As part of its biggest structural changes to military retirement plans since World War II, the Department of Defense recently announced sweeping changes to pensions and savings plans that will start to phase in next year. The military hopes the plan will achieve both its goals of retaining valuable talent and lower the cost of paying retirement benefits to the taxpayer.
Dubbed the Blended Retirement System (BRS), the changes are set to take effect January 01, 2018 but will not affect servicemembers eligible for legacy retirement system that pay out 50 percent of the individual’s pay if he or she served at least 20-years. However, moving forward service men and women can begin saving for their retirement with contributions from the military up to 1 percent of the individual’s Thrift Savings Plans, which can be increased to as much as 5%, similar to enrolling in a traditional 401(k) plan.
As an incentive to keep military members in the service longer, the Department of Defense will also pay out a one-time contribution bonus up to 2.5 percent of the service member’s base pay. However, reports indicate new pension plans will only pay out a maximum of 40-percent of the individual’s last 36-months of pay before retirement. The pension reduction is expected to save an estimated $2 billion per year as military retirees are living longer than when the plans were created after World War II.
As part of the transition to the new pension and retirement systems, the military created three-categories service members will be sorted into to determine who is eligible for the new plans and who must remain in legacy. Those joining the U.S. military on or after January 01, 2018 will automatically enrolled in the BRS while retired service men and women and those who served at least 12-years will remain in the legacy system.
Any current member with less than 12-years of service will have the option to opt into the new BRS system, which is an estimated 1.1 million individuals. Those who fail to designate a preference will automatically be retained in the legacy system.
Whether you already have an estate plan or are just beginning to think about starting, you should always consider who will be the heir to any transferable pensions or retirement benefits offered by the military. As members of the U.S. military, you deserve to enjoy all the benefits a military career offers and need to ensure your family can maintain eligible benefits.