For the first time in its history, the Defense Department is about to ask a workforce made up predominantly of people in their early 20s to make their own decisions about retirement pay. Mindful of that fact, on Wednesday, the department launched the first pieces of a multi-year financial education campaign it plans to roll out between now and 2018.
The first course, offered online and targeted toward all echelons of the military’s leadership, is meant to get leaders conversant with the nuts and bolts of the retirement overhaul Congress passed as part of the 2016 Defense authorization bill. Chiefly, those changes mean a partial replacement of the 20-year cliff-vested pension system: all service members in the new “blended” system will get government contributions into their Thrift Savings Plan (TSP) accounts, but guaranteed pensions will shrink.
“The underlying theme of the education program is that there’s a difference between the current retirement system and the blended retirement system,” said Maj. Ben Sakrisson, a DoD spokesman. “What we’re trying to get across to people is that they need to contribute to the TSP if they want to make up that differential.”
Members of the blue-ribbon panel that recommended the change and lawmakers who ultimately approved it believe service members who serve for 20 years will wind up with at least as much in retirement savings as they would have under the current pension system, provided they take advantage of the new TSP matching contributions: DoD will contribute 1 percent of a member’s basic pay into his or her TSP account and will match up to 4 percent of that service member’s own contributions.
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Wayne Boswell, the director of DoD’s office of financial readiness, said the new system has the added virtue of delivering at least some retirement benefits to the more than 80 percent of military members who don’t serve 20 years and receive no pension under today’s system.
“Currently, most of our service members leave us with skills, experience, maybe a little grit based on the experiences they’ve had in uniform for the last 6 or 12 years. But now, they’re going to have an opportunity to leave with some financial resources that they can move into another company’s retirement plan,” he said. “That’s what makes this very different from the old system.”
Members who join the military after 2018 will have no choice but to enroll in the new system. Troops who joined before 2006 are unaffected. Just as today, they’ll be able to contribute to the TSP but won’t receive any government contributions. But anyone who’s signed up for military service since 2006 or plans to do so by 2018 will have to decide whether to stick with the defined benefit pension or switch to the “blended” system.
Andrew Corso, the assistant director of DoD’s office of military compensation, said the department takes no position on whether that group of service members should opt-in, and wants them to make informed decisions based on their own circumstances.
“One of the key messages in our training is that none of our currently-serving members are going to be automatically switched to the new system,” he said. “If that rumor persists out there, that’s one of the things we want to fix. Everyone who’s currently serving will either be grandfathered into the old system or have an option to move into the new one. But no one is going to be automatically switched.”
The next wave of training, scheduled to start in January 2017, will be specifically directed toward members who must decide whether to opt-in to the new system. Most of the affected troops will take the course online, though DoD will also ship CD-ROM versions to commands with less-than-optimal network access, such as deployed ships and forward operating bases in remote locations.
“There will be a calculator associated with this and that’s going to be the heartbeat of our training course,” Boswell said. “It’s going to be different for every service member, so it’s going to come down to how this impacts your individual situation and your financial goals. The calculator, we think, is going to help individual members and their families make well-informed decisions about which system to choose.”
Other portions of the training curriculum still in development will be targeted toward new military members who enter after 2018 and who must use the new blended system and DoD’s existing cadre of personal financial advisers on installations around the world.
Boswell said the department plans to offer retirement advice through the financial counseling systems it already has rather than standing up brand new offices to advise servicemembers on how to invest in the TSP.
Officials said they had not conducted any detailed analyses to predict how many of the troops who have the choice to opt-in to the new system will actually do so, nor is the department ready to project how much of their pay they’re likely to contribute to the TSP in order to earn the matching funds that are likely to be needed to equal a defined pension under today’s system.
But Boswell said the department and Congress will be watching those issues closely.
“Our legislative stakeholders are definitely going to want feedback,” he said. “We will have to have our finger on the pulse, and we’re starting that right now with the leadership course, which lets our leaders give us feedback. When we do the opt-in course there will also be an evaluation assessment so our individual members can give us feedback. We have an ability to do the course corrections we’re going to need in our training over the next few years, and we’ll need that.”
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