The President recently signed into law the National Defense Authorization Act of 2016, which features a modernized military retirement system applicable for all members of the U.S. military.
This new system changes the current 20-year retirement system and will go into effect on Jan. 1, 2018. Ahead of this, the Coast Guard will provide education and training to ensure all members fully understand the new system. All Coast Guard men and women currently serving or entering the Service prior to Jan. 1, 2018 will be grandfathered under the current system. Members who have less than 12 years of service as of Dec. 31, 2017 will have the option to opt into the new system once it is implemented. Coast Guard members entering the service after Jan. 1, 2018 will fall under the new modernized retirement system.
The new system is a blend of a 20-year defined benefit and a defined contribution plan. Members under the modernized retirement plan will see their defined benefit multiplier (pension) reduced from 2.5 percent to two percent and will be auto-enrolled at three percent of their basic pay into a portable TSP account upon entry to military service. Following initial entry training, each member will be able to elect their own TSP contribution level.
If a member desires to opt out of the TSP contribution for a particular year, they will automatically be renewed at three percent the following year.
After 60 days of service, the Coast Guard will automatically contribute one percent of a member’s basic pay (or inactive duty pay for a Selected Reserve member) to the member’s TSP account. This one percent contribution will continue until the member separates, retires or reaches 26 years of service. This contribution is automatic and does not change during a member’s career.
After the completion of two years of service, the Coast Guard will match the service member’s contribution up to an additional four percent (for a maximum of five percent total) and will continue to match that contribution until the member separates, retires or reaches 26 years of service.
Each member will own all government contributions to their TSP after two years of service.
After 20 years of service, a Coast Guard member will be eligible to receive a defined benefit multiplier of two percent (it’s currently 2.5 percent). A member retiring may choose to receive a lump-sum payment of either 25 or 50 percent of the total retirement benefit and a reduced monthly payout.
The modernized retirement plan will also include the offer of Continuation Pay to encourage retention beyond 12 years of service and provide additional income during a member’s career. The Coast Guard will offer Continuation Pay between 2.5 and 13 times one month’s basic pay for active duty and between 0.5 and 6 times one month’s IDT pay for reserve. Any member who elects to receive Continuation Pay will incur a 4 year service obligation.
Be sure to stay tuned to Coast Guard All Hands for any and all updates regarding the modernized retirement system, and feel free to ask your questions in the comments below!