This article by Karen Jowers originally appeared on Military Times, the nation's largest independent newsroom dedicated to covering the military and veteran community.

When the Blended Retirement System was created more than five years ago, one of its primary goals was to help service members set themselves up financially for the future, even if they didn’t stay for 20 years and retire. That aim is being met, according to defense officials.

Before BRS, under the legacy retirement system, fewer than 20 percent of troops served long enough to receive military retired pay. Today, the majority of active duty service members participate in the Blended Retirement System and will receive a government retirement benefit if they serve at least two years, even if they don’t qualify for a full retirement.

The setup is called “blended” because it’s a blend of the long-standing annuity provision for those who retire from service, plus matching contributions to the Thrift Savings Plan and other features. The TSP, a retirement savings and investment plan for uniformed service members and federal government employees, is similar to 401k plans in the civilian sector.

And it’s working. Data shows that young troops are building their retirement savings. For BRS participants, as of May, the average balance in their Thrift Savings Plan retirement accounts was $11,657, about $2,000 higher than the previous year, according to the Federal Retirement Thrift Investment Board.

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“Take that $11,000 and grow it over the next 40 years, and you’ve got roughly a quarter million dollars, with no additional contributions,” said JJ Montanaro, a certified financial planner with USAA’s Military Advocacy Group. “That compares favorably as a retirement nest egg for a large slice of the American population.”

The 200,000-plus service members who leave the military each year “will be leaving with the potential for a solid financial foundation,” he said.

Strong Participation

As of May, more than 1.2 million service members within the active and reserve components, or about 56% of the force, are enrolled in the Blended Retirement System, said Jerilyn Busch, DoD’s director of military compensation. The percentage of participation is larger — 65% — for active duty members; more than 850,000 are enrolled in BRS, compared to about 450,000 reserve component members, or 44%, who participate.

Troops contributing at least 5% of basic pay to their TSP account and getting a DoD matching contribution (Source: Defense Department):

• Marine Corps (active): 82.50%
• Air Force (active): 82.30%
• Army (active): 75.20%
• Navy (active): 73.20%
• Marine Corps Reserve: 75.5%
• Air Force Guard & Reserve: 67.60%
• Army Guard & Reserve: 65.20%
• Navy Reserve: 58.30%

Those who entered the military starting in 2018 were automatically enrolled, but service members who had fewer than 12 years of service as of Dec. 31, 2017, could opt in to the new system. Most of those who met the requirements remained under the legacy “High-36″ retirement system, in which retired pay equals 2.5% times the number of years of service multiplied by the average of the member’s highest 36 months of basic pay.

But whether they are covered by the Blended Retirement System or the legacy system, service members can contribute to a TSP account. Overall, 84% of the force is contributing to a Thrift Savings Plan account, Busch said, “so they’re setting themselves up for their future, and that was one of our main goals.”

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Service members under the BRS pull up the overall participation rate in TSP, which was about 48% at the end of 2017, just before the BRS was implemented. Now, about 88% of BRS participants and 78% in the legacy system are contributing to their retirement savings, according to the Federal Retirement Thrift Investment Board.

Service members also seem to be bucking some national trends, defense officials said.

“While contributions to 401k programs decreased significantly in 2022 among the U.S. population in general, and withdrawals from 401k programs increased significantly among the U.S. population in general in 2022, service members under the BRS continued to contribute to TSP at high rates and withdrawal rates did not increase,” said Pentagon spokeswoman Nicole Schwegman.

BRS offers a combination of monthly retired pay for those who qualify, along with a Defense Department contribution to the service member’s Thrift Savings Plan. All covered members receive a government contribution that equals 1% of basic or inactive duty pay to their tax-advantaged retirement account after 60 days of service. After two years of service, and continuing through their 26th year, they can also receive up to an additional 4% matching contribution, for a total of 5%. So, if service members are contributing 5% of their basic pay each month, that’s 10% going into their retirement accounts.

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Schwegman said BRS “has resulted in significantly increased retirement savings among service members of all ranks.”

