Federal Executive Boards



The Blended Retirement SystemOverviewOn 1/1/2018, the military retirement system restructured into the Blended Retirement System. It is made up of two different retirement income sources: an annuity provision for employees that have had 20 or more years of service plus the Thrift Savings Plan. It differs from the old retirement system in three distinct ways. The annuity portion has a smaller payout. The old formula for an annuity payout is as follows:Average number of service member’s highest 36 months of basic pay X 2.5% of their years of service The new formula is:Average number of service member’s highest 36 months of basic pay X 2% of their years of service So there is a half percent reduction on the years-of-service component.The government employer will contribute to the service member’s Thrift Savings Plan (TSP). The employer will automatically contribute 1% of a member’s base salary after the first 60 days of service. After two years of service, the employer will match the member’s contribution up to 4%. They’ve added a continuation pay component. When a member reaches 12 years of service and commits to 4 more years of service, they are eligible for a cash incentive of 2.5 to 13 times regular monthly basic pay (0.5 to 6 times monthly basic pay if they are in the reserves).Pros/Cons for Service MembersThe biggest pro is for those service members that leave the military before they’re eligible to retire. The government says that 83% of people who join the military don't stay long enough to retire, so when they leave after 5 or 10 years of military service they basically get nothing towards their future retirement. The TSP portion of their retirement is portable. Previously, a service member was out of luck if they left the service before 20 years of employment. Now they can take any contributions and earnings made in their TSP after they leave the service. For any service member who does not plan on making the military a career, or who wants to reserve the option to get out, the blended retirement system is the way to go.The downside of the BRS is that it is essentially a pension-cutback. Anyone entering into the BRS will not receive as large of a pension benefit as they would have in the old system, unless the TSP portion of the plan fills in the gap. This means more of the investment risk is passed on to service members, and service members must take advantage by contributing.Breaking down each component:Defined Benefit:Retired pay will be 2% times number of years of service. If a member retires at 20 years of service, they get 40% of their high 3 salary. If they retire at 30 years of service, they get 60% of their high 3 salary.They also have a lump sum option at full retirement. They can take a lump-sum payment of either 25% or 50% of their gross estimated retirement pay.The 25% lump-sum payment reduces their monthly retirement pay to 75% of the normal full retirement pay. The 50% lump-sum reduces their monthly pay 50% of the normal retirement pay. At 67, the pay increases to the normal amount.Defined Contribution:After 60 days, the military will automatically contribute 1% of a member’s base pay to the TSP and enroll the member to contribute 3% of their base pay.After two years of service, the military will match up to 5% of a member’s contribution. The first 3% is?matched?dollar-for-dollar by your agency or service; the next 2% is matched?at 50 cents on the dollar.Continuation Pay:This differs by military branch and occupation, but generally comes up after serving 12 years. It is an incentive for members to continue serving up to the traditional 20 years. Continuation pay is a direct cash payout, like a bonus, available to service members enrolled in the BRS. It is targeted at the mid-career mark, payable between completion of eight years of service, but before completion of 12 years of service (calculated from a service member’s Pay Entry Base Date). Most service members will be eligible for continuation pay, but the timing and the amount is determined by your service.Eligibility. This one-time payout is available to active duty, National Guard and Reserve service members enrolled in the BRS who are able to enter into an agreement to perform additional obligated service. Amount. Active duty service members (including Active Guard Reserve (AGR)/Full Time Support (FTS)) personnel may be eligible for a continuation pay multiplier of 2.5 to 13 times monthly basic pay. Members of the National Guard or Reserve in a drilling status may be eligible to receive a multiplier of 0.5 to six times their monthly basic pay (as if serving on active-duty). Pay rates. Pay-rate multipliers may be based on service-specific retention needs, specialty skills and hard-to-fill positions, similar to career field incentives and re-enlistment bonuses. Each service determines its own guidance on continuation pay. Investing. Continuation pay, along with other specialty pays, bonuses and incentives, can be invested into the Thrift Savings Plan account, up to the annual maximum limit allowed by the IRS. Starting Continuation Pay Base RatesServiceMultiplierTimingAdd’l ObligationArmy2.5x AC 0.5x RC At 12 YOS4 YearsMarine Corps2.5x AC 0.5x RCAt 12 YOS 44 YearsNavy2.5x AC 0.5x RCAt 12 YOS 44 YearsAir Force2.5x AC 0.5x RCAt 12 YOS 44 YearsCoast Guard2.5x AC 0.5x RCAt 12 YOS 44 YearsNOAA2.5x ACAt 12 YOS 44 YearsUSPHS2.5x ACAt 10 YOS4 YearsWho’s eligible for BRSEveryone who enrolls in the military after Jan 1, 2018 will automatically be enrolled. Any active-duty service member with fewer than 12 years of service as of Dec. 31, 2017 is grandfathered into the old system but may opt into BRS. The deadline to opt in to BRS is 12/31/2018.Additional Notes:Opting into the BRS does not affect military buyback options. If you transition to a Federal career, you will enroll into a new TSP and your military TSP will remain separate unless you chose to roll it over. In this case, only non-tax exempt funds may be rolled over.Members of the IRR and Standby Reserves are eligible to participate in the BRS. However, they must be receiving pay to enroll in BRS. Therefore, members of the IRR and Standby Reserve who are eligible to enroll in the new system (because they were in the IRR or Standby Reserve as of December 31, 2017), but who do not drill in a paid status or are not on orders during calendar year 2018, will be allowed a one-time extension of the enrollment window beyond 2018 if and when they enter a paid status.Helpful Links and SourcesMilitary Compensation Website: Calculator: Savings Plan: ................
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