Transcription
A Guide to theUniformed ServicesBlended Retirement SystemFor Active-Duty, National Guard andReserve Uniformed Service Members
2 A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM
ContentsIntroduction. 5Know the BRS basics . 5The BRS at a glance. 6Defined benefit. 9Defined contribution.11Continuation pay .15Lump sum. 17Understanding the TSP under the BRS. 19Resources.24Glossary.26VERSION 3.0, JUNE 2020A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM 3
4 A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM
One of the key benefits of serving in the uniformed services is theretirement plan. The National Defense Authorization Act for Fiscal Year2016 created a new retirement system for members of the uniformedservices. This system, called the Blended Retirement System, or BRS,blends the traditional legacy retirement pension, also known as a definedbenefit, with government payments made into your individual ThriftSavings Plan, or TSP, account, also known as a defined contribution.This booklet is designed to be a reference for members of the uniformedservices on the key features of the BRS. The BRS represents one of themost significant changes to the uniformed services compensationsystem since World War II and becomes, for many, their firstopportunity for planning and saving for their retirement, regardless oflength of service.You will find helpful facts throughout this booklet, with links toadditional training and resources on how to take action in youruniformed services retirement plan.Know the BRS basicsThe BRS combines elements of the legacy retirement system with benefitssimilar to those offered in many private-sector retirement plans. This sectionprovides more in-depth information on these key features:20YEARSDefined benefit – Monthly retired pay for life afterat least 20 years of serviceDefined contribution – Government automatic andmatching contributions of up to 5% of basic pay toyour TSP accountContinuation pay – A one-time, midcareer bonus inexchange for an agreement to perform additionalobligated serviceLump sum – An option to receive a discountedportion of your monthly retired pay as a lump sumdistribution at retirementA GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM 5
The BRS at a glance20YEARSDefined benefitDefined benefit vesting20 years of service, or YOSDefined benefit multiplier2.0%Defined benefit working age annuityActive duty: Choice of full annuity or lump sumoption (50% or 25%) at retirement; NationalGuard/Reserve: Lump sum based on annuity atage 60 (or earlier with creditable active service)Defined benefit retirement ageActive duty: At 20 or more YOS; National Guard/Reserve: After 20 or more qualifying YOS and age60 (or earlier with creditable active service)Defined benefit cost-of-livingadjustment, or COLAFull COLADefined benefit disability retired payDisability rating (minimum 30%) capped at 75%or 2.0% multiplierDefined contributionDefined contribution, Department ofDefense, or DoD, contribution rate1% automatic, plus up to 4% matching (Max 5%)Defined contribution, DoDcontribution rate YOS1% automatic: Begins at 60 days of servicethrough 26 YOS; Matching: Starts after two YOSand continues through 26 YOSEnrollmentAutomatic for members entering service on orafter Jan. 1, 2018; automatic re-enrollment everyJanuary if member zeros out contributionsDefined contribution membercontribution rate5% automatic; full DoD match requires 5%contribution; default to Traditional TSP account,Lifecycle, or L, FundDefined contribution vestingAlways vested in service member contributions,DoD matching and any earnings; vested in serviceautomatic (1%) contribution and any earning aftertwo years in serviceDefined contribution forfeitof DoD contributionsIf you leave service before two years, you forfeitthe service automatic (1%) contribution and anyof its earnings.6 A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM
Continuation payContinuation pay multiplier(months of basic pay)Active duty (including Active Guard Reserve, orAGR, and Full Time Support, or FTS): Between2.5 and 13 times monthly basic pay; NationalGuard/Reserve: Between 0.5 and 6 times monthlybasic pay (as if on active duty)Continuation pay commitmentAny member who elects to receive continuationpay will incur an additional service obligation ofnot less than three years, as determined by themember’s service.Continuation pay eligibilityEligible for continuation pay when completebetween eight, but no more than 12, YOS calculatedfrom Pay Entry Base Date, or PEBDLump sumLump sum optionsMay choose a lump sum of either 25% or 50% ofthe discounted present value of future retirementpayments in exchange for reduced monthly retiredpay until full Social Security retirement age, whichfor most is age 67.Lump sum electionActive duty: Lump sum election must be madeno less than 90 days before retirement; NationalGuard/Reserve: No less than 90 days before receiptof retired payLump sum eligibilityActive duty: At retirement after 20 or more YOS;National Guard/Reserve: Upon becoming eligible tobegin receiving retired pay at age 60 or earlier withcreditable active serviceA GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM 7
