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DoD Fy 2017 Budget Submission: Blended Retirement System

Posted By Reserve Officers Association, Tuesday, March 29, 2016
Updated: Friday, May 13, 2016

According to DoD, as part of their FY17 budget submission, “In general, the Department supports the blended retirement system established by the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2016.  However, DoD is proposing some modifications now to ensure that, when the new system goes into effect, it best meets the retention needs of the Services and our men and women in uniform.”

DOD PROPOSAL

EXPLANATION

ROA POSITION

CONTINUATION PAY

The Department seeks flexibility in the application of continuation pays in order to shape the force vice the NDAA, which provides a minimum continuation payment to all members at 12 years-of-service (YOS)  (ROA Supports).

ROA Supports.

TSP MATCHING  - Increase Matching to 6%

The Department seeks to increase TSP matching to 5 percent for a total contribution of 6 percent. The NDAA provides a 1 percent automatic TSP contribution to the Service member and up to 4 percent in TSP matching contributions for a total of 5 percent.

ROA Neutral.  We have found out this will probably not be supported on the Hill because they would be pressured to increase the contribution for civil servants.

TSP MATCHING - Delay to the 5th YOS

The Department seeks to amend the start date for matching service member TSP contributions to the first day of the fifth YOS generally aligning the start date with a service member’s second enlistment. The NDAA begins matching the first day of the third YOS.

ROA does not Support.  This would put servicemembers too far behind their civilian counterparts and reduce their 20 year retirement earnings.  For example, in a 20 year period it reduces matching contributions to having occurred for only 15 years.  For individuals retiring at the 20 year mark this significantly reduces their retirement.

TSP MATCHING

 

(Extend to Retirement Date)

The Department seeks to extend TSP matching contributions until the member’s retirement, similar to civilians covered by the Federal Employees Retirement System, while the NDAA ceases TSP matching contributions at 26 YOS.

ROA does not Support.  This could be seen as a bargaining tool for getting Congress to agree to delaying matching contributions for the first five years.  In actuality it reduces contributions for 100% of the force in the first 5 years, and shifts to less than 17% of the force that retires.  It also reduces the TSP earning power from more almost 50 years of potential gains to only 18-25 years of potential gains.  To be fair, some of those years could show a loss.

Example Current Blended Retirement:  Contributions would begin at the 3rd year of service but would stop at the 26th year for those individuals staying in for retirement.

100 PERCENT OF THE FORCE – Everyone who joins the service

 

Enlistment Age

Ages for Matching Contributions

Years of Service for Matching Contributions

Age for Drawing TSP

Period of Time for TSP Earnings

Enlisted

18

21, 22

3-4 YOS

70

49-48 years

Officer

22

25, 26

3-4 YOS

70

48-47 years

 

Example DoD Proposed Changes to Blended Retirement: Contributions would be delayed until the 27th year of service and only those individuals staying in for retirement would see contributions extended after serving 26 years or more of service.

17 PERCENT OF THE FORCE – Everyone who stays to retirement

 

Enlistment Age

Ages for Matching Contributions

Years of Service for Matching Contributions

Age for Drawing TSP

Period of Time for

TSP Earnings

Enlisted

18

45-48

27-30 YOS

70

25-22 years

Officer

22

49-52

27-30 YOS

70

21-18 years

 

BOTTOM LINE:  83 percent of the force loses the opportunity to receive matching contributions and let their money increase over a 45-48 year time span.  Additionally, their 20 year retirement will only have 15 years of matching contributions.

TSP MATCHING (Extend to Retirement Date)

As part of the FY 2017 budget, DoD has made several proposed changes to the new blended retirement plan.  One proposal would delay implementing the matching contribution until the 5th year of service (YOS).  Matching contributions would then be shifted to extend contributions from the 27th year and beyond until retirement. 

DoD Proposal

The Department seeks to extend TSP matching contributions until the member’s retirement, similar to civilians covered by the Federal Employees Retirement System, while the NDAA ceases TSP matching contributions at 26 YOS.

For the purposes of this discussion the data focuses on final retirement by the 30 year of service.  The chart shows that a total of 27,756 servicemembers retired by their 26th YOS versus 3,345 who retired from their 27th to 30th YOS.  This is not a better option than the current law which provides matching contributions to 100 percent of the military force beginning in their 3rd year.

Military Retirees Retired during FY2014

Statistical Report on the MRS - September 30, 2014, http://actuary.defense.gov/Portals/15/Documents/MRS_StatRpt_2014.pdf

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