Army charts course to blended retirement

| February 1, 2017 | 0 Comments
Soldiers charting a course for their eventual retirement should know they may be able to opt into a new system Jan. 1, 2018 that blends a traditional pension with the Thrift Savings Plan and the ability to collect a one-time continuation pay after eight to 12 years of service. (Photo by David Vergun, Army News Service)

Soldiers charting a course for their eventual retirement should know they may be able to opt into a new system Jan. 1, 2018 that blends a traditional pension with the Thrift Savings Plan and the ability to collect a one-time continuation pay after eight to 12 years of service. (Photo by David Vergun, Army News Service)

Story and photo by
David Vergun
Army News Service

WASHINGTON — Beginning in January 2018, a new Department of Defense enterprise-wide retirement system will go into effect.

The blended retirement system, which was instituted by the 2016 National Defense Authorization Act, will take effect for all Soldiers joining the Army beginning Jan. 1, 2018, and some current service members will have the option to opt into the new system.

Soldiers with less than 12 years of active duty service, and National Guard and Reserve members with less than 4,320 points, will have until Dec. 31, 2018, to choose whether to remain in the current system or opt into the new one.

The new blended retirement system is a three-pronged program:

Prong 1

Prong 1 consists of a defined pension benefit upon retirement, which is similar to the current system, said Col. Steven Hanson, branch chief, Army G-1 Compensation and Entitlements, Allowances.

The current retirement system awards a pension of 2.5 percent of basic pay per year times the number of years of service for those serving 20 or more years, he said. So, someone with 20 years would receive 50 percent of base pay per year in retirement.

The new blended retirement system awards 2 percent per year, so that same Soldier serving 20 years would earn a pension of 40 percent of base pay.

The Blended Retirement System

The Blended Retirement System

Prong 2

Prong 2 consists of a Thrift Savings Plan, or TSP, which is similar to a 401K plan, Hanson said.

Under the TSP plan, the government will contribute 1 percent of base pay for new Soldiers after 60 days and then will match up to 5 percent of contributions after two years. For Soldiers who opt into the blended retirement system, the government contributions to TSP begin immediately.

Prong 3

Prong 3 is a one-time continuation payment for Soldiers with eight to 12 years of service. It will, at minimum, be 2.5 months of base pay for those on active duty. For Guard and Reserve Soldiers; it will be a half-month’s basic pay as if they were on active duty.

If the Soldier accepts this one-time payment, known as continuation pay, he or she will have to agree to serve for a minimum of three additional years.

Summary

Retirement ahead.

Retirement ahead.

Soldiers serving in the Army today have from Jan. 1, 2018, until Dec. 31, 2018, to decide whether to continue in the current retirement system that has been in place for many decades or join the new blended system, Hanson said.

All Soldiers joining the Army beginning Jan. 1, 2018, will be under the blended system, he said. Also, all Soldiers with less than 12 years active duty, as well as National Guard and Reserve members with less than 4,320 retirement points, can opt into this new blended system prior to Dec. 31, 2018.

Decision Making

Each Soldier’s circumstances are unique when it comes to deciding whether or not to opt in or remain in the current system, Hanson said. In about three weeks, a mandatory Joint Knowledge Online course will help them decide which is best for them.

If the JKO course still doesn’t answer all the questions, Soldiers can receive additional help from counselors at Army Community Service or Army Emergency Relief, he added.

Analysis

Overall, the blended retirement system is good news for the vast majority of Soldiers, Hanson said. Currently, some 70 percent of officers and 90 percent of enlisted don’t stay in for 20 years, and they leave the Army with no retirement benefits. Under the new system, all Soldiers who serve honorably for at least two years (approximately 85 percent of service members) will now have some retirement benefits when they leave the service.

It is widely recognized that Thrift Savings Plan is an excellent retirement plan, with very low fees and other benefits, Hanson said. Even after separating from the Army, Soldiers can keep contributing to their TSP or roll it into some other plan like a 401K.

The other good news, he said, is Soldiers currently serving are not being forced into a new plan.

“There’s no opting out, only opting in,” he explained.

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Category: Army News Service, News

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