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20YEARSDefined benefitThe BRS provides a defined benefit, which is a monthly pensionpayment for life, after 20 years or more of active-duty service.Key aspectsThe multiplier. This is the percentageof your basic pay that you receive foreach year of service.ÌDefined benefit under theBRS: 2.0% x years served xthe average of your highest 36months of basic payNATIONAL GUARD AND RESERVEDefined benefit on retirementYou’re eligible for this benefit after 20years of qualifying service and at age60, or earlier if you perform certainqualifying active service since thebeginning of 2008.The longer you serve, the higher thebenefit. If you retire from active dutyat 20 years under the BRS, you receive40% of the average of your highest36 months of basic pay as yourdefined benefit — and that percentageincreases by 2% for each additionalyear of service.Keeps up with inflation. The COLAfor the BRS is based on changes inthe Consumer Price Index for UrbanWage Earners and Clerical Workers, asmeasured by the Department of Labor.No split multipliers. If you opted intothe BRS during the opt-in period ofJan. 1-Dec. 31, 2018, monthly retiredpay is calculated using the BRSformula — there are no split multipliersfor years served under the legacyretirement system.NATIONAL GUARD AND RESERVECalculation of non-regular retirementfor BRS eligibilityYou’re eligible for a non-regular retirementdefined benefit at age 60 — or as early asage 50 — if you have 20 qualifying years ofservice, including creditable active serviceperformed since the beginning of 2008.To calculate active years of service, divideyour accumulated retirement points by 360.Reservist with4,860retirement points Total retirement points13.5Equivalent yearsof serviceGiven that the military considers onemonth as 30 days for pay purposes, eachday is worth 1/30 of a month, making 12months equal 360 days. Therefore, if you’rein the National Guard or Reserve with, forexample, 4,860 retirement points, you have13.5 equivalent years of active service.A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM 9
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NATIONAL GUARD AND RESERVEThe gray area for retired payIf you’ve served in the National Guard or Reserve for 20 qualifying years, but arenot yet at the age to receive your retired pay, you’re in what’s called the “gray area.”The gray area is the time between separation and receipt of retired pay, which formost is age 60, but can be earlier based on creditable active service. Regardlessof when you entered the gray area, your retired pay is usually the average of thebasic pay for the highest 36 months for your pay grade and years of service. This isderived from the pay tables in effect for the 36 months immediately preceding thedate that retired pay begins.Defined contributionThe BRS’s defined contribution component is a way for you, as a member of theuniformed services, to save for your retirement, whether you plan to serve for twoor 20 years. The BRS provides government benefits toward retirement throughyour TSP account, which offers access to a mix of investment funds throughcontributions to a Traditional (pretax) retirement account, a Roth (after-tax)retirement account or a combination of both (see the “Understanding the TSPunder the BRS” section for more information).Key aspectsTSP account creation. Your TSP account will be set up for you by your service,generally within 60 days of service. You will be automatically enrolled with a5% contribution into the L Fund closest to your full retirement year. Or, you maycreate and begin contributing to your TSP account before 60 days of serviceby completing the TSP Form U-1: TSP Election, located on the TSP.gov website,and turning it in to your personnel servicing office. Once your TSP accountis created, you can visit your service’s online pay portal to make contributionchanges. Additionally, you can access your TSP account online at https://www.tsp.gov to move your money into any of the TSP fund choices or to allocatefuture contributions to your TSP fund choices.A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM 11
