The National Defense Authorization Act for Fiscal Year 2016 created a new military retirement system that blends elements of the legacy retirement system with a more modern, 401(k)-sty le plan.
The new Blended Retirement System goes into effect on Jan. 1, 2018. It combines the legacy 20-year military retirement system in which the U.S. government provides monthly retired pay based on years of service and a percentage of a service members’ pay, with a defined contribution plan, similar to the civilian equivalent of a 401(k)-style retirement system, in which the service member and the U.S. government both contribute to the retirement.
The new Blended Retirement System provides service members an automatic and matching portable contribution retirement plan, while maintaining a traditional pension for those who serve at least 20 years.
The change to a Blended Retirement System is a key step in modernizing our ability to recruit, retain and maintain the talent we require of our future force. The plan provides additional options to attract and manage a military force, which requires ever increasing diverse and technical skill sets in an evolving global economy.
The legacy defined-benefit military retirement system was a significant incentive in retaining a career military force and has served the Department of Defense and service members well for decades. However, 81 percent of service members, who left before reaching 20 years of service, had no government retirement benefit.
The new Blended Retirement System will now ensure nearly 85 percent of military members leave the service with retirement savings, as opposed to just 19 percent today. It is one of the most wide-reaching and significant changes to military pay and benefits of the last 70 years. For the first time, service members will receive automatic and matching DoD contributions to their retirement and have control over their investments.
The Department’s immediate focus is on educating and training over two million active, reserve and National Guard members and their families. The Blended Retirement System Leader Course, released June 1, 2016, is one of four targeted education courses for leaders, financial and retirement counselors, service members and their families who are eligible to opt-in and individuals new to the military. It is available through the military’s Joint Knowledge Online or MilitaryOneSource.mil. Although geared towards leaders, the course is available to all service members and their families. We encourage anyone looking for additional information to take the course.
No service member needs to make a decision until Jan. 1, 2018. However all service members should take advantage of training and informational resources as they become available. It is incumbent that service members who are eligible to opt into the Blended Retirement System during 2018 be equipped with the knowledge necessary to make the best decision for their own individual circumstances.