Podcast Show Notes & Transcript

Mike and Amy discuss the blended retirement system (BRS) and its components, including the pension, TSP match, and continuation pay. The BRS was implemented in 2018 to modernize military compensation and retirement. The pension part of BRS is similar to the legacy system, requiring 20 years of service and basing the pension on the highest three years of pay. However, the multiplier was reduced from 2.5% to 2% per year. The BRS also introduced a TSP matching component, where service members can receive a match for their contributions. Additionally, continuation pay was added as a retention tool, allowing service members to receive a lump sum in exchange for four more years of service.

Takeaways

The blended retirement system (BRS) was implemented in 2018 to modernize military compensation and retirement. The BRS pension requires 20 years of service and is based on the highest three years of pay, but the multiplier was reduced from 2.5% to 2% per year.

The BRS introduced a TSP matching component, allowing service members to receive a match for their contributions.

Continuation pay was added as a retention tool, offering service members a lump sum in exchange for four more years of service.

Senior leaders should educate themselves about the BRS to mentor younger service members and help them make informed decisions about their retirement.

Chapters

00:00 Introduction to the Blended Retirement System (BRS)

07:51 The Pension Component of BRS

12:11 The Valuable Benefit of TSP Match in BRS

15:39 Retention Tool: Continuation Pay in BRS

Links:

Operation Retirement Readiness

Schedule a consultation with Amy

Schedule a consultation with Mike 

TRANSCRIPT

Amy (00:01)

Hey Mike, today we’re gonna review the blended retirement system. To the older veterans out there, the BRS is the new retirement system. To the very young service members, you’ve just come in and not that, you know, since 2018, this is probably your retirement system. Maybe you opted in if you’re a little bit older than that. But whether you’re young or you’re old, but young at heart, this and the next couple podcasts are some of the most important that we’re gonna discuss.

 

Mike (00:32)

Yeah, it’s true. The BRS really substantially changed retirement and really also for the folks that don’t retire, gave them some benefits, which was really kind of the driver behind the change. so we’re going to talk about the BRS, which, you know, has a pension, but it’s it’s different than the legacy pension that, you know, most, you know, us older veterans and retirees grew up with.

 

There’s a TSP matching component to it. That’s something the legacy system didn’t offer. You could contribute to the TSP, but you didn’t get any match from the government. And there’s also a mid -career bonus that a lot of folks probably don’t know about that we see a lot of questions on. so today we’re going to hit the high points, kind of go over in broad overview what the BRS is and what it changed and some of those

 

key decisions, but we’re also going to do a couple follow -ons to really dive into some of the components to make sure people fully understand.

 

Amy (02:11)

So Mike, let’s first begin with a little bit of history. this goes back, you know, back to 2013. Congress established the Military Compensation and Retirement Modernization Commission, affectionately called the MICRMIC, just like we do with all the acronyms, we have a word for it. So the goal of the MICRMIC was to modernize military compensation and retirement such that the all -volunteer force was sustainable throughout all levels of

 

and economic conditions. in the Micromic published their findings and as a result of those findings Congress directed that the blended retirement system go into effect on January 1st 2018. So if you came in after that you were under the blended retirement system. We’re going to get into some more of the details from here.

 

Mike (03:07)

Yeah, and DoD undertook a big process to educate all the service members because part of that was if you had under 12 years of service by January 1st, 2018, you could opt in to the new system if you wanted to. And that was kind of a big decision. If you had more than 12 years, you stayed with the new system because they figured at that point,

 

fully vested and probably stay in the full 20. And it didn’t make sense to swap. But there was that period of time where trying to get the word out, making sure people understood the decision and how to kind of assess which was the best for them.

 

Amy (03:57)

Yeah, I remember this time frame actually. And, you know, it was a huge decision for soldiers and there were so many what ifs in play for them. So there were online training, there was online training, there were calculators, but it was a really tough call. So a lot of people were reaching out to more senior people. So I didn’t have this decision, but a lot of people knew that I had a good handle on financial stuff. had already been studying

 

maybe even taken the, in fact, I think I did, I had taken the CFP. So I worked with some soldiers as they tried to make their decision. What about you, Mike? Do you remember this time?

 

Mike (04:40)

I do, but I was at the Pentagon at the time, so I didn’t have a lot of young folks that were around. mean, I do remember talking to some of my former airmen about it and similar things. They knew that I had the interest in financial stuff, so they reached out. yeah, and it made sense.

 

for some that were very new and weren’t sure they were gonna stay for the full 20 to opt in and start getting that match. if you got upwards the eight, 10, and you thought there was a good chance you were staying, it probably didn’t make sense to switch for most people. yeah, it was a big effort, a lot of information being passed around.

 

to try to get folks to fully understand the decision and make the best one for their situation.

