Understanding the new Uniformed Services Blended Retirement System and Divorce

201808.19
0

In 2016, the National Defense Authorization Act passed by Congress established a new military retirement system that significantly changed the traditional 20 year rule for military pensions. The new system is referred to as the Uniformed Services Blended Retirement System and went into effect on January 1, 2018.

The Traditional System

Under the traditional military retirement system, servicemembers were required to serve at least 20 years in order to receive any retirement benefits. Anything less meant that the member would receive no benefit.

Once this mandatory time in service requirement was meant, the member’s annuity benefit was determined as follows:

Defined annuity benefit  =  2.5%  x  Years Served  x  Retired Pay Base

It has been estimated that only 19% of active duty servicemembers and 14% of reserve servicemembers qualified for retirement benefits under this plan, given the length of service requirements.

The Blended Retirement System

The Blended Retirement System provides a greater benefit for service members who have a time in service of less than 20 years. The Blended Retirement System does this by providing servicemembers with:

1. A Thrift Savings Plan (TSP) that combines a member’s contributions with automatic matching contributions of 1% and additional matching of up to 4%. A TSP plan can be thought of as similar to a defined contribution plan like a 401(k).

2. A defined annuity that is determined as follows:

Defined annuity  =  2.0%  x  Years Served  x Retired Pay Base (High 36 Month Average)

Members serving prior to December 31, 2017 had the option to remain in the traditional system or request enrollment in the new Blended Retirement System. Servicemembers entering after January 1, 2018 will be covered under the Blended Retirement System.

New Rules for Dividing Military Retirement in Divorce

With regard to the defined annuity, the traditional rule for dividing military retirement is a fraction that calculates the “marital share” of the military retirement:

  coveture formula

 

 

 

That “marital share” would then be divided between the parties.

Under the new rules set forth in the 2016 National Defense Authorization Act, the military member’s disposable retired pay that is subject to division is limited to “the amount of retired pay to which the member would have been entitled using the member’s retired pay base and years of service on the date of the decree of divorce, dissolution, annulment, or legal separation.” Or, in other words, the former spouse’s benefit is ‘frozen’ at the servicemeber’s retired base pay as of the date of divorce – and the former spouse would not be entitled to any amount of increase in retired base pay attributable to promotion or additional time in service achieved after the divorce.