Eligible military personnel are less than a month out from the deadline to make a decision on their involvement with the government’s new Blended Retirement System.
The new system features a 20 percent cut in the monthly pension payments, but it adds such benefits as automatic and matching Thrift Savings Plan (TSP) contributions,mid-career continuation pay and a lump sum buyout option. Dec. 31 is the last day that eligible service members can make this choice.Only one in six eligible military personnel have opted into the system, according to First Command Financial Services.
“I don’t think the training has been robust,” Mark Steffe, president and chief operating officer for First Command Financial Services in Fort Worth, said Monday. “I’ve been to 16 military facilities, east to west, in six months and it’s evident that confusion remains on the system.”
Steffe acknowledged about 17 percent of the people who enter the military stay the 20 years required to receive a pension. Steffe said it would make sense for someone who plans to stay in the full 20 years to stay in the old system.
A Nov. 25 Times Record report on First Command’s Financial Behaviors Index showed about half of middle-income military families have decided to use the Blended Retirement System. But only one in six have opted in to BRS. Roughly one in 10 are not investing their own money in the Thrift Savings Plan, or TSP.
“That means they are not earning the government’s matching contributions, which is a key advantage of the BRS,” Steffe explained. “Now that the pension is reduced 20 percent, the way you make up the difference is to take full advantage of the TSP.”
The Department of Defense makes automatic contributions of 1 percent of basic pay. After two years, a person’s contributions are matched dollar for dollar for the first 3 percent and 50 cents on the dollar for the next 2 percent.
“So if you contribute 5 percent of your basic pay to the TSP, the government will add another 4 percent to your account for a maximum of 5 percent,” Steffe added. “Like a 401k, you put money in and you can take it with you when you leave the military. Don’t leave dollars on the table. This is literally free money.”
First Command further explained in an email the TSP is a flexible program that gives service members several options regarding their assets.
“With portability under the BRS you can take the funds in your TSP with you after you separate, even if it’s before 20 years,” the company states. “You can move the money to another retirement account, reinvest the funds into a qualifying employer’s retirement program or convert the funds into another qualifying investment. You can also choose to leave the money in your TSP and see it compound long after you’ve left service.”
In short, a military service member can take their money out of TSP but they are not required to do so. In many cases, leaving money in TSP may make the most sense, a First Command statement noted.
“At First Command, we understand and appreciate the benefits of TSP, such as the low internal costs of the funds and the significant benefit of the government’s matching contribution,” a company statement reads. “That is why our advisors frequently advise clients to participate in the TSP. It’s a valuable program, and we fully support it.”
First Command Financial Services and its subsidiaries, including First Command Financial Planning and First Command Bank, have given military families financial advice since 1958.
For more information the Office of Financial Readiness offers a Guide to Uniforms Services Blended Retirement System.