By Corey CarlisleThe U.S. Department of Defense has transitioned to a new “blended retirement system” that will cover all service members entering the military on or after Jan. 1, 2018. The BRS plan includes an automatic contribution and matching contribution from the government, similar to a traditional 401(k), as well as a continuation pay provision for military members who commit to a minimum of three years of service.
All service members that entered the military before Jan. 1 were grandfathered into the previous retirement plan, but those with less than 12 years of service have a choice: they can elect to stay in the current system or switch to the BRS for 2018.
Active service members approaching 12 years of service who opt into the BRS will be eligible for a continuation pay bonus, but those planning on retiring after 20 years may benefit more from the current system. Currently, service members who retire after 20 years each month receive 50 percent of the average of their highest three years of base pay, plus 2.5 percent more for each year of active duty after 20 years. Under the new blended plan, the payout is reduced to 40 percent and 2 percent more for each year of active duty after 20 years.
While one of the key elements of the new retirement system is that it will provide some benefits to military members who retire before reaching 20 years of service, those enrolled in the legacy plan need to weigh their personal circumstances before electing to switch. The difference in benefits could amount to hundreds of thousands of dollars. Mandatory training at the military’s Joint Knowledge Online website directs service members to a retirement calculator that can help them decide whether to switch plans.
More awareness and understanding about the new plan is needed. Military Times reported that only 43 percent of the 1.6 million eligible service members going into the final months of 2017 have taken the required training from DoD.
“BRS is not an easy benefit to understand,” says retired Air Force Maj. Gen. Steven J. Lepper, president and CEO of the Association of Military Banks of America. “At a minimum, the training syllabus DoD has deployed is absolutely necessary for those military personnel who will have to choose between BRS and what they currently have. The fact that less than half of all eligible service members have taken the training is cause for concern. For new accessions who enter active duty on or after Jan. 1, it will be the only retirement benefit they will earn. They, too, need to understand it; much of its effectiveness is based on disciplined savings that will draw government matching contributions.”
To help spread awareness about the new retirement system and assist military customers and their families in understanding their options, banks such as San Antonio-based USAA are offering assistance to their military customers. USAA offers a Military Retirement Comparison Tool on its website that helps customers compare military retirement plan options.
The ABA Foundation is proud to support the financial readiness and success of our service member customers and their families. To that end, the foundation has teamed up with the American Military Bankers Association to help spread awareness and encourage active military customers and their spouses to make informed choices about their retirement. The campaign includes customizable communication and marketing collateral bankers can use to talk to their customers. To find out more, visit aba.com/military.