 

Amy (05:42)

Yeah, yeah. And you know, I mean, so what I found just anecdotally was that, you know, some people proactively opted in, some people proactively chose not to opt -ins, and then other people just went with the default because they either didn’t know how to choose, they didn’t care to choose, or, you know, there was a lot going on still back in this timeframe. It was, you know, 2017.

 

crazy out tempo So they just went with the default and now you know, we’re six years into this and Actually, a lot of people still don’t understand blended retirement system. So that is that includes the people who are in BRS but also the senior leaders who Have a duty to mentor the younger folks. They also don’t understand BRS and that’s the purpose of this podcast

 

Mike (06:35)

Yeah, hopefully we’ll be able to clear some of this up and help people understand. And like you said, it doesn’t matter if you’re in this right now or not, even if you’re older and those last few people are still on active duty that have the traditional. it’s time

 

you know, understand so you can help your, you know, airmen and soldiers, sailors, marines, and to understand what this means and how you can help them secure their retirement.

 

Amy (07:18)

100%. Yeah. You know, I just implore senior leaders to get engaged here and get educated. BRS has a retention tool built into it. We’re going to talk about it. And I know every senior leader cares about retention right now. So you’ve you’ve really got to care about the details of BRS. Before we get to that part, Mike, how about if you walk us through the pension part of BRS? so there’s a few parts to it. Let’s start with the pension part.

 

Mike (07:47)

Sure, the pension part is very similar to the pension part from the legacy system. You need to hit 20 years of service to get it. Still under the high three, where they look at your highest three years of pay, that’s what they base the pension off of. The thing that changed was what we call the multiplier. So under the old system, you got

 

2 .5 % for every year. So at 20 years, that’s 50%. That is now 2 % per year because some of the other components that have been added, they reduce that to keep the finances the same across the all DOD. So now instead of the 50%, you’re going to get 40 % at 20 years.

 

25 years, you’re still 2%, you’d hit that

 

Amy (08:51)

Right, and Mike, mean, you mentioned the multiplier. A lot of people were hung up on that. They didn’t like that they’d be giving up that 10 % if they retired at 20. So instead of 50%, they got 40%. And I get it. But BRS added something that the old system didn’t have, and that’s the TSP match. So you and I, we got to contribute to TSP, but there was nothing coming in from the government.

 

So, but we’ll get to that in a minute. There’s one more difference with the BRS pension. And that is the lump sum decision that has to happen right around retirement. Mike, tell us about

 

Mike (09:30)

Sure, so again, something similar but not exactly the same as the legacy system. In the legacy system, there was a thing called the CRS Redux that allowed a service member at the 15 -year point to get a $30 ,000 payment. And then they were tied to a smaller pension.

 

you know, and a reduced cola and a couple things. And most people kind of forgotten about it. I mean, I don’t know if you even considered it. I know I didn’t because well, it started in nineteen, I think, eighty six ish. that thirty thousand was a decent amount of money. But, you know, when I was, you know, fifteen years in, would have been about two thousand or so.

 

2010, inflation ate away that $30 ,000 versus how much you would lose in your pension. It just really didn’t make any sense anymore. probably was a non -decision for 99 % of traditional retirees as time went on. now with the new system,

 

at retirement, not at the 15 year point, but at retirement, you can choose to get a lump sum payment and, you again, for a reduced reduced payments in the early years of retirement. And we’re going to we’re going to dive into that probably as a separate episode, just because there’s a lot of nuances there and how you think about

 

Amy (11:20)

Yeah, it’s a really complex decision. So for now, it’s enough to know that the old pension, for the most part, it didn’t allow the lump sum option, at least not at retirement. It was at the 15 -year part, a point.

 

But BRS does allow this option for lump sum. It’s a huge decision. Senior leaders, your subordinates need you to help them find resources to make good decisions around this. And I’m gonna keep beating that drum with senior leaders because I’m actually meeting a lot of mid -career service members who are struggling with all of the decisions that they need to make and they don’t know who to turn to because the senior leaders don’t know anything about BRS.

 

But Mike, let’s now circle back to the match that we briefly mentioned.

 

Mike (12:07)

Sure. So a key component of retirement in recent years, both on the federal side, federal civilian side, civilian side in general, is the 401k, 403b, TSP. And most of those plans offer a match from the company.

 

You know, they vary in percentages and things like that, depending on, you know, the individual business. But that’s kind of a key component. So that was one of the things that BRS brought in was this match for all, or a match for all members under that program. So it’s the same.

 

It’s the same as what the federal civilians get right now. But so how it works is you get 1 % automatic that the government’s just going to put in once you hit 60 days of service and up through 26 years of service. So in that time frame, you’re going to get a 1%. You know, it’s not a match. It’s just you’re getting that contribution. So after

 

If the service member, they’re eligible to get up to another 4%. And it’s a little complicated, but if they contribute 5%, they’ll get 4 % plus the one that’s there to get that. So basically, it works as it’s an even match for the first 3 % that the service member contributes and then a half a percent for the next, you know,

 

4 % and 5%. So that gives you total of 4 plus the one that is available automatically. So if you put in 5, the government gives you 5, and you’re getting a total of 10%.