Service members with TSP accounts (Source: Federal Retirement Thrift Investment Board):

• Legacy retirement system (contributing): 516,000
• Legacy (separated or retired): 648,000
• BRS (contributing): 915,000
• BRS (separated): 224,000
• Legacy retirement system participant, average in account: $39,252
• BRS participant, average in account: $11,657

Among other features are continuation pay, a mid-career cash payout — a retention incentive in return for additional service. That money can also be contributed to their TSP account, up to the amounts allowed by the Internal Revenue Service.

The BRS, coupled with the ongoing financial literacy training, could be “a model for how to incentivize better financial responsibility among young people,” said Andrew Corso, principal director in the Office of the Deputy Assistant Secretary of the Navy for Military Manpower and Personnel.

Corso previously administered military retirement and annuity programs for DoD and was the project manager for the implementation of the Blended Retirement System.

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“Our E-1s, E-2s are putting away hundreds and thousands of dollars a year in retirement,” Corso said. “That’s a good news message.”

USAA’s Montanaro agrees.

“For me, the potential for the program to be impactful is all about the education ‘wrapper’ that surrounds BRS and the chance that good habits and decisions will flow from the DoD’s work,” he said.

Hanging Up the Uniform

To date, some 224,000 BRS participants have already separated from the military, according to the Federal Retirement Thrift Investment Board. They can leave that money in their TSP account or move it to another retirement account. But if the money is withdrawn from a retirement account before age 59½, there are generally significant tax penalties.

Before BRS, those 224,000 service members would have been among the more than 80 percent of service members who left the military without a retirement benefit from the government.

For those troops who serve until retirement eligibility, the monthly retired pay under the BRS is 20% less than it would have been under the legacy system. So, BRS offers a pension after 20 years of service that equals 2.0% of average basic pay during the member’s three highest-paid years, multiplied by the total number of years served.

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Although service members can reduce their 5% BRS contribution, the vast majority are not making that conscious decision to leave money on the table. According to DoD, about 80% of active duty and 70% of reserve component service members in BRS are contributing at least 5% to their TSP. The percentage is highest in the Marine Corps, with 82.5% of active duty Marines contributing at least 5%.

In addition, 39 percent of active duty members in BRS are contributing more than 5% to their TSP. About one in four reserve component members in BRS are contributing more than the 5%.

Participation in the TSP isn’t limited to those enrolled in BRS, of course. Since October 2001, troops have been able to contribute to TSP plans, but DoD didn’t offer a matching contribution. As of May, 1.3 million troops in the legacy retirement system had TSP accounts, with an average balance of $39,252, according to the federal board.

Of those, 648,000 were non-BRS service members who have separated or retired from the military, but still have their TSP accounts. While they have accumulated money for their future, they did it on their own without DoD matching contributions.

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Has BRS Affected Recruiting, Retention?

It’s too early to tell whether BRS has had an effect on recruiting or retention, especially since the pandemic hit two years after the start of BRS, said those who attended the BRS symposium, which included service branch representatives, current and former DoD compensation experts and academics. The services are also dealing with a recruiting crisis.

Part of the symposium focused on whether the services could better use the BRS continuation pay tool, tailoring it to the needs of the services. The one-time payment is made between eight and 12 years of service, in exchange for a commitment to serve additional years. The services have flexibility in their programs. For 2023, Marine Corps continuation pay for active duty personnel in BRS was twice as high as the other services, at five times monthly basic pay, compared to 2.5 times monthly basic pay for the other branches.

“The data we need to make decisions about how to best tailor opportunities of BRS is likely to lag behind when we need to make those decisions,” said Col. Eric Reid, director of the Marine Corps Talent Management Strategy Group. He noted that the first service members who opted into the BRS will hit the 20-year service mark in three years.

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David Chu, who served as undersecretary of defense for personnel and readiness from 2001 to 2009, cautioned against using BRS too much as a management tool. Most of the force is young, thinking about their current car payment, and BRS is about “the distant reward,” said Chu, now an adjunct staff member and former president of the Institute for Defense Analyses.

BRS is one of few examples where a public compensation benefit has actually been reduced, he said. While it took something away by reducing the retirement pay benefit after 20 years of service, it also provided something extra upfront for retirement savings, he said.

He noted that many felt the legacy retirement system was unfair, because the vast majority of troops left with no financial benefit.

“Where BRS was successful was in raising the issue of fairness and social justice as a motivation for change,” he said.

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