NEW Retirement Plan: Will Your Military Family Opt-In?

Last year’s National Defense Authorization Act (NDAA) included a provision that significantly impacts thousands of military families’ financial plans. This law replaces the traditional military retirement with a new “blended” retirement plan.

While current retirees, and anyone who entered the military before January 1, 2006, will be grandfathered into the current system, service members who have been in the military less than 12 years when the new plan is implemented on January 1, 2018 will have a choice: opt in to the new plan or stay with the current system. This decision could have long-term implications for your family’s retirement plans. So what do military families need to know? And where can they turn for help?

What is different about the new system?

The new system replaces the traditional pension plan with a “blended” retirement.

  • Service members who stay in the military 20 years or more will still receive a pension. However, under the new system the multiplier used to determine the amount of the pension is reduced. Currently, the multiplier is 2.5%, but under the new system it will go down to 2%. So, a military member serving 20 years will receive a pension of 40% of base pay (2 times 20) rather than 50% as they do now.
  • The Department of Defense will make automatic contributions to service members’ Thrift Savings Plans (TSP) and match employee contributions up to 4% of base pay. This will allow the majority of service members to accumulate savings for retirement.

What should I know about TSP contributions?

  • Once a military member has served 60 days, DoD will begin contributing 1% of base pay to his or her TSP account.
  • After the service member has completed two years, the DoD will begin matching TSP contributions up to 4% of base pay. Service members will automatically start TSP contributions at this point and will have the option to adjust the contribution amount.
  • At two years of service, service members are vested, meaning they can take their TSP accounts with them when they leave the military.
  • All DoD contributions (automatic and matching) end when the service member completes 26 years.

Anything else we need to know?

  • The plan includes provisions for continuation pay. At some point around 12 years of service, service members may be offered a cash incentive that would incur an additional service commitment.
  • Service members will have the option of taking part of their retirement as a lump sum in exchange for a lower pension payment.

I still have questions. Where can I go for help?

  • DoD is in the process of developing education and training to help service members and spouses determine which retirement plan is best for them. In the meantime, here is a video created by DoD and DoD has provided a list of FAQs.

What other questions do you have about new retirement system?

Posted March 3, 2016


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