Military retirement is changing and many Marines will have a choice to make in 2018. Included among the thousands of items in the FY 2016 National Defense Authorization Act were significant changes in the military retirement system. The changes, based upon recommendations from the Military Compensation and Retirement Modernization Commission, are intended to provide Service members with a portable retirement benefit whether serving four years or forty years, while also providing cost savings.
When Does This Take Effect? Who is Affected?
The Blended Retirement System, or BRS, takes effect 1 January 2018. If you enter service prior to this date, you are grandfathered into the current retirement system. Eligibility for the new retirement system is based upon pay entry base date (PEBD). If your PEBD date is on or after 1 January 2006 and before 1 January 2018, you may elect to enroll in the Blended Retirement System. During the period from 1 January 2018 until 31 December 2018 you may enroll in the new system if you have less than 12 years of service, by PEBD, or less than 4,320 retirement points. The Blended Retirement System is the retirement plan for Marines who enter service on or after 1 January 2018.
Current Retirement System
Our current retirement system consists of a 20 year cliff vested annuity (a defined benefit plan). This means that if you enter the Marine Corps and serve for at least 20 years, you will earn a monthly retirement annuity for the remainder of your life. The amount of your monthly payment is calculated by determining a monthly average based upon your three highest years of base pay and then multiplying the average monthly pay by 2.5 % for each year of service. So for 20 years of service you would receive 50% of the average of your highest three years of base pay (high three average x 2.5 x YOS). Each year of service in excess of 20 years nets you an additional 2.5% of your high three base pay. In addition, you have the option of contributing to a defined contribution plan, the Thrift Savings Plan (TSP), to increase your retirement nest egg.
New Blended Retirement System
The new Blended Retirement System retains the 20 year cliff vested annuity, but reduces the multiple from 2.5% to 2.0%. Under the new plan you would receive 40% of the average of your highest three years of base pay after 20 years of service. Each additional year of service in excess of 20 years provides you with an additional 2% of your high three base pay. To offset the reduced defined benefit, the defined contribution component, the TSP, becomes an integral part of the retirement plan.
As noted above, if you have less than 12 years of service or fewer than 4,320 retirement points you may choose to move from the current retirement system to the Blended Retirement System. If you choose the BRS you will begin receiving government automatic and matching contributions to your TSP account in the next pay period following your election. The automatic contribution is an amount equal to 1% of your base pay. You will receive this contribution whether or not you are making your own contributions to your TSP account. In addition, if you are contributing to your TSP account, you will receive government matching funds equivalent to your contributions for amounts from 1% to 3%. At 4%, the government match is 3.5%. And, at 5%, the government match is 4%.
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Let's do the math
You have completed two years of service and are actively contributing 5% of your base pay to TSP. The Marine Corps will also be contributing an amount equal to 5% of your base pay to your TSP account. You become vested in in the 1% automatic contributions after two years of service which means if you leave the Marine Corps the money the government has contributed to your TSP is yours to keep. Government matching contributions are vested immediately.
Marines who enter service on or after 1 January 2018 will be automatically enrolled in the TSP at a 3% contribution rate. In addition, the Marine Corps will contribute an amount equal to 1% of base pay to the account after 60 days of service. Marines may adjust or terminate contributions at will via MyPay, but the 1% Service contribution is automatic and does not change. In addition, if these Marines contribute to the TSP, they will receive government matching of those contributions after two full years of service.
Continuation Pay in New Blended Retirement System
The new system also provides a continuation pay bonus at the completion of 12 years of service. Continuation pay is a cash payment to you in return for a promise to remain in the Marine Corps for four additional years. The amount of continuation pay is calculated by multiplying one month of your base pay by 2.5 if you are an active duty Marine, or by multiplying one month of your base pay by .5 if you are a Reserve Marine. This payment is considered taxable income in the year received and must be repaid if you fail to complete the additional four years of service. Continuation Pay may be contributed to your TSP account keeping in mind that annual IRS limits apply to all contributions.
How Benefits Are Paid in the New Blended Retirement System
The final element of the BRS is the option for lump sum payment at the time of retirement. You may choose to receive a 50% or 25% lump sum payment (discounted to present value) at the time of retirement in exchange for a reduced retired pay annuity until you reach full retirement age. Your retirement annuity returns to the full amount when you reach full retirement age which is currently 67 years old. The choice to take a lump sum payment will be made at the time of retirement. There are significant factors to consider before choosing a lump sum distribution. You should discuss your options with your installation PFM or unit CFS prior to making a decision.
Blended Retirement System If You Are Eligible You Will Need to Make a Choice
If you fall into the eligibility zone to choose the new system, you will have a choice to make. The decision is unique to your individual career and retirement goals and there isn’t a single right answer for everyone. Training materials, to include calculators and comparison tools, are available to help you make a decision. Your installation Personal Financial Management Office can assist you in preparing to make the right choice for your situation. More information is also available at the Manpower & Reserve Affairs BRS for Marines CAC-enabled website.
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