Academic journal article ABA Banking Journal

Bankers Spread Awareness for New Military Retirement Plan

Academic journal article ABA Banking Journal

Bankers Spread Awareness for New Military Retirement Plan

Article excerpt

THE U.S. DEPARTMENT OF DEFENSE has transitioned to a new blended retirement system" that will cover all service members entering the military on or after Jan. 1, 2018. The BRS plan includes an automatic contribution and matching contribution from the government, similar to a traditional 401(k), as well as a continuation pay provision for military members who commit to a minimum of three years of service.

All service members that entered the military before Jan. 1 were grandfathered into the previous retirement plan, but those with less than 12 years of service have a choice: they can elect to stay in the current system or switch to the BRS for 2018.

Active service members approaching 12 years of service who opt into the BRS will be eligible for a continuation pay bonus, but those planning on retiring after 20 years may benefit more from the current system.

Currently, service members who retire after 20 years each month receive 50 percent of the average of their highest three years of base pay, plus 2.5 percent more for each year of active duty after 20 years. Under the new blended plan, the payout is reduced to 40 percent and 2 percent more for each year of active duty after 20 years.

While one of the key elements of the new retirement system is that it will provide some benefits to military members who retire before reaching 20 years of service, those enrolled in the legacy plan need to weigh their personal circumstances before electing to switch. The difference in benefits could amount to hundreds of thousands of dollars. Mandatory training at the military's Joint Knowledge Online website directs service members to a retirement calculator that can help them decide whether to switch plans.

More awareness and understanding about the new plan is needed. Military Times reported that only 43 percent of the 1. …

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