Blended Retirement System Financial Counselor Answers

The Blended Retirement System (BRS) is a modernized military retirement system that came into effect on January 1, 2018. The BRS combines the traditional legacy retirement pension with a defined contribution to Service members’ Thrift Savings Plan (TSP).

It includes benefits from a defined contribution plan, a defined benefit plan, continuation pay, and a lump sum option.

This hybrid system was created to provide benefits to the vast majority of service members regardless of whether they serve a full career in the military.

The key components of the BRS include:

• Defined Benefit: Retired pay for life after at least 20 years of service
• Defined Contribution: Automatic and matching contributions to the Thrift Savings Plan
• Continuation Pay: A mid-career bonus payment in exchange for a service commitment
• Lump Sum Option: Option to receive a portion of the retirement benefit as a lump sum

Role of a Financial Counselor in the BRS

As a BRS financial counselor, you play a pivotal role in helping service members navigate the BRS and make informed decisions about their retirement planning. Your responsibilities include:

• Providing accurate information about the BRS, including the defined benefit, defined contribution, continuation pay, and the lump sum option.
• Explaining the differences between the BRS and the legacy “High-3” retirement system.
• Assisting service members in using the BRS calculator to estimate potential retirement benefits.
• Guiding service members through the opt-in process, if applicable.
• Helping service members understand their Thrift Savings Plan (TSP), including contributions, vesting periods, and the impact of compound interest.
• Advising on long-term financial planning, including potential risks and strategies for financial security.
• Upholding a strict code of confidentiality and ethics in all counseling interactions.

Remember, while you are there to guide and provide information, the final decision always rests with the individual service member. As a financial counselor, your aim is to empower them with the knowledge to make the best decision for their personal situation.

BRS Financial Counselor Answers

Key Points / Questions	Answers
FC/Es’ knowledge and skill areas for financial literacy touch points with Service members	Pre/post-deployment, transition to retirement, TSP vesting, promotion
Status of a Service member who is serving or had a contract to serve on and before December 31, 2017	Grandfathered into the “High-3” retirement system
Formula for retired pay under the BRS	2.0% x years of service x the average of the highest 36 months of the Service member’s basic pay
Irrevocability of the decision to opt into the BRS	True
Eligibility for matching Government contributions to a TSP account under the BRS	New Accessions who join the service after December 31, 2017 and complete at least 2 YOS
Opportunity to opt into the BRS for AC members and Reserve Component (RC) members	AC members who have completed fewer than 12 YOS and RC members who have fewer than 4,320 retirement points as of December 31, 2017
Change in the defined-benefit annuity multiplier under the BRS	Decreased from 2.5% to 2.0%
Significant differences between the new Blended Retirement System and the “High-3” military retirement system	Automatic and matching Government contributions to a Service member’s TSP account
RC members’ retirement point criteria to opt into the BRS	Must be in a pay status and have less than 4,320 retirement points as of December 31, 2017
Percent of Service members separating with retired pay under the “High-3” military retirement system	19
Service years requirement for the defined-benefit annuity retired pay under the BRS	20 years of active duty or the equivalent years of “creditable” service for the Reserve Component
FC/E’s role in advising opt-in eligible Service members which retirement system they should choose	False, they should not make the decision for the Service member but provide information to help them make an informed decision
Effective date for the BRS	January 1, 2018
YOS at the completion of which, Service members participating in the BRS may be eligible to receive Continuation Pay	12
Comparison of total retirement funds under the BRS and “High-3” retirement system	Under the BRS, Service members can achieve nearly the same or better total retirement funds
Term describing an individual’s rights to keep automatic matching Government TSP contributions after fulfilling specified time-in-service requirements	Vesting
Eligibility to opt into the BRS	A Reserve Service member with 15 qualifying years of service for retirement purposes and an estimated 3,950 points on December 31, 2017
Topics to discuss with a Service member about their decision to opt into the BRS	Automatic and Government-matching contributions, lump sum payments, Continuation Pay, TSP vesting
The addition of interest added to the principal in a retirement account over time is called __.	Compounding
Financial experts advise you will need approximately __ of your pre-retirement income in order to maintain your standard of living after you retire.	80%
Service member decisions to opt into the Blended Retirement System (BRS)	Cannot be reversed at any time once made
Under the BRS, the basic components of your retirement plan are:	Eligibility for a Lump Sum payment option Automatic 1% Government contribution to a TSP account Up to an additional 4% Government-matching contributions to a TSP account based on Service member contribution rates Monthly retirement pay at 40% in return for at least 20 Years of Service
You have the opportunity to opt into the BRS because you are either an Active Component (AC) member who will have completed fewer than _ or a Reserve Component (RC) member who will have fewer than _ as of December 31, 2017.	12 YOS, 4.320 retirement points
Which of the following are advantages to Service members who participate in the Blended Retirement System with respect to the Thrift Savings Plan?	Government-automatic (1%) contributions and Government-matching contributions up to an additional 4% of basic pay
__, is an incentive designed to encourage members to continue serving at critical points in their career and may be provided to you mid-career for your commitment to at least 3 additional years of service.	Continuation Pay
Before making a final decision on a Uniformed Services retirement plan, Service members need to consider __.	(All of the above) Personal and family goals, plans, and obligation Career goals after separation from the service How long you plan to serve
Money that is vested in a retirement account is __.	The employee’s to keep along with all interest earned and employer-matching contributions.
The BRS calculator enables you to __.	Estimate your potential retirement savings and income.
The Blended Retirement System (BRS) and the legacy “High-3” retirement system both require __ Years of Service (YOS) in order to qualify for monthly retired pay.	20 (years)
The legacy “High-3” retirement system for the Uniformed Services requires Service members to serve __ years of active duty, or qualifying Years of Service for the Reserve Component, in order to qualify to receive the defined-benefit retired pay.	20 (years)
The following individuals can make the final BRS opt-in decision for you:	Only you can make this decision.
A Pension is __?	A retirement system in which an employee continues receiving regular income after he/she retires.
The Uniformed Services pension plans are based on _.	creditable years of service – usually 20 years
A “working-age retiree” from the Uniformed Services is _.	someone who retires from the service, but continues to work after separating
Service members may receive Continuation Pay _, based on the needs of their Service, in return for their commitment to serve at least 3 more years.	mid-career (8-12 YOS)
The Opt-In Election Period begins _.	January 1, 2018
Active Component (AC) Service members who do not choose to opt into the BRS by December 31, 2018 will be_____.	choosing to remain in the legacy “High-3” retirement system
The BRS calculator enables Service members to _.	compare potential retirement savings and income for different retirement system options, projected career progression, and TSP contribution rates