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Contributions. You can immediately elect to contribute any whole percentageof your pay, up to the annual limits set by the Internal Revenue Service, or IRS.Service members who do not make a contribution election will automatically beenrolled to contribute 5% of their basic pay. You may opt out of this automaticenrollment but, by law, will be re-enrolled each calendar year. You will receivethe service automatic (1%) contribution, and service matching contributionproportionate to your basic pay contributions.Matching contributions. Under the BRS, you may receive up to 4% in servicematching contributions at the beginning of your 25th month of service, on top ofthe service automatic (1%) contribution based on the below chart. Automatic andmatching contributions continue through the end of the pay period during whichyou reach 26 years of service.Service Contributions to Your AccountYour service puts in:You put in:Automatic(1%) ContributionService MatchingContributionAnd the totalcontribution %4%10%More than 5%1%4%Your contribution 5%Vesting. Being vested means having ownership. You are always vested in, orentitled to, your own contributions and their earnings. However, to become vestedin the service automatic (1%) contribution, you must have completed two yearsof service. All service members who have completed two years of service areconsidered fully vested.Type of ContributionWhen StartedYour contributionWhen VestedWhen deposited1% auto matchWhen enrolled 60 daysAfter two years of service1-4% match25 months of serviceWhen depositedPortability. Your TSP account is a portable retirement benefit. This means thatwhen you leave service, you can have TSP transfer part or all of your accountinto an Individual Retirement Account, or IRA, or an eligible employer plan (forexample, the 401(k) account of a new employer). In addition, transfers can bemade into TSP both before and after military retirement from IRAs and civilianjobs using form TSP-60 and TSP-60R. Your TSP can remain open after yourservice has ended as long as the balance remains over 200.A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM 13
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Continuation payUniformed service members are eligible to receive continuation pay, a one-time,midcareer bonus payment, in exchange for an agreement to perform additionalobligated service. Your service will determine the commitment, but it must be aminimum of three years. Continuation pay is payable between the completion ofeight years of service, but before the completion of 12 years of service from yourPay Entry Base Date. It may be paid at any time during this period as determinedby your service. This one-time bonus payment is in addition to any other careerfield-specific incentives or retention bonuses you may receive or otherwise beeligible to receive.Key aspectsEligibility — active duty. This one-time payout is available if you’re an active-dutyservice member. For continuation pay purposes, this includes AGR and TFS whoare able to enter into an agreement to perform additional obligated service.Amount — active duty. If you’re anactive-duty service member, includingAGR and FTS personnel, you may beeligible for continuation pay from 2.5 to13 times your regular pay.Pay rates. Pay-rate multipliers may bebased on service-specific retentionneeds, specialty skills and hardto-fill positions, similar to careerfield incentives and re-enlistmentbonuses. Each service determinesand publishes its own guidance oncontinuation pay rates.NATIONAL GUARD AND RESERVEEligibilityThis one-time payout is available ifyou’re a National Guard or Reserveservice member in a pay status whois able to enter into an agreement toperform additional obligated service.AmountYou may receive from 0.5 to 6 timesthe monthly basic pay of a member of thesame pay grade, as if servingon active duty.Investing. Continuation pay and otherspecialty pay, bonuses and incentivescan be invested along with basic pay in your TSP account up to the annualmaximum allowed by the IRS. Note that if you hit the maximum before the end ofthe calendar year, you could lose out on matching contributions.*Taxes. Your taxable continuation payment may place you in a higher incomebracket. You may elect to receive continuation payments in up to four equalinstallments over a four year period. This may help reduce your tax liability.*See page 25 Resources - IRS contribution limits.A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM 15
