New military Blended Retirement System takes effect January 1, 2018

This significant development will have a major impact on military divorces.

Divorce in military marriage has an elevated level of legal complexity, including the division of military retirement benefits. This issue is about to get more complicated in military divorce situations, since a new military retirement plan is poised to take effect in 2018. The new Uniformed Services Blended Retirement System or BRS will combine the traditional military pension model with a new defined contribution plan that is similar to a 401(k) retirement plan as utilized by civilians.

For some already-divorced service members and their ex-spouses, the new plan may bring legal and practical challenges that were not foreseen at the time the divorces were finalized. If you receive military pension payments that are split with an ex-wife or ex-husband, or if you are a divorced military spouse who receives part of your former spouse's military pension, consult a lawyer with questions about the new plan and whether it will affect you.

BRS eligibility

First, determining whether the service member spouse is eligible for the new plan will help answer this question. People who begin service on January 1, 2018, or later are automatically part of BRS. Service members in active service on December 31, 2017, will remain within the present system. However, any member with less than 12 years of service on that date may opt in to BRS any time during 2018.

Eligibility for active service members is based on time served. For reserve members, eligibility is based on a point system, which will not be specifically outlined in this article.

Current pension system

The legacy retirement plan, called a defined benefit program, awards pension payments after 20 years of service. According to the Department of Defense or DoD, only about one-fifth of active duty service members qualify and even fewer reserve. The amount of retirement pay is determined by this defined annuity formula:

Years of service x Retired pay base (average of three highest years) x 2.5 percent

BRS

The pension component of the new system uses the same formula except the multiplier is reduced to 2 percent. BRS also offers an optional lump sum option for pension payout. The service member at retirement may take one-quarter or one-half of pension payments in a lump sum at retirement and be paid a reduced monthly amount until the date of Social Security retirement age, at which time full monthly pension payments would resume.

The new defined contribution part of the plan uses a Thrift Savings Plan or TSP into which are deposited individual contributions from pay, and automatic and matching contributions from the government similar to a nonmilitary employee-employer arrangement regarding a 401(k) account. The money in the TSP vests after two years of service.

Another BRS component is Continuation Pay, a bonus paid to service members between the start of year eight and start of year 12 of service. If Continuation Pay is accepted, the service member must serve three more years.

Legal issues

Potential issues involve:

  • Unexpectedly reduced monthly payments to recipient spouses with pre-existing divorce orders if opt-in reduces the multiplier
  • New requirement that settlement agreements and court orders account for new retirement contingencies
  • Impact and legal classification under state law of continuation pay and lump sum payouts
  • Notification problems for recipient spouses when service member makes retirement option decisions
  • And more

Consult a lawyer if you face any of these new military divorce issues.

The lawyers of Cynthia Tracy, Attorney at Law, P.C., in Houston represent service members, active, retired, reserve and National Guard as well as military spouses in military divorces and related matters in Houston and throughout the Gulf Coast.