Big Changes to Military Retirement

For the first time since 1948, there are big changes to the military retirement system resulting in major changes for servicemembers.  The 2016 National Defense Authorization Act authorized sweeping changes including an enhanced Thrift Savings Plan and reductions to the military pension percentage amount.

Why Make a Change?

The current military retirement system is an all or nothing system.  A servicemember is only eligible to receive monthly pension payments if he or she achieves 20 years of active duty military service.  If the servicemember exits the military prior to the 20-year mark, he or she gets nothing.  The Congressional Research Service has estimated that as a result of the 20 year requirement only 17% of enlisted soldiers and 49% of officers serve long enough to receive retirement benefits.[1]  Despite only covering a small fraction of those who serve, the military retirement system is costly to taxpayers.  It is estimated the cost to taxpayers of the military pension is $111 billion per year.[2]

Who is Impacted by the New System

The new military retirement system will take effect on January 1, 2018.  Servicemembers will be divided into three groups.  The first group are those serving on December 31, 2017 with more than 12 years of service at that time.  These service members will keep the current retirement system.  The second group are those serving on December 31, 2017 with less than 12 years of service.  This second group may choose to stay under the current system or choose to go under the new system.  The third group are those who join the military on or after January 1, 2018.  This group will be enrolled in the new retirement system.

What Does the New System Look Like?

The new retirement plan will include a new Thrift Savings Plan (TSP), a reduced pension benefit, a different continuation bonus, and an option to receive a partial lump sum payment against the pension.  A full explanation of the new plan is beyond the scope of this blog post.  However, for more details about the new retirement system, check out this article: http://www.militarytimes.com/story/military/benefits/retirement/2016/02/07/new-military-retirement-law-creates-big-decisions-many-troops/79347998/  However, I will highlight the changed to TSP.  Once the servicemember completes 60 days of service, the government will begin contributing 1% of the servicemembers base pay each month to the TSP account.  The government will match dollar for dollar the servicemembers contributions up to 3% of base pay.  Additionally, the government will pay $.50 for each dollar the servicemember contributes over 3% of base pay up to 5% of base pay.  The TSP becomes the servicemembers property at two years of service.  The new TSP puts the military benefits closer in line to many private employers and the federal civilian workforce.

What Does This Mean for Divorce?

The changes to the retirement system mean that servicemembers and former spouses need to be aware that military retirement is no longer just a pension.  The TSP is now a significant asset to be divided in a divorce.  The parties and their attorneys need to be aware of how their choice of benefits will affect property distribution in divorce.

If you need help with a military divorce or custody case in Chesterfield, Colonial Heights, Dinwiddie, Hopewell, Petersburg, Prince George, or Sussex. Give us a call at (804) 668-5327 or email us at Contact@paulperduelaw.com to schedule a consultation.

**This material is for Information Purposes ONLY and should not be construed as legal advice and does NOT create a legal relationship with Paul Perdue Attorneys PLLC.

[1] DoD Office of the Actuary, Valuation of the Military Retirement System, found at http://actuary.defense.gov/Portals/15/Documents/MRF_ValRpt2_2012.pdf

[2] Karmarck, Kristy, Congressional Research Service, Military Retirement: Background and Recent Developments, found at https://fas.org/sgp/crs/misc/RL34751, April 6, 2016