Decoding Blended Retirement System

In October, the Rainier Wing held Commander’s Calls to discuss important topics affecting Citizen Airmen at the 446th Airlift Wing.

One topic in particular was the Blended Retirement System, which is a complex topic.

Capt. Jeffrey Mermilliod, who is a Traditional Reservist with the 446th Aeromedical Staging Squadron Medical Service Corps officer, has a master’s degree with a concentration in finance and is currently undergoing license preparation to be a financial advisor in his civilian career.

Mermilliod briefed BRS basics, but below is an expanded version of the changes for Citizen Airmen to consider when planning for retirement.

For Mermilliod, the most important take away is that current members who will have eligibility to participate in the BRS have options. Those options need to be weighed against each member’s individual career/financial plans and goals.

“If someone is married their spouse should be the first person to discuss this issue with as retirement planning should be a joint decision,” he advised. “Trusted advisors in a circle of family and friends can also be a good sounding board. Beyond that, if someone has a Financial Advisor or Accountant they get financial advice from, it would be a good discussion topic.”

Having a full understanding of the tax implications now and in the future can help them to make a good decision, he added.

Time is also a huge factor for Citizen Airmen to consider, advised Mermilliod.

Meaning, most members of the Reserves that will make the BRS election are likely decades from age 60 and there have to be many time assumptions in evaluating options.

Here are some factors Mermilliod recommends to consider:

• How many years until age 60?

• How long will a person live beyond age 60?

• What will the average rate of return be in the TSP investments?

• Would the lump sum option be beneficial to someone at age 60 when it is available?

• What will the tax affect be beyond age 60 when the funds are accessed?

“I think this is an excellent opportunity for Reserve members to start having a conversation about what their individual long term goals for retirement should be,” he said. “The good news is that reservists have until the end of 2017 to make a decision, so they have plenty of time.”

The BRS was enacted into law in the Fiscal Year 2016 National Defense Authorization Act, and will go into effect Jan. 1, 2018.

A major difference between the current retirement system and the new BRS is that the new blended system includes a TSP account for service members where the government will contribute to the account along with the member, according to BRS training.

In many ways, the government contributions to the member’s TSP account mirrors the system currently enjoyed by our civilian employees.

For each service member participating in the new system, the government will set up a TSP account for the member. New members will be automatically enrolled to contribute 3 percent of their basic pay.

The government will begin automatically contributing an amount equal to 1 percent of the member’s basic pay once the member completes 60 days service and will continue these contributions until the member separates, retires, or completes 26 years of service, whichever occurs first.

In addition, once a service member completes two full years of service, the government will begin matching member contributions up to 4 percent of basic pay (in addition to the 1 percent automatic contribution). This is also when a member becomes vested in the government’s contribution to his or her TSP account plus any earnings on the contributions. Government matching contribution will continue until the member separates, retires, or completes 26 years of service, whichever occurs first.

To help members understand more about TSP including the risks and rewards associated with investment funds, financial education will also be provided at a number of points in a career to include during initial entry training. This training is scheduled to be released in January 2017.

“Ultimately, this is really a great opportunity for the Air Force Reserve to teach our members about their retirement benefits and help them think critically about their future plans,” said Mermilliod. “Many Reservists are not aware they have the option of participating in the TSP even without any matching funds. My hope is that by engaging all of our members to think seriously about their retirement plans, more people will elect to participate in active retirement savings.”