Overview
On January 1, 2018, the Blended Retirement System (BRS) went into effect, becoming one of the most significant changes to the Uniformed Services compensation system since World War II. For many service members, the BRS was he first opportunity to planning and investing for retirement regardless of their length of service. The previous retirement offerings provided significant opportunity for those who completed at least 20 years of service but offered close to nothing for those who did not. The new BRS blends elements of the legacy retirement pension with benefits like a 401(k)-pension offered at many corporations.
The Highlights
Provides a monthly payment for the remainder of life upon retirement with at least 20 years of service at 2%, per year of service
Allows for up to 5 percent matching contributions of basic pay to the Thrift Savings Plan (TSP); with 1% automatically matched
An option to take a midcareer bonus, or continuation pay, in exchange for an agreement to perform additional obligated service
Blended Retirement System Eligibility
The BRS became available to eligible service members starting January 1, 2018. A service member who entered Uniformed Service on or before December 31, 2017, was grandfathered into the legacy high-3 retirement system. Active-duty members with fewer than 12 years of service as of December 31, 2017, or National Guard or Reservists with less than 4,320 retirements points were grandfathered under the legacy system but had the ability to opt into the BRS. For those within this category, the ability to opt into the BRS closed December 31, 2018. Anyone who entered Uniformed Services in 2018 or beyond were automatically enrolled into the BRS system.
Blended Retirement System Defined Contribution
The BRS incorporates the TSP, a defined contribution retirement savings and retirement plan. The TSP offers many benefits and investment opportunities commonly offered by corporations to their employees in the form of a 401(k). For those under the BRS, the service will contribute 1% of the member’s basic pay into the TSP account each month. This is called a Service Automatic Contribution and does not come out of the member’s pay. Additionally, if the member elects to contribute a portion of pay to the TSP, the service will match up to an additional 4% of total monthly basic pay. Combined, service members can receive a maximum of 5% total monthly basic pay with no impact to basic pay or any allowances permitted to the member. Members will be automatically enrolled into the TSP’s Lifecycle Fund, appropriate for the member’s retirement age, at 3% of monthly basic pay. Members can opt out of that option, however, will be automatically re-enrolled each calendar year if they choose to opt out. Being vested means to have ownership and be entitled to all the funds in it. Members are always vested to personal contributions and earnings as well as Service matching contributions (up to 4%) but must complete two full years of service to be vested in the additional Service Automatic contributions (1%). Once fully vested, the TSP account is portable, meaning it can move to another qualifying government or private-sector retirement account. It is important to note, prior to moving the TSP upon separation or retirement, to compare the fee structures between the TSP and other options. The TSP tends to have some of the lowest fees when compared to similar 401(k) type options.
Blended Retirement System Defined Benefit
The defined benefit, or pension, provides payments determined by a formula based on the member’s base pay and duration of service. For those under the BRS the defined benefit is calculated as 2% x years served x retired base pay (highest 36 months of base pay). To qualify for this benefit, a service member must stay in the Uniformed Services for 20 or more years. Members of the National Guard or Reserve are eligible for the defined benefit upon reaching 20 qualifying years of service. Therefore, members retiring after 20 years of service would receive 40% of the highest 3-years of base pay as a defined benefit. Additionally, the defined benefit has an annual Cost-of-Living Adjustment (COLA), meaning the monthly retired pay will fluctuate to keep up with inflation. The COLA for the BRS is calculated each year on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
Blended Retirement System Continuation Pay
Service members under the BRS may be eligible to take advantage of Continuation Pay, a one-time, mid-career bonus payment in exchange for additional obligated service. This bonus does not impact any additional career field incentives or retention bonuses. Continuation Pay is a cash payout payable between 8 years and 12 years of service. To be eligible for Continuation pay, Active Duty, National Guard, and Reserve members must be able to enter into an agreement to perform additional obligated service. Pay rate multipliers may be based on service-specific retention needs, specialty skills, and difficult to fill positions. Each service determines and publishes its own guidance on Continuation Pay. Active-Duty service members may be eligible for a Continuation Pay multiplier of 2.5 to 13 times monthly basic pay, where National Guard and Reserve members in drilling status may be eligible for a 0.5 to 6 times monthly basic pay multiples. Like other specialty pays, bonuses, and incentives, Continuation Pay can be invested into your TSP. Throttling the amount towards the TSP can be accomplished through MyPay. Continuation Pay is considered a “Special Pay”, so the amount allocated for special pay towards the TSP is what will be directly deposited to the applicable account.
Blended Retirement System Lump Sum Option
Another feature of the BRS is the lump sum option. This feature gives service members a choice at retirement to elect to either a 25% or 50% discounted portion of their monthly retired pay as a lump sum in exchange for reduced monthly retirement pay. Members may elect to receive one lump sum or break it out into annual disbursements for up to four years. In return, the monthly defined benefit would be subtracted by 25% or 50%, as selected by the member. Monthly retirement pay would then return to the full amount when the service member reaches their full Social Security retirement age, which is currently 67 for most people. Members must notify human resources offices no less than 90 days prior to retirement.
Conclusion
The BRS is now the retirement system for millions of federal workers and most United States military service members. There are several features and nuances with utilizing the BRS. It is important for members to know and understand how the BRS can impact retirement and being financially independent after military service. With the Defined Contribution, Defined Benefit, and Continuation Pay, there are many aspects of the BRS that are beneficial and can set service members and their families up for a very comfortable retirement.
