By: Karen Parrish, DoD News, Defense Media Activity
Upon taking office almost a year ago, Defense Secretary Ash Carter promised reforms, saying “that a blended retirement system is a key step in modernizing the department’s ability to recruit, retain and maintain the talent we require of our future force.”
An overhaul of the current military retirement system is slated to take effect January 1, 2018. 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.
DoD News spoke with Army Sgt. Maj. Mike Schultz while he was the senior enlisted advisor to the Assistant Secretary of Defense for Manpower and Reserve Affairs about the details of the new modernized retirement system.
One key point, Schultz said, is that many of those now serving will have the choice to opt into the new blended retirement plan.
Training the Force on Retirement Options
The first critical step in the change, he said, is educating senior leaders about the program’s provisions. Those leaders will then ensure training takes place at the “camps, posts and stations” where service members work.
Training tools now in the works will include online classes and benefits calculators for troops and their families, as well as classroom and distance learning, Schultz added.
He said the “deliberate approach to educate the force” will be a key effort from now until rollout.
Grandfathering and Opting In
The sergeant major said the question he hears most often about blended retirement is: “What will it mean to me?”
First, he said, all troops now serving are grandfathered and will be allowed to remain in the current system.
Those who have served in uniform for fewer than 12 years as of December 31, 2017, will have a choice to stay in the current system or to opt into the new retirement plan, Schultz said, and those who enter service after the blended retirement rolls out will automatically be covered by the new modernized retirement system.
Incentives, ‘Portability’ Built In
The phase-in will, Schultz noted, both keep faith with those who could retire under the current system, and offer new options for what he termed a “portable” retirement benefit plan to those who will serve in the future.
The aspects that make the plan “blended” are automatic and matching government contributions in the Thrift Savings Plan, similar to a 401(k) and transferable on leaving service, for service members in the new retirement plan, and retaining lifetime monthly retired pay for those who serve at least 20 years.
The government will automatically contribute 1 percent of a member’s basic pay into the member’s TSP account even if the member contributes nothing. After 24 months of service, the government will match member contributions, dollar-for-dollar, up to the first 3 percent the member contributes and fifty cents per dollar for the next 2 percent the member contributes.
Thus, if a member contributes 5 percent into the member’s TSP account, the government will contribute an additional 5 percent (1 percent automatic plus 4 percent matching), Schultz said. Members who serve at least 24 months and then separate will be able to keep the government contributions and transfer them to a new employer’s retirement plan. For service members that stay in the military for a full career of 20 years or more, the new plan continues to offer monthly retired pay similar to today’s system, although it will be computed based on a length-of-service factor of 2 percent per year, instead of the 2.5 percent per year used in the current system.
“A midcareer bonus is in addition to the TSP account and the 20-year annuity modeled on the current plan,” Schultz said. The DoD will pay a bonus of at least two and a half months’ basic pay (one-half month for reserve and National Guard members not serving in a full-time capacity) to those service members who have served 12 years and who agree to remain in uniform for four more years.
Stay tuned during the coming months as additional information and opportunities to learn more about the new blended retirement system become available.