Military retirement is changing, and gone are the days where we could determine what a person’s total retirement benefit would be if we knew a few things, like rank, years of service, and base pay.
Beginning in January 2019, new military service members who join the Army, Navy, Air Force, Coast Guard, Marine Corps, or reserves will become a part of the new blended retirement system. The blended retirement system is more similar to the system for federal employees, and has been touted by the military as a modernization of its retirement programs. It also allows service members who don’t retire at 20 years to at least walk away with something, rather than nothing, which is how it works under the current system.
Is it good? Is it bad? How will the new blended and traditional retirement systems affect your divorce? What system will your husband fall under? There’s still a lot that remains to be seen (and potentially a lot that will eventually be judicially determined in the future), but we know a couple of things for certain.
How was military retirement calculated under the old system?
Under the old system, retirement was pretty simply calculated. You received essentially 50% of your high 36 after 20 years of service with the military. If you averaged out your pay for the last three years before retirement and divided it in half, that’s what you would (or your husband would) receive as his portion of his military pension.
If you stayed in 40 years, rather than 20, you could receive 100% of your high 36.
How is military retirement calculated now?
Now, under the blended system, participants will receive both a pension and a matching plan on their Thrift Savings Plan (TSP).
What’s a TSP?
A Thrift Savings Plan is essentially a military 401(k). It’s a way to grow your own retirement earnings. There are 6 different kinds of TSPs, so it’s important to know whether (and to which kind of TSP) you and your spouse are contributing. There’s a regular and a ROTH, like regular civilian IRA accounts, and there’s even a war zone TSP, where you (or your spouse) can both put money in and take money out tax free, if it’s contributed while you’re in a war zone.
A TSP, like a 401(k), is subject to annual contribution limits. For 2018, that limit was $18,500.
The military, under the new blended plan, is going to offer a matching program. In the civilian world, many employers do this, matching their employees contributions up to a certain percentage, usually 5-10%. Obviously, it’s a really, really good idea, no matter how you plan to diversify your holdings or plan for retirement, to at least contribute to your 401(k) or TSP, in your case, up to the amount your employer matches. Otherwise, you’re just walking away from totally free retirement money!
The new blended retirement system
The new blended retirement system will allow for a TSP match. The pension portion changes so that new service members will now receive 40% of their high 36 after a 20 year career.
There’s also a “continuation bonus” that the military service member would receive at some point between the 8th and 12th year.
Will my husband participate in the new blended system, or the traditional retirement plan?
That all depends. For military service members with more than twelve years of service as of January 1, they’ll stay on the old system.
For military service members with less than twelve years of service as of January 1, they’ll have the option to participate in either the new blended retirement system, or to stay on the old system.
The real issue? A military service member can change his retirement plan designation without notice to, or permission from, his spouse. That’s right, in order to opt for the blended plan or to stay on the old retirement plan, your signature is not needed. Your consent is not needed. You may not even know what choice your husband has made (and he may not fully understand the ramifications of his choices, either), though the choice that your husband makes may seriously impact what you receive in retirement.
Which military retirement system is better?
It’s really impossible to say.
What’s very clear, though, is that, under the new blended system, military service members will have to take a lot more responsibility for what they save in retirement. Under the current system, retirement is pretty much taken care of for the service member; a service member doesn’t have to actively do anything to save their money for retirement, other than make it to the 20 year benchmark.
Under the blended plan, service members will have to actively earmark money for the TSP – that’s money out of their paychecks – in order to receive the matching portion. Whether the continuation bonus is contributed when it is received (up to the annual limit) or the service member contributes a certain portion of his or her salary to the TSP, it requires affirmative action.
If you (or your husband) don’t actively save for retirement via the TSP during the marriage, it’s likely that you will receive less under the blended system than under the traditional military retirement plan.
Is it marital property?
Anything earned, purchased, or otherwise acquired during the marriage is marital property. So, whatever portion of the military pension is earned during the marriage is marital (though, at 40%, it would be valued at less under the blended system than the traditional military retirement system).
Whatever portion of the TSP is contributed, whether by the service member or by the military (in the form of matching contributions) would be marital, as well as any losses or gains on that money.
If the continuation bonus is received during the marriage, it’s marital, too.
Anything earned, purchased, or acquired AFTER separation is separate property. So, a continuation bonus received after separation is separate property.
Can we control or restrict his ability to make changes to his retirement plan structure?
…Who knows? Most separation agreements include language that provides that a spouse may not take any action that reduces or limits a spouse’s interest in a retirement benefit, but, since the new retirement system is so new, there has been no litigation to show how the court would come down on that issue.
If he makes a change BEFORE a separation agreement is signed, there’s definitely nothing we can do about it.
As unsatisfying as it is to say, only time will tell at this point.
The blended retirement system, at the very least, is more complicated than retirement under the traditional system. It’s hard to say exactly what will happen or how it will impact military spouses, but it’s probably safe to at least observe that there will be considerably less available to couples who do not actively contribute to a TSP during the course of the marriage.
For more information, to discuss your specific rights and entitlements under the blended or traditional system, or to learn more about military divorce, request a copy of our free military divorce book, or give our office a call at 757-425-5200.