‘Blended’ mil­i­tary re­tire­ment doesn’t at­tract as pro­jected

The Sun Herald (Sunday) - - News - BY TOM PHILPOTT

With pas­sage of the new Blended Re­tire­ment Sys­tem (BRS) in 2016, the De­fense Depart­ment’s Of­fice of Ac­tu­ary, as­sisted by com­puter mod­el­ing from the think tank RAND Corp., made some as­sump­tions crit­i­cal to plan­ning fu­ture mil­i­tary re­tire­ment cost obli­ga­tions.

More than 862,000 ac­tive duty mem­bers and 202,000 drilling Re­serve and Na­tional Guard per­son­nel, ac­tu­ar­ies fore­cast, would opt to leave their High-3 re­tire­ment plan for the BRS dur­ing a year­long “open sea­son” that ended Dec. 31.

Turns out those pro­jec­tions were far too high.

Near-fi­nal tal­lies of opt-in de­ci­sions for BRS (through Dec. 17) show only 280,000 ac­tive duty mem­bers and just over 72,000 re­serve com­po­nent per­son­nel chose to shift out of the High-3 plan.

High-3 is the more gen­er­ous re­tire­ment plan for mem­bers who serve 20 years or more and earn its lifetime an­nu­ity. The BRS pro­vides a 20 per­cent smaller an­nu­ity. But for the ma­jor­ity of ser­vice mem­bers who don’t serve full-length ca­reers, the BRS also pro­vides a Thrift Sav­ings Plan that is bol­stered by gov­ern­ment match­ing of mem­ber con­tri­bu­tions.

As­sum­ing no ex­traor­di­nary rush to switch plans in its fi­nal two weeks of the open sea­son — be­fore and af­ter Christ­mas — the BRS opt-in re­sults fell as much as two-thirds be­low pro­jec­tions for ac­tive duty and re­serve com­po­nent forces.

In July 2016, the Depart­ment of De­fense

Board of Ac­tu­ar­ies, which is re­spon­si­ble for en­sur­ing the DoD Mil­i­tary Re­tire­ment Fund is prop­erly val­ued and ac­tu­ar­i­ally sound, ac­cepted RAND’s es­ti­mate that a to­tal of 916,754 ac­tive and re­serve com­po­nent mem­bers would opt into the BRS when it be­came avail­able.

At the same time the board con­cluded fu­ture mil­i­tary re­tire­ment obli­ga­tions for the depart­ment could be low­ered by 2.9 per­cent for the ac­tive force and .8 per­cent for re­serve com­po­nents, given the lower an­nu­ity for­mula for the BRS.

DoD ac­tu­ar­ies re-ex­am­ined their es­ti­mates last year and raised the opt-in to­tal by more than 100,000, to pre­dict that 1.06 mil­lion ac­tive and re­serve com­po­nent mem- bers would choose to shift to the BRS dur­ing the open sea­son.

The op­por­tu­nity to switch plans was opened to more than half of all ac­tive duty and re­serve com­po­nent mem­bers. Ac­tive duty mem­bers could switch if they had fewer than 12 years in as of Dec. 31, 2017. Re­serve com­po­nent mem­bers could do so if they had fewer than 4,320 drill points for re­tire­ment by that date.

Mem­bers who en­ter ser­vice on or af­ter Jan. 1, 2018, had no choice; BRS be­came their plan. Ac­tive duty mem­bers who had more 12 years, and re­servists with more than 4320 re­tire­ment points, by Dec. 31, 2017, stayed un­der High-3.

The BRS is called “blended” be­cause it com­bines an im­me­di­ate but smaller an­nu­ity af­ter 20 or more years with a Thrift Sav­ings Plan en­hanced by gov­ern­ment match­ing of mem­ber con­tri­bu­tions. That 401(k)-like nest egg can be rolled into a civil­ian em­ployer’s 401(k) ben­e­fit upon leav­ing ser­vice.

Only 49 per­cent of new of­fi­cers and 17 per­cent of en­lis­tees at­tain 20 years of ac­tive duty ser­vice to be able to re­tire. Be­cause en­hanced Thrift Sav­ings helps that ma­jor­ity who leaves short of re­tire­ment el­i­gi­bil­ity, the BRS was ex­pected to be a more pop­u­lar op­tion, par­tic­u­larly for en­listed mem­bers in their first or sec­ond en­list­ment and for of­fi­cers com­plet­ing ini­tial ser­vice obli­ga­tions.

