Posts

New Blended Retirement Plan Coming Soon

military blended

By Debbie Gregory.

In February, the primary tool to introduce the blended retirement system (BRS) to active and reserve component service members will be a two-hour online course that explains features and compares potential lifetime values with the legacy “High-3” retirement plan. They also will have access to a new online calculator to compare BRS with High-3 using age, years expected to serve, planned contributions to Thrift Savings Plan (TSP) with government matching (a key feature of BRS), historic rates of return on TSP investment options, personal tolerance for investment risk and more.

Now if that first paragraph made your eyes glaze over, financial guru Suze Orman wants to help.

Orman has recently formed an educational partnership with the Army, one that is accessible to all service members on SuzeU.com. Using the coupon code “USA” the program, which typically costs $54, is free for troops using the code.

Orman wants those in the military to protect their money as aggressively as they do the nation.

Servicemembers  with less than 12 years of active duty service and National Guard and Reserve members with less than 4,320 points will have until Dec. 31, 2018 to choose whether to remain in the current system or opt into the new one. The new blended retirement system is a three-pronged program.

Prong 1 consists of a defined pension benefit upon retirement. Prong 2 consists of a Thrift Savings Plan (TSP), which is similar to a 401K plan. And Prong 3 is a one-time continuation payment for Soldiers with eight to 12 years of service.

Orman said the military is moving to BRS for the same reason most companies have trimmed or replaced their defined pension plans with employer contributions to portable 401k plans: It saves them money.

“If you’re smart and you let me teach you, I can show you how you can have more money [with BRS] than if you stayed with the simple legacy system,” Orman said.

Military Connection salutes and proudly serves veterans and service members in the Army, Navy, Air Force, Marines, Coast Guard, Guard and Reserve,  and their families.

 

Blended Retirement System, 101

brs

By Debbie Gregory.

As of January, 2018, the military retirement system as we know it will cease to exist. Instead, service members who joined after 2006 but before January 1, 2018 will have to choose whether to stay with the existing system or opt into the new Blended Retirement System (BRS.)

Those who enter military service on or after January 1, 2018, have no choice; the BRS will be their retirement plan. Another group with no choice is members with 12 or more years of service by Dec. 31, 2017. They will be grandfathered under current High-3 retirement.

More than 740,000 currently serving active-duty members and 176,000 drilling Reserve and National Guard personnel are expected to opt in to the new system.

The new system has three elements: a 401(k)-style component with Defense Department matching funds for entry-level and other service members, a mid-career continuity bonus, and a retirement annuity similar to the one now in place for service members that complete twenty or more years of eligible service.

The new plan combines an immediate but also smaller annuity after 20 or more years of service with a Thrift Savings Plan enhanced by government matching of member contributions of up to 4 percent of basic pay, plus an automatic 1 percent government contribution for all BRS participants, whether they contribute or not to a TSP.

This 401(k)-like nest egg toward retirement is a portable benefit on leaving military service. Veterans can roll the account into an employer 401(k) or continue to make contributions regardless of how many years they served in the military. Because this feature will benefit the great majority of members who leave service short of retirement eligibility at 20 years, the blended plan is expected to be a popular option, particularly with younger servicemembers on their first or second enlistment and officers completing initial service obligation.

Committed careerists, however, are likely to stick with High-3 retirement, which will pay 20 percent more in lifetime annuities if full careers are a realistic goal.

The blended plan has two other features High-3 doesn’t.

By current law, BRS participants are to receive a one-time “continuation payment” at the 12-year mark that, at a minimum, must equal 2½ months of basic pay for active-duty members who agree to serve four more years or one-half month of active pay for reserve component personnel who make the same deal.

The other key feature of the BRS allows those who reach retirement to receive in a lump sum 25 percent or 50 percent of their pre-old-age retirement annuities. In other words, here would be cash to help buy a home, start a business or pay off debts in return for reducing military annuities by one-quarter or one-half until age 67.

Military Connection salutes and proudly serves veterans and service members in the Army, Navy, Air Force, Marines, Coast Guard, Guard and Reserve,  and their families.