Term describing an individual’s rights to keep automatic matching Government TSP contributions after fulfilling specified time-in-service requirements	Vesting
Eligibility to opt into the BRS	A Reserve Service member with 15 qualifying years of service for retirement purposes and an estimated 3,950 points on December 31, 2017
Topics to discuss with a Service member about their decision to opt into the BRS	Automatic and Government-matching contributions, lump sum payments, Continuation Pay, TSP vesting
Status of RC Service members with fewer than 4,320 retirement points as of December 31, 2017	Grandfathered into the legacy “High-3” retirement system and are eligible to opt into the BRS
Status of opt-in eligible Service members who elect to remain in the legacy “High-3” retirement system	Not eligible to receive matching contributions from the Government for their TSP contributions but eligible to participate in the Thrift Savings Plan (TSP)
Who are authorized to make your retirement plan decision	None, financial counselors are not authorized to make your retirement plan decision for you
Largest portion of the cost of living during retirement	Housing
Effective date for the BRS	January 1, 2018
Service requirement to keep the Government-automatic (1 percent) contributions for those who opt into the BRS	2 complete years
What is NOT a retirement benefit under the Blended Retirement System	Automatic 1% Government contribution to a TSP account is a benefit, NOT a non-benefit
Comparison of benefits between Lump Sum Option and normal monthly payments	Service members who take the 25 percent or 50 percent Lump Sum Option will receive less in overall benefits
Correct retired pay formula for active duty Service members under the legacy “High-3” retirement system	2.5% X YOS X average of highest 36 mo. of basic pay
Primary sources of income in retirement	All of the above
Concept allowing you to make money on your contributions to your TSP account	Compound interest
Options pertaining to the Blended Retirement System, but not the legacy “High-3” retirement system	Retired pay formula is 2.0% X YOS X average of highest 36 mo. of basic pay under the BRS, Automatic Government TSP contribution of 1% of a Service member’s basic pay, Eligible for Government-matching TSP contributions of up to 4% of a Service member’s basic pay
Status of AC Service members with fewer than 12 complete Years of Service (YOS) as of December 31, 2017	Grandfathered into the legacy “High-3” retirement system and are eligible to opt into the Blended Retirement System (BRS)
When speaking with a Service member who is serving or had a contract to serve on and before December 31, 2017, it would be correct to say that the member is __ into the “High-3” retirement system.	grandfathered
The formula for retired pay under the BRS is _ x years of service x the average of the highest 36 months of the Service member’s basic pay.	2.0%

Understanding the BRS

The BRS includes four major components:

• Defined Benefit: This is the monthly retired pay that service members receive after at least 20 years of service. It is calculated at 2% per year of service, which is less than the 2.5% per year of service under the legacy “High-3” system.
• Defined Contribution: This refers to the automatic and matching contributions made to a service member’s Thrift Savings Plan (TSP) account. Service members receive automatic contributions of 1% of their basic pay from the government, and may receive matching contributions up to an additional 4%, for a total of 5%.
• Continuation Pay: This is a bonus that service members can receive mid-career (between 8 and 12 years of service), in return for a commitment of additional service.
• Lump Sum Option: Upon retirement, service members have the option to receive a portion of their retirement benefit as a lump sum in exchange for reduced monthly payments until full retirement age.

