Changes in military retirement will have major impact on divorces

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Changes in military retirement will have major impact on divorces

The new military retirement system began on January 1, 2018.

The question of how retirement benefits will be divided in divorce is always important to both parties, but it just got more complicated for military divorces. On January 1, 2018, a new military retirement program began called the Uniformed Services Blended Retirement System or BRS.

New features

These are the key changes from the new plan:

  • The introduction of a 401(k)-like component, called a defined contribution plan
  • An optional bonus in exchange for a longer service commitment
  • An optional lump sum payout at the beginning of retirement pay in exchange for reduced monthly payments until Social Security retirement age

Legacy plan

Historically, the military retirement plan has been a defined benefit plan, meaning an ongoing monthly payment will be paid to the military retiree after 20 years of service. The amount is calculated according to a formula considering years of service, historical pay levels and a 2.5 percent multiplier. (Members of the reserve and National Guard have similar benefits that are instead calculated using a points system.)

Traditionally, in many military divorces, the nonmilitary spouse receives a portion of the retirement payment each month, either under the terms of a negotiated marital settlement agreement or pursuant to a judge’s decision.

New plan

Under the new plan, the defined benefit element still exists with a reduced multiplier (so smaller monthly payments). In addition, the service member may set up a defined contribution plan, meaning an account like a civilian 401(k) (called the Thrift Savings Plan or TSP) into which a chosen percentage of pay is deposited as well as a matching amount from the government. The amounts, percentages and other terms are determined by the plan.

The new plan also offers an optional bonus called Continuation Pay between the seventh and twelfth year of service (during year eight, nine, 10 or 11). Acceptance of this payout requires the service member to serve a minimum of three more years.

Finally, when the service member becomes eligible for the monthly defined benefit payments, he or she may opt to take a lump sum payment representing one-quarter or one-half of total projected payments from military retirement through Social Security retirement age. If the lump sum is taken, the retiree will get reduced monthly payments until Social Security retirement age, when they will go back to the full amount.

Eligibility issues

People with at least 12 years of service on January 1, 2018, automatically remain in the legacy retirement system. Those who start service on January 1, 2018, or later, are enrolled in the new BRS. All those with less than 12 years of service on December 31, 2017, may affirmatively choose to opt into the new plan, but they only have until December 31, 2018, to do this.

Important new legal issues

It is important for anyone involved in a military divorce – past, pending or future – consider whether he or she could be impacted by the BRS. Specifically, if the service member has the opt-in option, what will happen to an already finalized divorce that divided retirement without foreseeing the possibility of the new system? What about divorces negotiated this year while the opt-in decision is still not made?

Going forward, it is new legal territory. How will future decisions regarding Continuation Pay and the lump-sum option be considered in divorce negotiations or judges’ orders dividing retirement? Legal guidance will be needed in negotiation and legal arguments before judges will need to carefully lay out the new retirement system and its impact in any individual situation.

The attorneys of Stange Law Firm, P.C., with offices in Illinois, Missouri and Kansas, represent military service members – active, reserve and retired – including those affiliated with Fort Leonard Wood and Scott Air Force Base and military spouses in divorce matters throughout the Midwest.

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