The recent changes in tax laws have grabbed the headlines but employees of the four branches of the military and the Coast Guard will become part of a new “blended” retirement system passed by Congress in 2016, but effective in 2018.
The 20 or nothing system by which those in service had to stay in service for a generation in order to get any retirement has been modified. The 20 year benefits are reduced by about 20% but that remains the “full retirement” option. Being added is a defined contribution plan with a match and a continuation bonus after 12 years of service. In a sense, the new system is more humane as 80% of those who opted for a career in the military did not reach the 20 year mark and then departed without any form of retirement.
Those who participate in the defined contribution plan the government will match 4% of contributions and contribute 1% directly to the account. Participants vest after two years.
Current employees with 12 or more years can stay with the existing system or opt for the new defined contribution plan by which they will receive 40% of salary after completing 20 years. If they do remain in the old system, they will receive 50% of final pay as a retirement but they will need to reach the 20 year mark to receive that amount.
The system was changed to reduce government pension obligations and recognize the fact that 4 out of 5 people in the military don’t ever qualify for retirement and some saw the absence of any retirement vehicle other than “20 or nothing” as a reason not to choose a military career in the first place.