The Defense Department started to move this week into the implementation phase of the new military retirement system Congress ordered it to set up just over a year ago, including through an exhaustive education campaign designed to make sure service members understand how the new system works.
DoD has been rolling out training materials for military leaders and financial managers since last June. But on Tuesday, officials started the training process for the roughly 2 million active-duty and reservist service members who stand to be affected by the changes, which will eventually replace the military’s cliff-vested retirement pension with a combination of defined benefits and government contributions into service members’ Thrift Savings Plan accounts.
The mandatory online training is extensive: it takes between an hour-and-a-half to two hours to complete. Officials said that’s because the department is strenuously avoiding taking a position on whether currently serving military members should stay in the old system or join the new one, and that members will need to make the decision for themselves.
“Both the legacy retirement system and the blended retirement system have advantages and disadvantages,” said Jeri Busch, DoD’s director for military compensation. “We encourage service members to take advantage of every opportunity to become educated about the blended retirement system, to use the tools we’ll make available to them and the resources we make available to them in order to make the best decision for themselves and their families.”
Among the tools will be an online calculator military members can use to predict the retirement benefits they’d likely receive under the new blended system compared to the traditional pension-only system. The calculator, set to debut within the next four-to-six weeks, will also take account of numerous other complex features of the blended system, like military members’ option to get up to half of their lifetime pension as one lump-sum payment as soon as they retire, but in a smaller amount than they would have gotten if the entire benefit were paid out as a traditional annuity.
“This is an official DoD tool, we’ve verified that all of the material represented from the calculator is accurate,” said Anthony Kurta, the acting undersecretary of Defense for personnel and readiness. “We know that there are other organizations that are developing their own calculators or online tools that certainly our service members can use, but we cannot vouch for the correctness or the accuracy of the information that they present.”
In a policy memo on Friday, Robert Work, the deputy Defense secretary, signed off on DoD’s plan to implement the new system, which officially takes effect in January 2018.
Already-serving military members with less than 12 years of service will be able to switch to the new system if they choose, but if they do nothing, they’ll be grandfathered into the “legacy” pension system. The memo also makes clear that any decision to opt-in to the new retirement system is permanent — there’s no going back to the old one.
And the blended system is not an option for anyone who’s already served for more than 12 years. They’re required to stay with the pension-only option, and won’t have to take DoD’s new training course.
But for anyone who joins the military after Jan. 1, the blended retirement system is the only option. DoD will start making contributions amounting to 1 percent of their base pay as soon as they’ve served for 60 days, and after two years, the department will make additional matching contributions based on how much military members invest from their own pay. The government contributions can reach as high as 5 percent, assuming members also contribute 5 percent.
In testimony last summer, they noted that service members who retired after a full military career would likely come out ahead under the blended system, but only if they started maxing out their TSP contributions at the very start of their careers, when salaries are low and members are less likely to have much discretionary income.
In any case, Kurta said the department is urging anyone who switches to the new system to invest as much of their own funds into the TSP as possible.
“Everybody has different financial needs, different financial goals. However, if you’re going to opt into the new system, we would urge them to put as much of their income as they can into the TSP, certainly up to the amount that the government will match,” he said. “You wouldn’t want them to leave any money on the table.”
Switching to the new system would make the most sense for service members who don’t intend to serve long enough to earn a pension — 20 years in most cases — since they would earn at least some government contributions toward their retirement. Indeed, it’s one of the chief reasons the Military Compensation and Retirement Modernization Commission urged Congress to make the changes it ultimately did, saying that a blended system would give some retirement savings to about 85 percent of the military, the vast majority of whom serve for less than a decade.
The Defense Department says it has beefed up its financial education programs in preparation for this week’s rollout of the mandatory training course: 120,000 military leaders and supervisors have taken a separate training course so that they can help explain the program to troops, and DoD has given more detailed training to about 9,000 financial managers and counselors; another 500 are ready to be deployed to bases as they’re needed.
The department is exploring options to let service members “test out” of the online training, which is also being made available via DVD for troops in far-flung areas without reliable internet access.
Wayne Boswell, DoD’s director of financial readiness, said about 1,000 personnel had signed up for the course between Tuesday, when it appeared on the military’s Joint Knowledge Online website, and Wednesday, when the Pentagon publicly announced it. He added that DoD is more than willing to make changes to the program based on initial feedback.
“This launch didn’t stop yesterday,” he said. “This is an important time for us and it’s important that we listen to our service members and family members as they take this course. And so we’re going to continually be listening to them based on feedback that they provide to us to make this the best possible course we can make it for our service members as they make this important decision. And then in the coming months, we’ll start working on the course for new accessions that will go in place in January of 2018.”