Frequently Asked Questions Regarding the Blended Retirement System
Q: How is the military retirement system going to change?
A: The National Defense Authorization Act outlines all the changes to the retirement system, which go into effect in January of 2018. Service members who joined after 2006 but before Jan. 1, 2018 will have the choice of whether to stay with the existing system or opt into the blended retirement system. Those who joined before 2006 will remain in the current system. To learn more about the Blended Retirement System, take the training at Joint Knowledge Online.
Q: Why is this a good thing for service members?
A: Currently, approximately 81 percent of those members who join the military leave with no retirement benefit. Under the blended retirement system, about 85 percent of service members will receive a retirement benefit, even if they don't qualify for full retirement.
Q: How does the Thrift Savings Plan figure into the system?
A: Blended retirement will enroll all service members joining after January 2018 into the Thrift Savings Plan, with automatic and matching Department of Defense contributions. After completion of two years of service, the service member is vested and that money belongs to them. If they leave, it goes with them.
Q: I'm in the blended retirement system, how long will the Department of Defense match my contributions?
A: The Department of Defense will contribute 1 percent of a service member's basic pay to their Thrift Savings Plan after 60 days of entering service and will begin to match the service member's contributions, (up to an additional 4 percent when a service member contributes at least 5 percent), at the start of the third year of service. Both the Department of Defense automatic 1 percent and the matching contributions continue through the end of the service member's 26th year of service.
Q: What is the second part of the system, continuation pay?
A: After 12 years of service, service members will receive a cash payment if they opt to stay in for four more years. The payment will be two-and-a-half months of basic pay for the Active Component member and half a month's basic pay for the Reserve Component member.
Q: What about the third part, the annuity?
A: The third part of the blended retirement system is a monthly annuity, similar to the 20-year retirement system now in place. Members who retire will still get their monthly annuity pay, but at a reduced amount. The annuity's formula is 2 percent times years served times the "high three" or the average of the highest 36 months of basic pay received. The blended retirement system annuity is close to the current retirement formula, which uses 2.5 percent as the multiplier.
Q: If I'm in the blended system and retire after 20 years, will I still get an annuity?
A: Yes, for those who retire after at least 20 years of service, the retirement remains predominantly a defined benefit in which you will get monthly retired pay. Instead of being calculated at 2.5 percent times the average of your highest 36 months of basic pay, (or your last month of basic pay, if you are under the older, final-pay system), your monthly retired pay will be calculated with a 2 percent multiplier.
Q: What education will you be providing and when can service members opt in?
A: The first opportunity service members will have to opt-into the system is on Jan. 1, 2018. In anticipation of the system, the Department of Defense has begun work on three courses: a leader overview of the blended retirement system (fielded by June 2016); a course focused on those service members with less than 12 years of service as of Dec. 31, 2017 who will be eligible to opt-in (fielded by Jan. 1, 2017); and a course for our accessions who enter the force on Jan. 1, 2018 and beyond, who are now under the blended system (fielded by Jan. 1, 2018). The courses targeted at those eligible to opt-in as well as the recruits will include calculators so that service members can make comparisons, as well as understand the impact and need to make contributions to the TSP under the system. The courses will also take into account unique aspects for both the Active and Reserve Components.
Q: What should service members deciding whether to change into the system be most aware of?
A: Early retirement savings and the power of compounding interest are important life-long concepts that you will want to pay attention to and learn more about. Do your homework and stay tuned to the conversation ? you should be as informed as possible and have all of your retirement questions answered before you make your decision.
Q: Do you think that a lot of service members will leave the military with the system, since they'll have money in their pocket and no incentive to stay?
A: Our analysis shows that current force profiles will not change when we reduce the retirement multiplier from 2.5 percent to 2 percent and offer government matching into the TSP. We will however, need a continuation pay. This pay is similar to a retention bonus and targeted at the mid-career to ensure the necessary retention that maintains those force profiles. After two years of service, service members can keep the Department of Defense contributions to their TSP account. Service members will have the option to leave those contributions in the TSP or to roll them into another company or government 401(k) retirement plan. The current TSP rules apply for early withdrawal before age 59.5 in which the service member would pay a penalty and incur the associated tax liability for taking the funds out early.
Q: How does this benefit the Defense Department?
A: Many more of our service members will be started earlier than before in their long-term retirement savings. From a readiness point of view, the department will have a 401(k)-like component to our retirement system when people join our ranks in critical cyber and medical specialties.
Q: What reaction have you received from current service members on the plan?
A: Many service members want to hear more details about how the retirement system will work and how it impacts them and their families. That's why increased financial education and training will be essential to help service members make wise financial decisions. We expect the courses, which will include calculators for comparison, to be extremely helpful in guiding service members’ choices.