 

Amy (14:14)

And that’s a huge valuable benefit. It’s even more valuable to the service members who choose to separate before retirement. So they’re able to everything that always, no matter when they get out, they’re allowed to keep everything that they’ve put in.

 

And they can keep the government’s match as well as long as they separate after two years of service. And the Micromag found that the vast majority of service members don’t stay to 20 years. So this was part of that, you know, sort of keeping the all active, all volunteer force viable through all economic conditions. This was part of it. And in order to pay for this, then there was, you know, the adjustment to the multiplier that

 

already talked about. So great benefit for people coming in, they still get a match much like civilian peers do not everywhere but in a lot of civilian places, private sector. So in theory it should help since the military is now closer to par with private sector matching. I’m not sure if the numbers are really bearing that out but that was the thought process.

 

So, Mike, one more component to BRS and that’s continuation pay.

 

Mike (15:35)

Yeah, I’ll hit that. And just a comment on the retention thing, I mean, or in recruiting thing. I think it’s hard, 18 -year -old, 23 -year -old thinking about this 2%, 5 % thing, retirement so far away. Is it a draw for most people? Probably they’re not thinking about that. They’re probably thinking about skills, or they

 

you know, want to serve their country. So, but I think it is a good thing, especially with some of the automatic enrollment things and you know, you can opt out of, you know, putting enough in to get the match, but each year reset. So you got to keep going back and most people forget or don’t. So it’s kind of forcing savings on, you know, our youngest military members, which I think is a good thing.

 

they leave the service and it’s not like, I spent six years and I have no retirement savings now. You’ve got this chunk of money that has been saved for you. So I think it’s a good thing, even though it probably, like you said, isn’t a big draw, you know, from the recruiting side. But I think down the road, I think it really does help people. But on account continuation pay.

 

So this is probably one of the least understood pieces of BRS. And there’s some decisions around it. But it was added as a retention tool because the concern was that, maybe if we lower the rate, people, they get to the 8, 10 year points, may go, oh, I’m going to separate. I’ve got a little of this retirement money. And I want to go do something else.

 

So as a retention tool, they added this. So between the eight and 12 years of service, service members can request continuation pay in exchange for four more years of service. Each service does this slightly differently. And again, it’s supposed to be tied to keeping people in the service.

 

each year the services published, who’s eligible, what those year timeframes are, and then how much the multiplier is. And it’s typically a multiple of your base monthly pay.

 

Amy (18:14)

And I mean, all of the components here that we’ve talked about there, they’re important. This one, know, continuation pay is the is the is the one that requires the service member to really be watching out for themselves. So your pension, you’re going to get to 20 years and someone and someone’s going to ask you about the lump sum option. You’re going to get the pension because you made it to 20 years. The match, the TSP match, that just happens. But continuation pay is different because if you’re not paying attention to what

 

services, so each of the services are different. If you’re not paying attention to what your services window to request continuation pay is, you could miss it. Now services are supposed to be letting people know when they’re eligible. I definitely have encountered people who didn’t receive the notification, maybe it went to a bad email or something like that, I’m not sure. But quite honestly, the preponderance of people I’ve talked to have not been notified. So…

 

You’ve got to watch out for yourself. Senior leaders, have to take care of your teams. Find out when the window for continuation pay is for your teams and then help them start thinking about the continuation pay decision because they only get one shot at it. Once you miss it, that’s it.

 

I know mid -career folks, you’re told time and again that you have to manage your own career. Add this to the list of things that you need to do to manage your career. It’s real money. It’s a real decision. So, you know, plug this into the things that you need to watch out for in addition to, you know, your military education and civilian education and the assignments you need and all that kind of stuff.

 

So Mike, I’ll stop beating on that drum for today. We’ve hit all the components. Can you just wrap us up?

 

Mike (20:00)

Sure. So BRS is composed of three major components. It’s the pension, the TSP match, and then the continuation pay. The decisions, like Amy said, pension’s automatic. You’ll get that if you hit at least 20 years. TSP match, there is some decision around that, although the services and DoD has tried to make that pretty automatic.

 

But as Amy said, the variations where a lot of this comes into play is in the continuation pay and making sure that you really dig into that and know what you’re going to do. So we look forward to hitting on these individual pieces more in depth. So if you’re in the system or if you’re a senior leader that can help folks that are in the system.

 

recommend you not miss the next couple episodes.

 

Amy (21:02)

Yeah, thanks Mike. Like we said at the beginning, I think this is some of the most important material we’re going to cover. I hope it’s been a good overview for everyone. And next time we’re going to dig into continuation pay and then lump sum retirement decision after that. See you next time, Mike.

 

Mike (21:20)

Take care.

 

Amy (21:21)

You too.