Blended Retirement: BRS Round 2
Blended Retirement: Round 2
On June 23rd, 2020, Senator Patty Murray (D-WA), a senior member of the Senate Veterans’ Affairs Committee, introduced the Re-Open Enrollment for Servicemembers to Opt-In to Updated Retirement Choice for Enduring Security (RESOURCES) Act of 2020, which “would promote financial security for military families by improving financial training,” according to a statement on her website.
The Blended Retirement System
The Blended Retirement System (BRS) was introduced in legislation in 2016 and received a lukewarm reception by most of the military community. According to a study sponsored by Senator Murray, only 28.6 percent of eligible active service members in the Army, Air Force, and Navy opted-in to the new system. For the Reserves, only 10.6 percent opted-in.
Their study concludes that “the vast majority of service members chose a plan that went against their financial self interest.” Senator Murray is heavily promoting this legislation because she was displeased with the reception of the first roll-out.
There is a lot of information being published about the BRS, but here are the four component areas to consider:
- Defined Benefit
- Retired pay will be 2% times the years of service. At 20 years, final base pay will be 40%; at 30 years, 60%
- Get full retirement when eligible, or opt to get a lump sum benefit.
- Defined Contribution
- Miliary contributes 1% of your base pay to TSP
- You are automatically enrolled with a 3% contribution to your TSP from your base pay.
- Military matches up to 5% after 2 years of service.
- You can choose to stop contributing to TSP, take a loan against your TSP balance, or withdraw your money from the TSP.
- Continuation Pay
- At 12 years of active service, and if you commit to an additional service obligation of 3-4 years, you will be eligible for a bonus of 2.5 to 13 times your regular monthly base pay.
- For the Reserves, you can get between .5 and 6 times your monthly base pay.
- Lump Sum
- If you opt for the lump sum, it will be discounted for inflation.
- Your monthly retirement benefits will be reduced. The reduction also applies to survivor benefits.
The key push for this new retirement system is its integration with the Thrift Savings Plan (TSP). The TSP contribution portion of the BRS plan applies mainly to those who don’t stay in the military long enough to retire. Senator Murray stated that 81 percent of active duty forces never make it to twenty years, and under the new system they would have something to show for their service.
RESOURCES Act of 2020
According to Senator Murray, the RESOURCES Act would help improve the financial resiliency of military families in the following five ways:
- Requiring additional training on the Blended Retirement System – Senator Murray blames a lack of in-person training available to the military community for the paltry reception of the first round of BRS enrollment. She proposes having instructor-led classes where available to better “train” service members.
- Expanding other financial training available to service members and their families – this provision seeks to make the training available to a wider audience, namely the military family members. It will also “emphasize proficiency” of the material, which sounds like there will be a test!
- Creating a DOD Advisory Council on Financial Readiness – creates a formal process through which non-profit groups specializing in financial readiness may advise DOD on financial readiness.
- Requiring financial counseling for service members receiving loans from Military Welfare Societies – this portion of the legislation requires anyone in receipt of a loan from a relief society to receive financial counseling within 60 days of receiving the loan.
- Enacting additional disclosures surrounding lump sum payments – requires new disclosures when service members are offered lump sums and that these disclosures provide a thorough explanation about such payment. Would mandate spouses consent.
This legislation has been endorsed by numerous organizations, including the Military Family Advisory Network (MFAN), the Association of Military Banks of America (AMBA), the National Military Family Association (NMFA), and the American Association of Retired Persons (AARP).
Why Push for Change?
In 2018, the total cost to the military retirement system was $58.59 billion, up significantly from the 2007 amount of $43.57 billion. Congressional leaders grapple with constituent concerns and budgetary constraints when considering military retirement issues. It is a large amount of money, and many leaders would see a reduction in that amount as a good thing. However, many service members, retirees, and veterans’ service organizations closely monitor any proposed changes to the retirement system because any changes could be deleterious to their goals.
Some advocacy groups have expressed concerns about the BRS, specifically as it relates to the reduced multiplier for the defined benefit (2.5% down to 2.0%). They fear that the BRS may have negative impacts on the recruitment and retention of the armed forces, as well as the financial well being of military personnel.
In a document prepared by the Congressional Research Service, a study found that those who retire after a 20-year career and contribute to the TSP throughout their career, will have lower take-home pay from retirement to age 60, when compared to those under the legacy system. These same retirees, however, may be better off after the age of 60 when they are eligible to start drawing from the TSP without penalty. The total lifetime benefit (a.k.a. retirement income from the military pension) was estimated to be higher under the legacy system than under that of the BRS.
Many people do not know this, but the money paid out each year to today’s retirees does not come from the DOD budget of the same year; it comes from the Military Retirement Fund (MRF). Since fiscal year 1985, an accrual accounting concept has been used to budget for the costs of military retirement pay, and each year since that time, the Defense Department has made annual contributions of varying amounts to the MRF. The total amount of the MRF is unknown, but it does apparently collect interest. As of this writing, there is no website where information about the military retirement fund could be accessed.
A Tough Choice
Making the switch from the legacy to the BRS is a huge choice, and one that should not be made lightly. I retired under the legacy system, and my spouse plans to do the same in a few years. We joined the army in the late 1990s and we planned to retire simply because of the legacy retirement. There’s no other place on earth where you could work for 20 years and walk away with a pension for life.
The BRS does appear to be two-fold: 1) Congress is trying to give every service member something after they leave the military, even if not a pension; and 2) Congress is also trying to wrestle with the funding for the military retirement system, with the goal of reducing costs over the next decade or two.
No matter how you look at it, it’s a tough choice for service members to make. Make sure you have all the information before deciding though. For once you enter BRS, you can never leave.
(Image courtesy of David Franklin via 123rf.com)
- Blended Retirement System (BRS): An Overview
- Thrift Savings Plan (TSP): Everything You Need to Know
- Maximize Your TSP Retirement Fund
- Service Members Now Have More Options to Invest in TSP