The main differences between the BRS and the legacy “High-3” system include:

• Retirement Pay Calculation: The “High-3” system calculates retirement pay at 2.5% per year of service based on the average of the highest 36 months of basic pay, while the BRS uses 2% per year of service.
• TSP Contributions: Under the BRS, service members receive automatic and potentially matching contributions to their TSP. The “High-3” system does not provide this.
• Continuation Pay and Lump Sum Options: Only the BRS offers Continuation Pay and Lump Sum options.

The Opt-In Process for BRS

The BRS opt-in process was available to eligible service members who, as of December 31, 2017, had served less than 12 years on active duty, or less than 4,320 retirement points in the Reserve Component.

These service members had the opportunity to opt into the BRS during the opt-in period that ran the entire calendar year of 2018. The decision to opt into the BRS is irrevocable once made.

As a financial counselor, it’s essential to note that the opt-in decision is deeply personal and should be made after careful consideration of a service member’s career and financial circumstances. While the opt-in period has ended, understanding the process and factors involved can still be beneficial for counseling purposes.

Calculating Retirement Pay under BRS

Several factors influence the retirement pay under the BRS:

• Years of Service (YOS): The number of years a service member has served directly impacts the retirement pay. The formula for calculating the retirement pay multiplies the YOS by 2%.
• High-36 Average Base Pay: This refers to the average of the highest 36 months of basic pay a service member has received.
• TSP Contributions and Investment Returns: The amount a service member contributes to their TSP, the government’s matching contributions, and the returns on the investments within the TSP will affect the final TSP balance at retirement.
• Choice of Lump Sum: If a service member chooses to take a lump sum at retirement, it will reduce the monthly retired pay until they reach the full retirement age.

The BRS calculator is a useful tool that allows service members to estimate their potential retirement savings and income under the BRS. As a financial counselor, you should be familiar with how to use this tool to help service members:

• Enter their relevant personal information and service data.
• Estimate their retirement pay and TSP balances under various scenarios.
• Understand the impact of various factors (like contribution rates, YOS, and investment returns) on their retirement savings.

Understanding the Impact of Years of Service (YOS)

Years of service plays a significant role in determining the retirement benefits a service member can receive under the BRS. Here are a few key points:

• The defined benefit (retirement pay) under BRS is calculated as 2% per YOS. Therefore, the longer a service member serves, the higher their retirement pay will be.
• The Continuation Pay is offered after 8-12 YOS, provided the service member agrees to serve an additional three years.
• The vesting period for government contributions to the TSP is 2 YOS. After this point, even if a service member leaves the military, they keep both their own contributions and those made by the government to their TSP.
• Finally, service members must have a minimum of 20 YOS to receive monthly retired pay.

Long-Term Financial Planning

The Thrift Savings Plan (TSP) is a defined contribution retirement savings plan for federal employees and members of the uniformed services. It operates similarly to a 401(k) plan in the private sector. Service members can contribute a portion of their basic pay to their TSP and choose how these funds are invested among the available funds. Key points include:

• Contribution Limits: Service members can contribute up to the IRS annual limit, which can change each year. In 2021, the limit was $19,500, not including the government’s automatic and matching contributions.
• Investment Choices: Service members can choose from several investment funds based on their financial goals, risk tolerance, and time horizon.
• Loan and Withdrawal Options: Under certain conditions, service members can borrow from their TSP or make withdrawals.

Understanding Government Contributions and Vesting

Under the BRS, the government contributes to a service member’s TSP in two ways:

• Automatic Contributions: Regardless of whether a service member contributes to their TSP, the government automatically contributes an amount equal to 1% of the service member’s basic pay.
• Matching Contributions: In addition to automatic contributions, the government matches the service member’s contributions dollar for dollar for the first 3% of basic pay that is contributed, and 50 cents on the dollar for the next 2% of basic pay that is contributed.

Vesting refers to when a service member gains ownership of the government’s contributions to their TSP. Under the BRS, service members are vested in (i.e., own) the government’s automatic and matching contributions after two years of service.

The Impact of Compound Interest

Compound interest is the process by which the interest earned on an investment then earns interest itself. It’s sometimes referred to as “interest on interest.” Over time, compounding can significantly increase the value of an investment. Key points include:

• Power of Compounding: The longer the time frame, the more powerful the compounding effect. Therefore, starting to save and invest early can greatly increase the potential value of one’s retirement savings.
• Rate of Return: The rate of return on investments also affects the compounding effect. A higher rate of return will lead to more interest and faster growth of the investment.
• Regular Contributions: Making regular contributions to an investment account, such as a TSP, can also enhance the compounding effect, as each contribution then has the opportunity to earn interest.