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Lump sumUnder the BRS, service members may be eligible to elect to receive a discountedportion of their retired pay up front. The decision to elect a lump sum at retirementis entirely up to you. If you do not choose the lump sum option, you’ll receive yourfull retired pay upon eligibility. If you opt for a lump sum, you will need to decide ifyou want 25% or 50% of your future retirement payments at retirement. You mayreceive one lump sum payment or annual equal payments, one a year, for up tofour years. Monthly retired pay reverts to the full amount at full Social Securityretirement age, which is age 67 for most individuals.Key aspectsTrade-offs. When you take either 25% or 50% in a lump sum, your monthlypaycheck will then be 75% or 50% of the full value of your monthly retired pay untilyou reach full Social Security age, which is age 67 for most individuals.Cost. The lump sum of 25% or 50% is discounted to the present value based onan annual DoD discount rate published in June of each year. Note that a lifetime ofequal, personal monthly payments is usually worth more.Timing — active duty. If you’re choosing the lump sum option, you must notifyyour service no less than 90 days before retirement date. Funds are paid no laterthan 60 days from the date of retirement.Taxes. Your taxable lump sum payment may place you in a higher income bracket.You may elect to receive lump sum payments in up to four equal installments overa four year period. This may help to reduce your tax liability.Survivor benefits. You may still fullyparticipate in the Survivor Benefit Planeven if you elect the lump sum option.Disability payments. If you expectto receive a disability rating fromthe Department of Veterans Affairs,disability compensation could beoffset dependent upon your rating.NATIONAL GUARD AND RESERVETimingIf you’re choosing the lump sum as aNational Guard or Reserve service member,you must notify your service no less than90 days before receipt of retired pay.A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM 17
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Understanding the TSP under the BRSThe TSP is a defined contribution retirement savings and investment plan forfederal employees and members of the uniformed services. It offers the sametypes of savings and tax benefits that many private corporations offer theiremployees under 401(k) salary deferral plans.The retirement income you receive from your TSP account will depend on howmuch you and your service contribute to your account during your working yearsand the earnings that accumulate over that time.Key aspectsGrowing your TSP account. TSP retirement income depends on how long youmake contributions, how much you and your uniformed services employerdeposit into your account during your working years (see the “DefinedContribution” section for more information), and how much your account growsthrough the investment options you select:ÌÌContributing basic pay, special pay and bonuses. Under the BRS, yourservice provides a service automatic (1%) contribution to your TSPaccount. Additional service matching contributions of up to 4% may alsobe earned, as long as you contribute the proportionate amount of basicpay. You can grow your TSP account by contributing more of your basicpay and by contributing from 1% to 100% of special bonus and incentivepays, as long as you do not exceed the annual elective deferral limit as setby the IRS.Contributing pay earned while serving in a Combat Zone Tax Exclusion, orCZTE, area or Direct Support Area, or DSA. These assignments provide thefollowing opportunities to grow your TSP accounts through tax breaks andhigher contribution limits:the money you contribute to your Traditional or Roth TSP account First,while on these assignments is invested tax-free.»»If contributed to your Traditional TSP account, your contributions,but not their earnings, are also tax-free when you withdraw them.If contributed to your Roth TSP account, your contributions and theirearnings are tax-free when you withdraw them if you satisfy theregular requirements for a Roth withdrawal.A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM 19
you can contribute more than the annual elective deferral limit Second,to your Traditional TSP account.»»Even if you’re in a designated CZTE area or DSA, the amount youcan contribute to your Roth TSP account is limited by the deferralamount set by the IRS.To continue making contributions once you hit the limit, you wouldneed to switch your contributions from a Roth TSP to a TraditionalTSP. Since both the Roth contributions and earnings would be tax-freewhen withdrawn — if you satisfy the regular requirements for a Rothwithdrawal — most members will conclude it is smartest to contributeto their Roth TSP account first when serving in a CZTE or DSA.The monthly CZTE/DSA compensation for officers is limited to the maximumenlisted pay amount, plus the amount of Hostile Fire/Imminent Danger Paypayable to the officer for the qualifying month. The monthly CZTE/DSAcompensation for enlisted members/warrant officers is unlimited.