This article is the first in a three-part series on the new Blended Retirement System (BRS) that begins on January 1, 2018. In it we cover eligibility and the basic features of the BRS program.
On the first day of 2018, the year-long opt-in window opens. During that year, a select group of servicemembers will have an opportunity to decide if the new BRS is advantageous for them or not. The purpose of this series is to help educate them so they can make a better-informed decision.
Eligibility for Blended Retirement
There are three levels of eligibility based on enlistment date and time in service. They are:
- Currently serving as of December 31, 2017 with more than 12 years of service – grandfathered into the current high-3 retirement system (Legacy)
- 12 years of service or less (Active Duty)/fewer than 4,320 points (Selected Reserve) – may choose to opt-in to BRS
- New enlistments after January 1, 2018 – automatically enrolled into BRS
New accessions and currently serving with more than 12 years of service don’t have a decision as to which retirement system would be best for them. They will automatically have the BRS or Legacy system, respectively. However, mid-career servicemembers will have a choice and therefore are the focus of this series.
The Basics of Blended Retirement
For those qualifying for the BRS, it consists of four different features. An overview of those features is:
- Monthly retired pay
- Thrift Savings Account (TSP)
- Continuation pay
- Lump Sum
Monthly retired pay
Known as the defined benefit or pension, servicemembers having reached at least 20 years of service can receive a retirement calculated using the following formula: 2.5 % x Years of Service x Average Highest 36 Months of Basic Pay. For example, if a high 3 average for 20 years of service was $6,500, the retirement amount would be: $6,500 x 20 x 0.25=$3,250.
TSP
TSP under the BRS is different than it is under the Legacy system. BRS members take a reduction in their monthly retirement, but have more options in the TSP program, including automatic and matching contributions. Under BRS, a 20-year veteran with a high-3 of $6,500 would receive $2,600 per month in retirement ($6,500 x 20 x 0.20=$2,600).
However, under BRS, the servicemember’s would automatically receive a contribution of 1% of the member’s basic pay each month into his/her TSP account. If the member chooses to contribute to their TSP account, their service branch would match a portion of it according to a sliding scale (up to 5%).
Continuation pay
This is a one-time cash payment for servicemembers (both active duty and Selected Reservists) having at least eight years of service but less than 12 years and are willing to extend their enlistment. This is in addition to other re-enlistment incentives that may be in effect at the time of re-enlistment.
The amount offered will be between 2.5 and 13 times monthly basic pay for active duty personnel and 0.5 to 6 times for Selected Reservists. The actual multiplier is determined by the needs of the military branch at the time, similar to the criteria used to calculate retention bonuses.
The amount received can be taken as cash or invested into the servicemember’s TSP account (up to the per-year amount allowed by the IRS).
Lump sum option
Under this option, an active duty service member may choose a cash payout of either 25% or 50% of their retired pay they would earn from the point of retirement to age 67 in return for a discounted monthly retirement during this time period. Fort Selected Reservists, the time period is age 60 to 67. At full Social Security retirement age, which for most people is now 67, retirement for both active duty and Selected Reservists would revert to the full amount authorized.
While choosing the lump sum payment usually results in less money in their pension, there could be valid reasons for choosing that option, like needing cash to start a new post-retirement business or down payment on a new house.
In Part 2, we will dig deeper into each of the benefits and see how some of the other features can in fact offset a lump sum reduction. In Part 3, we will do some comparison calculations to see the difference between the two retirement options.
