The new military blended retirement system and its impact on divorces
The new plan includes a defined contribution aspect similar to a 401(k).
On January 1, 2018, a new military retirement system took effect called the Blended Retirement System or BRS. Federal law allows state courts to divide military retirement benefits as part of divorces under state laws. The new retirement system raises many questions that will have to be determined in Arkansas state divorces involving military spouses.
Anyone who begins active duty on or after January 1, 2018, is automatically enrolled in the new system. Service members with at least 12 years of service as of January 1, 2018, remain with the legacy system. Active-duty service members as of December 31, 2017, who have less than 12 years of service have the choice between the two systems, but the decision to opt in to the new system must be made by December 31, 2018.
(Reserve members’ retirement benefits are based on a point system with points earned by time served as well as by completion of certain milestones like courses or training. In this article, the discussion is based on active duty service members and years of service, but a parallel discussion could be had based on Reserve Component or RC points.)
The old military retirement system
The legacy plan is a “defined benefit system” in which after 20 years of service, a service member is eligible for a monthly pension payment determined by a formula that uses a multiplier, historic pay levels and years of service. In a divorce, the nonmilitary spouse often is granted a portion of each monthly payment.
The new military retirement system
The BRS has two parts. It keeps a defined benefit program like the legacy system, except the multiplier in the formula is lower. The new component is a “defined contribution” plan similar to a civilian 401(k) program. This part of the plan creates a Thrift Savings Plan or TSP into which go soldier contributions plus government matching deposits, according to a set contribution formula.
Two other features of the new system are also important. First, a bonus called Continuation Pay may be taken during the eighth through the beginning of the 12th year of service in exchange for an additional three-year commitment. Second, the service member will have the option of taking a lump-sum payment at the beginning of the pension period in exchange for a reduced monthly payment until he or she reaches Social Security retirement age.
Impact on divorce
The new retirement option could have major repercussions for those divorcing in the future as well as those with previous divorce decrees, including:
- If a service member opts in to the new system with a previous divorce decree that divides retirement benefits, the amount will not be what was expected at the time of divorce and the TSP account will not have been contemplated. Will the nonmilitary spouse have any options?
- For those divorcing in 2018 and eligible for opting in, how will settlements and decrees be structured?
- How will the future possibility of Continuation Pay or the lump-sum option be taken into account? Will a notice provision have to be included in the settlement or decree? Will caveats have to be included for how the retirement benefit split would happen if those options were chosen? What will the legal classification of these options be for purposes of property division under Arkansas state divorce law?
- And more
Seek legal advice
Anyone in Arkansas facing military divorce that could include complex issues of retirement should seek the legal advice of an experienced family lawyer who will keep a close pulse on how these legal issues evolve and can provide up-to-date guidance and meaningful representation.
The lawyers at Rice, Adams & Woodruff in Jacksonville, Arkansas, represent military divorce clients in the Little Rock area and throughout central Arkansas, including those affiliated with Little Rock Air Force Base, Camp Joseph T. Robinson, and other installations as well as those in the National Guard and Reserves – active, retired, veteran as well as their nonmilitary spouses or ex-spouses.