For many years, critics have claimed that the current military retirement system is too expensive to maintain. Also, as a cliff vesting plan, the service member must serve a full 20 years to receive any retirement. It is estimated that only a small portion of all enlisted service members and officers serve long enough to qualify for retirement.

As a result of these and other criticisms, the 2016 National Defense Authorization Act (NDAA) amended the military retirement plan and launched the military’s new Blended Retirement System on January 1, 2018. Under the plan, there are three distinct categories of service members, used to phase in the new system:

(1) those serving on (and before) December 31, 2017 with more than 12 years of service at that time (or 4,320 retirement points for a reserve component service member);
(2) those serving on (and before) December 31, 2017 with less than 12 years of service at that time (or less than 4,320 retirement points for a reserve component service member); and
(3) those who join on or after January 1, 2018.

Those in the first category (> 12 years of service (or 4,320 retirement points for a reservist) on December 31, 2017) will remain under the current retirement system, without exception. Those in the second category (< 12 years of service or 4,320 retirement points for a reservist)) may opt into the new system or remain under the current system. Those in the third category may not choose; they will only be eligible for the new retirement system.

This new blended retirement system includes:

(1) an enhanced Thrift Savings Plan (TSP), 

(2) a reduced defined benefit plan,

(3) an interim “continuation” bonus, and

(4) an option to receive an immediate partial lump-sum payment against the defined benefit upon retirement.

First, a TSP account will be established for all new service members and those service members opting into the blended retirement system. After the service member’s first 60 days of service, the Government will automatically begin contributing 1% of the service member’s base pay into this account every month. The Government will match, dollar-for-dollar, the service member’s contributions up to 3% of base pay. Finally, if a service member contributes above 3%, the Government will contribute $0.50 towards every dollar the service member contributes above 3%, up to 5%. These contributions continue until the service member leaves service, retires, or reaches 26 years of service. The TSP becomes the service member’s property after two years of service. These contributions are invested under the direction of the TSP Board in a variety of U.S. Government securities and stock index funds.

Second, the military’s cliff vesting pension remains intact. However, the 2.5% multiplier that couples with the service member’s total years of service to create the retirement multiplier, is reduced to 2% in exchange for the Government’s TSP contribution. Since the 2.5% constant had the practical effect of yielding a retirement of 50% of the service member’s base pay (or average high-36) in retirement over a 20-year career, the lower constant yields 40% of the service member’s base pay (or average high-36) in retirement.

Third, for those service members who achieve 12 years of service on or after January 1, 2018, the Blended Retirement System requires that the active duty service member be paid not less than 2.5 times their monthly base pay (and the Reserve/National Guard service member receive not less than 0.5 times the monthly base pay of an active duty service member of equivalent rank and years of service). At the discretion of the Secretary of the particular service, the active duty service member may also be paid as much as 13 times the monthly base pay (and the Reserve/ National Guard member may be paid as much as 6 times the monthly base pay of his active duty equivalent). The ultimate size and timing of such continuation bonuses are left up to the respective service secretaries in order to “shape” the force.

Finally, the 2016 NDAA allows retirees (under the new system) who are entitled to begin receiving retirement to receive certain immediate “lump sum” payments against the defined benefit portion of their pension. The plan allows for a retiree to receive either 25% or 50% of the annuity in a discounted present value lump-sum payment. The retiree receives the remainder of the annuity each month, and the annuity returns to the full annuity amount upon the retiree’s 67th birthday. 

Contact Shewmaker and Lewis at 770-939-1939 or email to speak with a lawyer that understands the unique needs of military families.

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