leave with some type of portable retirement benefit that they can take with them to a future employer.”
The “blending” in BRS comes from the combination of the Thrift Savings Plan and an annuity provision for those who retire after 20 or more years. BRS will use the annuity formula currently in place: the average of the service member’s highest 36 months of basic pay times 2.5 percent of his or her years of service — but the 2.5 percent is adjusted downward by half of a percentage point, from 2.5 to 2 percent.
The Thrift Savings Plan is currently offered to service members without government contributions, but under BRS, several changes take place. After their first 60 days in the service, all members will be enrolled in TSP and receive an automatic government contribution of 1 percent of basic pay into their account each month. Additionally, the Service member will be automatically enrolled with a 3 percent contribution from their own pay. After two years of service, the government will match the member’s contributions up to an additional 4 percent. In total, members can get up to a 5 percent government contribution on top of what they contribute each month.
BRS also includes a mid-career continuation pay at about 12 years of service, as a further incentive to continue serving toward the traditional 20 years to qualify for monthly military retired pay.
Congress enacted BRS following upon the recommendations of the congressionally-mandated Military Compensation and Retirement Modernization Commission, Boswell said, adding that the commission heard from “a vast swath” of stakeholders and subject-matter experts who “are very interested in the military and are connected to the military” when making this recommendation.
Taking part of my pay?
So while those in BRS may see part of their pay deducted for TSP contribution, Thomas said, “what’s happening is they’re going to have to help contribute to their retirement, just like in the civilian world. … It’s still the service member’s money.”
The new system offers the potential for a greater retirement income than the current system for “disciplined savers,” Thomas noted, adding that with DOD’s 1 percent contribution plus matching contributions, members who contribute from their own pay, even in amounts as small as the cost of a pizza or movie each week, could end their careers with potentially sizable savings for retirement. And those who don’t retire won’t walk away with empty pockets.
“When they go into a new job in the private sector or public sector at (age) 24, 25, 26, they don’t start with zero,” Thomas said. “They start with the retirement savings they accumulated (starting) 60 days after they joined the military.”
Boswell said the new system will add to the benefits of military service.
“I think lifelong success comes from self-investment and self-preparation,” he said. “I think service members who leave after four years leave with a lot: they leave with skills, experience, (and) education. They’ve had their mettle tested to some degree.”
With BRS, those leaving service will have skills, education and financial resources, he said.