A previous blog introduced you to a new retirement system for military members. Now, there is more information on that system and how it will affect service members.
The Federal Retirement Thrift Investment Board, the agency that administers the Thrift Savings Plan, has been working with military services to train eligible service members on their options. The FRTIB proposed rule on September 11, 2017, gave more specific details about implementing the new blended retirement system (BRS) along with who is eligible and when they’ll receive their first contributions.
The new plan moves military members from a retirement relying on a vested defined benefit plan to one that includes a reduced benefit plan with greater TSP benefits, the continuation of pay, and come lump sum options.
The new BRS incorporates four major changes to the current military retirement system
First, employing military services will contribute 1 percent of service members monthly pay to their TSP account. These contributions are in addition to basic pay. The military services will continue to contribute whether members contribute on their own.
Second, service members will be automatically enrolled to contribute 3 percent of their basic pay. The program will re-enroll them annually if service members stop making contributions.
Third, military employers will match TSP contributions from their service members dollar for dollar for the first 3 percent of their basic pay and 50 cents on the dollar for the next 2 percent.
Fourth, the program will invest employee contributions in an age appropriate lifecycle (L) fund rather than the government securities (G) fund—unless otherwise chosen by the member.
Two groups will be eligible to participate in this new system:
- Service members who enter the military on or after January 1, 2018
- Military members with 12 years of service or fewer who decide to opt into BRS
Individual services determine which military members are eligible. Reservists who have less than 4,320 retirement points before December 31, 2017, may also be eligible. (Click here to learn more about retirement points)
New service members who enter on or after January 1, 2018, won’t receive their services first automatic contributions until the first full pay period 60 days after their pay entry base date. Automatic contributions of 1 percent will stop on the first full pay period 26 years after service members’ entry date. This applies to both BRS participants who entered service in 2018 and those who decided to opt into the new system. For example, if a military member who served for 6 years before opting into BRS can receive employer matching contributions for 20 years.
BRS participants must finish 2 years of military service before they’re vested in their services’ automatic contributions.
FRTIB say they expect not to automatically enroll new BRS participants for contributions until the first full pay period 60 days after their pay entry base date. “The attrition rate is high in the first 60 days of service and to require automatic enrollment during that period would result in many automatic cash-outs, resulting in increased operational costs, which are then passed along to all TSP participants,” the proposed rule says.
Service members who opt into the new system can continue to contribute at the rate they were previously making before entering the BRS.
FRTIB will only automatically enroll older members unless they leave service and re-enter. At that point, the program will automatically re-enroll those members to make 3 percent contributions. They launched an “opt-in” training course back in February which describes the BRS and how it will impact current service members who opt in.
As of the end of May, more than 163,800 people had taken the course. They say they expect to auto-enroll as many as 269,000 new service members to TSP in the programs’ first year, while also enrolling as many as 300,000 to 475,000 new participants who choose to opt in. The agency may possibly see as many as 744,000 new TSP participants in 2018.
