Is the Blended Retirement System Worth It?

The military retirement system transformed with the introduction of the Blended Retirement System (BRS). Effective January 1, 2018, this system is the default retirement plan for most service members who joined on or after that date.

Overview of the Blended Retirement System

The Blended Retirement System combines a traditional military defined benefit pension with a defined contribution plan, the Thrift Savings Plan (TSP). This represents a fundamental shift from the previous “all-or-nothing” pension system, where only those completing 20 years of service received any retirement benefit.

The BRS was designed to offer retirement benefits to a much broader population, even if they do not serve a full 20-year career. This is achieved through a reduced defined benefit pension for those who qualify and automatic and matching contributions to a service member’s TSP account. The TSP allows service members to build personal retirement savings, similar to a 401(k).

Key Financial Components of the BRS

The Blended Retirement System includes a defined benefit pension, government contributions to the Thrift Savings Plan, and mid-career Continuation Pay.

Defined Benefit (Pension)

Service members who complete at least 20 years of qualifying service receive a defined benefit pension. This pension is calculated using a 2.0% multiplier for each year of service, applied to the average of the service member’s highest 36 months of basic pay. For example, a service member retiring after 20 years would receive 40% of their highest 36 months of basic pay as a pension. This differs from the legacy system’s 2.5% multiplier.

Thrift Savings Plan (TSP) Contributions

The Thrift Savings Plan (TSP) is a defined contribution plan, similar to a civilian 401(k), available to federal employees and uniformed service members. Under the BRS, the government makes two types of contributions to a service member’s TSP account.

An automatic 1% contribution of basic pay is made to eligible service members’ TSP accounts, regardless of their own contributions. This automatic 1% contribution begins after 60 days of service and vests after two years of service.

The government also provides matching contributions based on a service member’s personal contributions. It matches 100% of the first 3% of basic pay contributed by the service member, and 50% of the next 2% of basic pay contributed. If a service member contributes 5% of their basic pay, they can receive a total of 5% in government contributions. These matching contributions also vest after two years of service.

Continuation Pay

Continuation Pay is a one-time cash payment offered to service members under the BRS, typically between their 8th and 12th year of service. This payment is provided in exchange for an agreement to perform additional obligated service. The amount of Continuation Pay varies based on service branch, component, and specific retention needs. This payment is a mid-career incentive designed to encourage service members to remain in service.

Understanding Your BRS Benefit

The Blended Retirement System provides retirement benefits to a wider range of service members, whether they serve a full career or separate earlier. The impact of the BRS on a service member’s retirement benefit depends on their individual career length and personal financial decisions, particularly regarding their Thrift Savings Plan contributions.

Impact of Career Length

For service members who serve less than 20 years, the BRS offers a significant advantage over the legacy system. While they will not qualify for the defined benefit pension, they retain the vested government TSP contributions, which include the automatic 1% and any matching contributions they received. This means that even if a service member separates after only a few years, they can leave with a portable retirement savings account that they can roll over into an Individual Retirement Account (IRA) or a new employer’s 401(k). This provides a foundational retirement savings component not available to early separators under the traditional pension system.

For those who serve 20 years or more, the reduced pension multiplier under the BRS means their monthly pension payment will be lower than what it would have been under the legacy system. However, the cumulative effect of the government’s automatic and matching TSP contributions over two decades can substantially augment their overall retirement savings. The total retirement income for long-term service members under BRS is often heavily influenced by their consistent personal contributions to the TSP throughout their careers.

Importance of Personal TSP Contributions

To maximize retirement savings under the BRS, a service member’s personal contributions to the Thrift Savings Plan are critically important. Contributing at least 5% of basic pay is generally advisable to ensure receipt of the full government matching contributions, which essentially provides additional funds for retirement. Failing to contribute adequately means leaving potential government matching funds unclaimed, thereby reducing the overall growth of the retirement account.

Role of Continuation Pay

The Continuation Pay received between 8 and 12 years of service provides a lump sum payment that requires careful financial planning. Service members can utilize this payment for various purposes, such as reducing high-interest debt, making a down payment on a home, or investing it within their TSP or other investment accounts. The decision to accept Continuation Pay and how to use it should align with a service member’s broader financial goals and long-term retirement strategy, as it comes with an additional service obligation.