The hot topic in the world of military finance is the Blended Retirement System (BRS). The Department of Defense (DOD) has been working diligently to help prepare and inform service members of this upcoming change. It was signed into law as part of the 2016 National Defense Authorization Act. Pursuant to the Act, Congress elected to fund financial education and training for service members (SMs) and their families.
There is now more access to financial counseling, even in areas that did not offer services before, such as rural bases, Reserve Centers, and National Guard armories. The BRS is a big change to how service members save for retirement and if done correctly can have big payoffs in the long run. It is crucial for financial professionals and senior officers to offer training to as many SMs as possible.
Financial professionals working with military members need to thoroughly understand some basic components of the BRS in order to explain it to the SMs in simple terms. The DOD has done a great job of providing training materials, but sometimes a simpler explanation is needed. Here is a breakdown of the new system:
- A SM is eligible to opt into the BRS if he or she has served less than 12 years, or for Guard and Reserve, less than 4,320 points.
- The program launched on January 1, 2018 and SMs have the entire calendar year to make a decision. After that, they will remain in the legacy system.
- Under the BRS the U.S. Government will make an automatic 1% (of base pay) contribution to the SM’s Thrift Savings Plan (TSP), whether he or she contributes any money or not. This will start immediately once the SM is enrolled. For new SMs, it will start 60 days after the pay entry base date.
- If a SM opts to contribute a percentage of base pay, then it will be matched up to 5%. This could result in a combined contribution of 10% every month. For new service members, the match will begin after two years of service.
- After a SM serves two years, he or she will be fully vested and will be able to keep all contributions that are made to the TSP as well as the interest earned.
- If a SM chooses to leave the military, he or she has several options regarding their account, the money can be left in the TSP and continue to grow, transferred to another retirement account or cashed out. It is important to note that if the SM elects to cash out then he or she will incur taxes and penalties if full retirement age has not been met.
- Under the BRS, the DoD is also offering a continuation pay bonus. This will be offered between 8 and 12 years of service and is a percentage of the SM base pay. This is in exchange for another 4 years of service.
- The final and most important feature is that, under the BRS, service members will continue to be eligible for a retirement pension if they serve 20 or more qualifying years. The difference though is that it will be calculated at a different rate: 2.0 X Years of Service X High 36- month average base pay. Under the legacy system it is calculated at 2.5% X Years of Service X High-36 month average base pay. This is roughly a 20% difference.
No one will automatically be switched to BRS. They have to choose to switch. This is done through their My Pay site. However, all SMs joining starting January 1 will be automatically enrolled in BRS and will not be given a choice. Also, the decision to switch is irrevocable, and once the SM opts in, cannot switch back to the legacy system.
The BRS can be a great option for a lot of SMs and will hopefully encourage them to save for retirement. It is important for SMs to think this decision through and utilize all the training and tools available to them, including an online comparison calculator, JKO (Joint Knowledge Online) training course, and Financial Counselors. For some, it may not be the right decision to switch to the BRS and it may make more sense to stay in the Legacy System. SMs who choose to remain in the legacy system do not need to do anything to confirm that decision. However, everyone is required to receive some sort of training on the BRS, whether it be through JKO, a financial counselor, or a command led brief.
Financial Counselors have a great opportunity to connect with SMs and open up the dialogue about BRS and the TSP and hopefully encourage more SMs to begin saving for the future. This can in turn open the door to other conversations and ways we can help some of the greatest clients in the world…the men and women of our Armed Forces.
Susan Pascoe is a full time PFC supporting the Army Reserves and National Guard in the Greenville, SC area. She was awarded the Military Spouse Fellowship in 2012 while volunteering with the Navy Marine Corps Relief Society. In addition to her work with the military, she is also a proud military spouse and military daughter. Her husband is currently serving on the AGR program and they have an 11-year-old daughter.