Last week we briefly covered the eligibility criteria and basic features of the Blended Retirement System (BRS). This week we dig into the basic features in more detail.
Keep in mind the target group for the BPS are active duty service members that have less than 12 years of service and selected reservists that have fewer than 4,320 points, both as of December 31, 2017. This is the group that will have the option to convert to the new retirement program.
As a recap from the last article, we learned that the four basic BRS features are:
- Monthly retired pay calculated at 2.0% x Years of Service x High 36-month Average Basic Pay
- Thrift Savings Account (TSP) with automatic and matching contributions
- Continuation pay as a mid-career incentive to extend enlistment
- Lump sum payment with a discounted monthly pension from the point of retirement up to age 67
Monthly retired pay
In BRS, the calculation is based on 2.0% instead of 2.5% as it is under Legacy. In last week’s article, we saw this made a reduction from $3,250 to $2,600 in the amount our 20-year veteran with a high-3 average of $6,500.
Thrift Savings Account (TSP)
Under BRS, TSP contributions are accumulated in three ways: individual, automatic and matching. The individual monthly contribution can range from a low of 1% to a high of 5%, depending on the percentage chosen by the servicemember.
After a minimum of 60 days of service, the service member’s military branch (called the Agency) automatically contributes monthly 1% regardless if, or how much, the individual contributes.
After 2 years of service, the Agency also starts a monthly matching contribution that varies depending on the individual’s contribution. Below is a table showing the individual, automatic, matching and total blended retirement system contributions at the different percentages.
|Individual||Agency Automatic||Agency Matching||Total
It is the TSP growth over time that offsets the reduction in the monthly retired amount from the point of retirement to age 67, at which time the full pension amount is restored in addition to TSP if drawing on it too.)
Continuation pay is a one-time payment for active duty service members (including AGR and FTS personnel) or selected reservists having between 8 and 12 years of service as an incentive to “continue” serving. The amount and timing of the payout is determined by the military member’s branch of service; for active duty personnel, it can range from 2.5 to 13 times the monthly basic pay; for selected reservists, the amount varies from 0.5 to 6 times. So just how much is this amount?
For example, an E-7 with over 10 years of service for pay purposes would have a monthly basic pay of $3,968, according to the 2018 pay chart. At a low of 2.5, it would be $9,920; at 13 times the amount jumps to $51,584. For the selected reservists, it would range from a low of $1,984 at 0.5 to $23,808 at 6 times.
Under the lump sum option, a servicemember can elect to receive an adjusted cash payment at either 25% or 50% of their future retired pay from the point of retirement to age 67. In the case of Selected Reservists, the point of retirement is age 60, which is where they can start drawing a monthly retirement.
However, the amount is adjusted downward based on the Government Discounted Rate in effect at the time. For 2018, the amount is 6.99%. So, the amount paid is actually based on 23.75% or 46.5%, respectively. At age 67, the monthly pension goes back up to the full amount.
Just how much is the lump sum payment? Using our retiree from last week’s article, who will retire at $2,650 per month, chooses the 25% reduced future retired pay option, and draws for 20 years before reaching age 67, his/her discounted lump sum payment at retirement would be $147,885.60 ($2,650 x .25% x 6.99% discounted rate x 12 months x 20 years). This amount could be taken in one payment or as an annual payment spread out over four years. The lump sum payment could be used to buy a house, start a business or be invested.
Next week, we will do some calculations to see the actual difference between legacy verses BRS when everything is put together under one BRS roof: monthly pension, TSP, continuation and lump sum payments.