*ÌÌContributing to multiple TSP or 401(k) accounts. It is important not toexceed your annual contributions across multiple TSP and/or 401(k)accounts. Unless you’re serving in a combat zone/direct-support area orcontributing catch-up funds, the annual elective deferral limits still apply. Ifyou reach the limit before the final pay date of the year, you could lose out onservice matching contributions.Contributing more by catching up. If you’re age 50 or older, grow yourTSP account beyond the maximum with catch-up contributions on aTraditional (pretax) or a Roth (after-tax) basis. This is allowed as long asyou don’t exceed the IRS dollar-amount cap. This is in addition to the annualelective deferral limit. If you’re eligible to make tax-exempt-pay catch-upcontributions (i.e., because you’re deployed to a combat zone), these fundscan go into only a Roth TSP.NATIONAL GUARD AND RESERVEWhat if I have a military and civil service TSP or other salary-deferred plan?If you’re in the National Guard or Reserve and have both a military and civilservice TSP or if you have a retirement private-sector plan, you’re generallysubject to the same total annual elective deferral limit for all your plans on acumulative basis.*See page 25 Resources - IRS contribution limits.20 A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM
ÌCompounding. Another way to see your TSP account grow is throughthe power of compounding. This allows you to make money on thecontributions you make to your retirement account from your basic pay,from receipt of any government-provided contributions and from themoney earned by those contributions. With compounding, even your pocketchange has power. Using an example borrowed from TSP.gov, the U.S.Securities and Exchange Commission’s investment information hub, look atthe power of compounding at work:Let’s say your basic pay is 2,000 per monthThatmakesand yousave 5%in your TSP account.If you leave the uniformedservices after 100each month.Even if you never add any more money, that 17,300 could grow to almost10 years, 100,000in 25 years.*you could have more than 17,300.*And consider this: if you are contributing 5% ofyour basic pay, then under BRS you are receivingautomatic and matching contributions from thegovernment for a total of 10%.That means you could have almost 200,000.*That’s the power of compounding!*Figures based on the L 2050 Fund’s projected long-term returns. Returns are not guaranteedand may be substantially less. Visit TSP.gov to learn more.A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM 21
Assessing and managing risk. The contributions that go into your TSPare deposited among your choice of individual investment funds or LFunds. Unless you invest in U.S. Treasury bonds or put funds in a federallyguaranteed savings account, most investments carry risk from year to year.Take these steps to create a retirement savings plan that works for you:ÌÌÌÌÌÌThink about your retirement needs. Consider how much incomeyou want and need in retirement, when you expect to retire and stopworking, and the mix of funds likely to be available at retirement alongwith the TSP (e.g., pension, Social Security or other savings).Determine your horizon for investing. Assess how much time youhave until you will withdraw retirement funds, sometimes referred to asyour time horizon. If you have a longer 30-year time horizon, you couldtake more risk with your TSP investments early on and shift to a moreconservative approach as retirement nears. (TSP L Funds do this foryou. See the “Fund Choices” subsection for more information.)Consider index investing. TSP offers several index funds, which arefunds structured to mimic the performance of a certain market index.The TSP Common Stock Fund, or C Fund, for instance, is structured tomatch the performance of the Standard & Poor’s 500 Index, which ismade up of stocks of 500 large to medium-sized U.S. firms in finance,health care, information technology, retail and other industries.Diversify. The cliché “don’t put all your eggs in one basket” sums upthis action. If you spread your contributions among the different typesof investment classes available through TSP funds, you’re more likelyto see a higher rate of return over time, as higher-performing assetsbalance out lower-performing ones.Take it with you. With portability under the BRS, you can take the fundsin your TSP with you after you separate, even if it’s before 20 years. Youcan move the money to another retirement account, reinvest the fundsinto a qualifying employer’s retirement program or convert the fundsinto another qualifying investment. You can also choose to leave themoney in your TSP and see it compound long after you’ve left service.Withdraw funds at retirement. TSP funds are meant to grow into a largenest egg to use as income at retirement. That’s why TSP withdrawalsare only penalty-free once you reach age 59 1/2. Before you consider anearly TSP withdrawal, research how much money you could lose to addedtaxes, tax penalties, contribution restrictions and other ramifications.22 A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM
