NOVEMBER 16, 2023 – With all the challenges of federal spending today, one aspect of entitlement reform seems to be working: the military’s new “Blended Retirement System” (BRS).
Created in 2016, the BRS added a 401(k)-like defined contribution to servicemembers’ benefits package so that military personnel have retirement savings that they can take with them if they leave the service before serving 20 years. Simultaneously, it imposed a 20% reduction on the amount of military retirement for those who serve 20 years or more. The net effect was good for taxpayers by reducing the cost of military retirement and now it appears to be good for military servicemembers who are participating in the program in record numbers.
The contribution part of BRS, along with matching payments from the government, go into the Federal Government’s Thrift Savings Plan (TSP). So far, 1.31 million servicemembers are participating in the TSP as part of the BRS, which exceeds the 1.29 million servicemembers in the legacy TSP plan.[i] Of those who are participating in the BRS, 84.9% are contributing at least 5% of their salary to receive the full 5% match from the government. This is significantly higher than early in 2022 when only 69% were receiving the full match. A large part of the increase in savings was because of a change in policy. When BRS started in 2018, the default contribution was 3% and servicemembers had to make a choice to increase their contributions to 5%. Starting in 2020, the default contribution increased to 5%, which resulted in most servicemembers sticking with the higher contribution and corresponding higher retirement savings in the future.
Reports from Department of Defense reflect that active duty Marines have the highest percentage of individuals participating at the full 5% match, followed by Air Force, Army, and Navy personnel. Interestingly, reserve components of all the services have fewer personnel contributing for the full match than their active duty counterparts. It is important for military personnel from all backgrounds to know that they should contribute the maximum amount, otherwise they are shortchanging retirement by leaving free matching dollars with the government.
Despite its success, there is still a lack of financial knowledge within the miliary. An August 2023 Marine Corps symposium report decried that “positive messaging and awareness of BRS is insufficient within the force.”[ii] Most servicemembers know much less about their TSP plans and reported lower satisfaction than federal civilian employees that participate in TSP.[iii] This may largely be due to the fact that many servicemembers were automatically enrolled and felt little need to engage with TSP. Fortunately, the default enrollment now is not only at the 5% level, but it is into a lifecycle fund tied to the age at which someone might likely retire. Therefore, the lifecycle combination of funds is probably consistent with their needs, even if the servicemember has never thought seriously about their long-term goals.
Today, approximately 65% of all those on active duty are part of the BRS and that proportion will certainly grow as each new cohort joins each year. To ensure that servicemembers understand the value of their retirement savings, they need more financial education so that they are prepared and empowered to take control of their financial future.
At a national level, perhaps others in Washington can learn from the military as it was able to save budget dollars and implement a program that helps servicemembers prepare for retirement.
Michael Meese is a retired Army Brigadier General and is President of the American Armed Forces Mutual Aid Association (AAFMAA).
[i] “Currently, there are 1.31 million BRS participants and 1.29 million participants in the legacy system, the Federal Retirement Thrift Investment Board (FRTIB) reported Tuesday.” Drew Friedman, “Military member enrollment in TSP’s blended retirement system reaches record high” 24 October 2023. https://federalnewsnetwork.com/tsp/2023/10/military-member-enrollment-in-tsps-blended-retirement-system-reaches-record-high/
[ii] Symposium on the Opportunities and Implications of the Blended Retirement System.”
[iii] Federal Retirement Thrift Investment Board, 2022 Participant Satisfaction Survey.