DoD ac­tu­ar­ies pre­dicted in their Mil­i­tary Val­u­a­tion Re­port re­leased in De­cem­ber that the vast ma­jor­ity of ac­tive duty of­fi­cers and en­listed with fewer than 12 years of ser­vice would opt into the BRS. Their opt-in as­sump­tion for ac­tive duty mem­bers with one year of ser­vice, for ex­am­ple, was 85.5 per­cent for of­fi­cers and 95 per­cent for en­listed. Only for en­listed mem­bers past their ninth year of ser­vice, and for of­fi­cers past the 10th year, did as­sumed opt-in rates fall be­low 50 per­cent.

The blended re­tire­ment has two more unique fea­tures. There’s a one-time “con­tin­u­a­tion pay­ment” payable by the 12th year of ser­vice, to be set at a min­i­mum equal two-and-half months of ba­sic for ac­tive duty mem­bers who agree to serve four more years. The min­i­mum is one-half month of ac­tive duty pay for re­serve com­po­nent per­son­nel who make the same deal.

Also, the BRS al­lows those who reach re­tire- ment to re­ceive in a lump sum ei­ther 25 per­cent or 50 per­cent of the value of an­nu­ities payable un­til old age. The lump sum is de­signed to help a mem­ber buy a home, start a busi­ness or pay off debts in re­turn for cut­ting his or her an­nu­ity by one quar­ter or half un­til age 67.

Ac­tu­ar­ial groups have railed against the lump­sum of­fer as an un­fair choice for mem­bers who re­tire un­der the BRS, given the amount they would for­feit in to­tal fu­ture ben­e­fits for the en­tice­ment of many thou­sands of dol­lars in cash.

What­ever the rea­sons, the BRS fea­tures didn’t at­tract nearly the num­ber of cur­rent force mem­bers that the ac­tu­ar­ies and RAND com­puter mod­el­ing fore­cast.

Through mid-De­cem­ber only 21.6 per­cent of ac­tive duty sol­diers el­i­gi­ble for the BRS switched from High-3, giving the Army the low­est opt-in rate of the four DoD mil­i­tary branches. The ac­tive duty opt-in rate was 26.3 per­cent for Air Force, 28.3 per­cent for Navy and a sur­pris­ing 53.7 per­cent for the Ma­rine Corps.

The BRS likely was far more at­trac­tive to Marines be­cause their ser­vice keeps its ca­reer force pro­por­tion­ally smaller than do other ser­vice branches. A higher per­cent­age of Marines can serve only a tour or two be­fore re­turn­ing to civil­ian life. With the BRS, they will leave with heftier Thrift Sav­ings Plan bal­ances.

Ma­rine Corps Re­serve also had a higher opt-in rate to the BRS, at 37.6 per­cent com­pared to 8.4 per­cent for el­i­gi­ble Army Na­tional Guard mem­bers, 9.4 per­cent for Army Re­serve, 10.1 per­cent for Navy Re­serve, 10.3 per­cent for Air Force Re­serve and 10.6 per­cent among el­i­gi­ble Air Na­tional Guard mem­bers.

The BRS opt-in rates for ac­tive duty forces across DoD was 29.2 per­cent through mid-De­cem­ber and 10.6 per­cent for re­serve com­po­nent forces. Those were far lower than anticipated. In fair­ness, the De­fense Board of Ac­tu­ar­ies, at the time it em­braced RAND’s mod­el­ing es­ti­mates, said it did so re­luc­tantly, con­clud­ing that “we have no bet­ter ba­sis for pro­ject­ing opt-in be­hav­ior.”

In ad­di­tion to those mem­bers who vol­un­tar­ily opted into the BRS dur­ing the open sea­son, more than 142,000 en­listed re­cruits and of­fi­cers who first en­tered ser­vice in 2018 be­came au­to­mat­i­cally part of the BRS gen­er­a­tion.

To com­ment, write Mil­i­tary Up­date, P.O. Box 231111, Cen­tre­ville, VA, 20120. Twit­ter: Tom Philpott @Mil­i­tary_Up­date

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