Fund choices. The TSP offers multiple investment approaches:ÌÌÌL Funds – Choose to invest through one of 10 professionally designedportfolios of stocks, bonds and government securities. The 10 L Fund optionsrange from L 2025 to L 2065 with additional L Funds offered in five yearinvestment-horizon increments. With L Funds, the work of rebalancing yourinvestments based on your time horizon is done for you.Individual funds – Choose your investment mix from among these TSPindividual funds: Government Securities, or G, Fixed Income, or F, CommonStock, or C, Small Cap, or S, and International, or I.Account choices. TSP offers both a Traditional and Roth account. You’ll needto decide whether to invest in one or both.You can contribute according toIRS limits and adjust your TSP account online at any time.* All governmentautomatic and matching contributions are based on the total amount ofmoney — Traditional and Roth — that you contribute each pay period.(pretax) – You defer paying taxes on your contributions and Traditionaltheir earnings until you withdraw them. If you are a uniformed servicesmember making tax-exempt contributions in a CZTE location, yourcontributions will be tax-free at withdrawal, but your earnings will besubject to tax.Roth (after-tax) – You pay taxes on your contributions as you make TSPthem, unless you are making tax-exempt contributions, and your earningsare tax-free at withdrawal as long as you meet certain IRS requirements.This option may be preferred if you’re starting retirement investing in alower tax bracket and expect to retire in a higher income bracket.If you want to make contributions, you must submit a contribution election to tellyour service what portion of your pay you want to contribute and how you want todesignate them between Traditional and Roth. You cannot convert any portion ofyour existing Traditional TSP balance to a Roth balance.You can make both Traditional and Roth contributions if you want. You cancontribute in any percentages you choose, subject to IRS limits, and change yourelection at any time.Your service matching contributions are based on the total amount of money —Traditional and Roth — that you contribute each pay period. All service contributionsare deposited into your Traditional balance.NOTE: Roth TSP is not the same as a Roth IRA. Annual contribution limits for aRoth TSP are the same as a Traditional TSP account.*See page 25 Resources - IRS contribution limits.A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM 23
ResourcesUse these resources and tools to build your knowledge of the BRS.LEARN MORE ABOUT YOUR RETIREMENT OPTIONS.Personal Financial Manager/CounselorGet no-cost, personal support from an accredited personal financial manager/counselor at your installation’s Family Center, or search ful websitesVisit the BRS website at https://militarypay.defense.gov/BlendedRetirement orthe Defense Finance and Accounting Service ents/sdp/.CHANGE TSP CONTRIBUTIONS OR UPDATE YOUR INFORMATION.Army, Navy and Air Force MyPayhttps://mypay.dfas.mil/mypay.aspxMarine Corps Marine Onlinehttps://www.mol.usmc.milCoast Guard and NOAA Direct Accesshttps://hcm.direct-access.usADDITIONAL RETIREMENT PLANNING RESOURCES.Department of DefenseDoD policy: Implementation of ntFINRED Career Ready erReadyPortalFINRED Estate Planning oads/FINRED-EstatePlanning-FS.pdfFINRED Spending Plan nloads/FINRED-Spendingplan-TK.pdfRetirement Cost-of-Living Adjustments ent/Cola.aspxTSP Savings Ballpark tors/index.html24 A GUIDE TO THE UNIFORMED SERVICES BLENDED RETIREMENT SYSTEM
Thrift Savings PlanThrift Savings Plan websitehttps://www.tsp.govIRS Contribution lishing Your TSP SRetirement Planning Along Career PlanningPhases/index.htmlSummary of the Thrift Savings hrift Savings Plan Investment Options video serieshttps://www.youtube.com/playlist?list PLz 6hPnw1Qq5W5U3hZiD0c05gZKkFStT1U.S. Securities and Exchange CommissionInvestor.gov websitehttps://www.investor.govInvestor.gov Before You Invest video stor.gov Leaving
2016 created a new retirement system for members of the uniformed services. This system, called the Blended Retirement System, or BRS, blends the traditional legacy retirement pension, also known as a defined benefit, with government payments made into your individual Thrift Savings Plan, or TSP, account, also known as a defined contribution.
