“Blended Retirement” is coming to the Armed Forces in January 2018 and it will drastically increase the participation in the Thrift Savings Plan. Kim Weaver, the Director of External Affairs for the TSP said that there will be an influx of 500,000 to 750,000 new participants as some current service members switch to blended retirement and enroll in the TSP and all new enlistees are automatically enrolled. The Thrift Board is testing the current computer system and feels that it is up to the task of handling the new enrollees.
Why so many new enrollees? Don’t armed services members already have the ability to participate in the Thrift Savings Plan? Yes, they do – but they do not receive an employer match, and they are not subject to automatic enrollment, as are civilian employees. That is one reason that the military TSP participation rate hovers around 40%, while the civilian participation rate pushes 90%.
For the readers of this newsletter who are in the armed services, here’s a brief description of how blended retirement differs from what the military calls the “legacy retirement system”.
Under both the blended and legacy retirement systems, military retirement is available after 20 years of active duty service. Current statistics show that about 19% of active duty enlistees serve the 20 years necessary for retirement (14% for reserves).
The legacy system provides 2.5% of salary per year of service and a TSP with no matching contributions. The blended system will provide 2% of salary per year, plus an employer match to the TSP like the one received by FERS civilian employees.
All service members who are serving as of 12/31/2017 are grandfathered into the legacy retirement system. In addition, if they have fewer than 12 years of service (4,320 retirement points for Reserves) as of 12/31/2017, they will have the opportunity to opt in to blended retirement. All of calendar year 2018 will be a decision period for this group of service members.