BRS Limits TSP Matching For Some Reservists

January 12, 2018

The new Blended Retirement System (BRS) might be a great transferable retirement savings tool, but the potential to maximize the value differs by servicemember. If this 401(k)-style plan is to be of significant value for members of the Ready Reserve, certain current contribution restrictions must change.

As of Jan. 1, 2018, reserve-component personnel with less than 4,320 retirement points are eligible to choose between the new BRS or stay with the legacy retirement system. Those who already are serving and exceed those limits are grandfathered into the legacy system and do not have a choice.

It's a big decision, and factors beyond one's anticipated length of service ought to be weighed heavily. For new entrants, however, the BRS is the only choice, and contribution restrictions will be a concern. The government is sure to save money on this deal, but will the servicemember?

Currently, members of the Ready Reserve are not permitted to contribute to the military Thrift Savings Plan (TSP) when not drawing a military paycheck. This means that when performing some required inactive duties, such as weekend drills, serving in the Honor Guard for Funeral Honors Duty, or taking correspondence courses, these servicemembers cannot take advantage of their retirement benefit. Any lost time in contributing to the plan will result in a significant delta between the would-be payout of the previous pension system and the ultimate value of the BRS, particularly because of the lost opportunity for matching contributions from the government.

Additionally, some members of the Guard and Reserve are prohibited from making the maximum annual contribution to their TSP accounts because of civilian employment. These individuals should not be restricted from taking full advantage of military retirement just because they hold a job in the private sector through which they max out a separate 401(k)-style plan.

Prohibiting maximum contributions prevents reservists from achieving the intended retirement benefit of the BRS. Without the ability to make maximum TSP contributions due to civilian employer plan contributions, these individuals lose the government's matching contribution, and the overall value of their military retirement is dramatically lower than it otherwise would be if they were not contributing to a civilian employer's plan. This is a consideration that Guard and Reserve members who can afford to maximize retirement contributions will have to weigh when deciding whether staying in the Guard and Reserve until retirement is a sound financial decision. The end result for them will likely be less savings than what others will accrue.

MOAA and The Military Coalition continue to press Congress to make changes to ameliorate these issues so that the BRS has the greatest potential benefit for all servicemembers. The system must be usable to be useful. Since initial talks of the BRS began, MOAA has made it very clear that recruitment and retention impacts will be kept on close watch. Keep an eye out for any updates on the uptake rates throughout 2018.

 

 

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