The National Defense Authorization Act for Fiscal Year 2016 created a modernized retirement system for the military, which will go into effect January 1, 2018.
Everyone serving today is grandfathered and can stay under the current system. Those with fewer than 12 years of service as of December 31, 2017 will have an opportunity to opt-in to the new system during calendar year 2018.
The new system will pay a lesser amount of monthly retirement pay after 20 years than the current system, but supplements it with government contributions to your Thrift Savings Plan account and a mid-career continuation bonus.
Here are some Frequently Asked Questions pertaining to the new system:
Q. How is the military retirement system going to change?
A. The military retirement system will change as outlined in the current National Defense Authorization Act. Changes will not go into effect until January 2018. Service members who joined after 2006 but before January 1, 2018 will have the choice of whether to stay with the existing system or opt into the new “Blended Retirement System.” Those who joined before 2006 will remain in the current system.
Q. Why is this good thing for Service members?
A. Blended Retirement will benefit the entire force. Currently, approximately 81 percent of those members who join the military leave with no retirement benefit. Under the Blended Retirement System, about 85 percent of Service members will receive a retirement benefit, even if they don’t qualify for full retirement.
Q. How does the Thrift Savings Plan figure into the new system?
A. Blended Retirement will enroll all Service members joining after January 2018 into the Thrift Savings Plan (TSP), with automatic and matching Department of Defense (DoD) contributions. After completion of two years of service, the Service member is vested and that money belongs to them. If you leave, it goes with you.
Q. I’m in the new blended retirement system, how long will the DoD match my contributions?
A. Based on the National Defense Authorization Act passed on November 25, 2015, the DoD will contribute 1% of a Service member’s basic pay to their TSP after 60 days of entering service and will begin to match the Service member’s contributions (up to an additional 4% when a Service member contributes at least 5%) at the start of the third year of service. Both the DoD automatic 1% and the matching contributions continue through the end of the Service member’s 26th year of service.
Q. What is the second part of the system, continuation pay?
A. The Blended Retirement System also offers a new “continuation pay” — after 12 years of service, members will receive a cash payment if they opt to stay in for 4 more years. The payment will be two and half months of basic pay for the active component member and half a month’s basic pay for the reserve component member.
Q. If I’m in the new blended system and retire after 20 years, will I still get an annuity?
A. Yes, for those who retire after at least 20 years of service, the retirement remains predominantly a defined benefit in which you will get monthly retired pay. But instead of being calculated at 2.5% times the average of your highest 36 months of basic pay (or your last month of basic pay, if you are under the older, final pay system), the multiplier will instead be calculated at 2%.
Q. What education will you be providing and when can Service members opt in?
A. DoD recognizes that quality financial education is key to making an informed decision as to whether a Service member should opt-into the blended or remain under the current system. The first opportunity that a Service member will have to opt-into the new system is on January 1, 2018. In anticipation of the new system, DoD has started work on three courses: a leader overview of the blended retirement system (fielded by June 2016); a course focused on those Service members with less than 12 years of service as of December 31, 2017 who will be eligible to opt-in (fielded by January 1, 2017); and a course for our new accessions who enter the force on January 1, 2018 and beyond — who are now under the new blended system (fielded by January 1, 2018). The courses targeted at those eligible to opt-in as well as the new recruits will include calculators so that Service members can make comparisons as well as understanding the impact and need to make contributions to the TSP under the new system. The courses will also take into account unique aspects for both the active and reserve components. The DoD intends to beta test each of these courses at least three months before delivery.