Many AAFMAA members continue to ask about the “new” military retirement system, also known as the Blended Retirement System (BRS) which was approved by Congress in the 2016 National Defense Authorization Act. This was the first major change in military retirement since World War II, and it has a lasting impact on military families.
This article explains a little more about the Blended Retirement System that applies to all service members joining the military after 1 January 2018. Previously, military retirees received a pension after completing 20 years of service. That pension starts at 50 percent of salary at 20 years, increasing to 75 percent after 30 years. This pension benefit was similar to other defined benefit plans from the 1950s that rewarded employees who stayed at a company for a entire career. The problem was that this system did not support those who stayed less than 20 years and the benefits were becoming expensive.
The BRS has three basic parts. First, it added a “defined contribution” component, similar to a 401k in the private sector. It has an automatic contribution amount by the military of 1 percent of a servicemember’s base pay to their personal Thrift Savings Plan account. The servicemember can also contribute an additional percentage of their base pay, which the military will match up to 5 percent. The plan has a two year vesting schedule. This means that after serving two years, soldiers, Marines, sailors, airmen, and Coast Guardsmen can take their savings and matching contributions to their next job. Second, to retain experienced officers and noncommissioned officers, the BRS provides a continuation pay “bonus” at 12 years of service of at least 2.5 months of pay for those who commit to serving an additional four years. Third, the plan reduces the pension paid to retirees after 20 years of service by 20 percent. This reduced pension over the lifetime of the retiree achieves an estimated cost savings to the government to support the first two parts of the plan.
The Blended Retirement System was adopted because it more closely aligns with the corporate environment available to a lot of employees today. The BRS, unlike the old system, vests after just two years and allows for servicemembers and families to have a supportive savings vehicle even if they don’t continue to serve for 20 years. These changes require increased financial responsibility by the service member, which is where advice from AAFMAA Wealth Management & Trust can help. The BRS changes also include financial education and support to help military families understand and wisely invest their retirement savings, continuation bonuses, and pension fund. If properly managed, military families have the potential to accumulate more total funds with significantly greater flexibility and more personal control over the savings.
From a national perspective, the BRS not only helps recruit and retain a better military but also helps the military become more responsible about saving. Although the exact savings will depend on participation rates, the plan should save the government almost $2 billion per year. Although the military has fewer people today than at any time since World War II, total military personnel costs are 25 percent higher than they were in 2000, after accounting for inflation. By reasonably reforming military compensation, the United States continues to have the best military in the world and be in a better position financially.
Changes to military retirement started in 2011 with a radical proposal by the Defense Business Board, which did not work, but helped people think about improving the retirement system. Pentagon leaders and Congress examined the issues and established the Military Compensation and Retirement Modernization Commission (MCRMC), with a distinguished group of commissioners and staff. After significant input and study, the MCRMC presented a balanced, reasonable proposal, and it is now the BRS system in place.
You deserve financial solutions designed exclusively for military families like yours. You spent a lifetime building your legacy, and we can help you preserve it. Contact us today for a complimentary investment review. A second opinion on your financial security never hurts, and with AAFMAA Wealth Management & Trust, you’ll discover a dedicated team that always puts you first.