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The New Year will bring a new military retirement system

The new program will have a 401(k)-like component.

Divorces involving military service members and their spouses can be complicated from a legal standpoint. While state courts applying state family laws grant divorces, when a service member is involved as one of the divorcing parties, federal laws also govern some of the issues involved.

The division of military retirement benefits is allowed under federal law as part of the property division ordered by the state court, whether according to a settlement agreement between the parties or as determined by a judge after a contested trial. Texas law provides that community property of the marriage is to be divided fairly between spouses in divorce, which often means a 50-50 split of military retirement benefits, sometimes called military pension benefits.

On January 1, 2018, a new military retirement system will take effect, which could create challenging legal issues in some existing divorce orders as well as in future divorces.

The current military retirement system

The current military retirement system is a defined benefit program, which basically means that once eligible after 20 years, a retired service member gets a monthly check. This is similar to traditional pension programs used by many private and public employers. The amount of that check is determined by a formula that takes into account the highest three years of ongoing pay, the length of service and a multiplier of 2.5 percent.

(For regular military, calculations are based on years of service. For Reserve and National Guard, parallel calculations are based instead on a point system in combination with length of service. This is true for both the existing and new systems.)

The new Blended Retirement System or BRS

The BRS will combine the current defined benefit program (with a reduction in the multiplier to 2 percent) with a defined contribution plan that is more like a 401(k). The defined contribution account is called the Thrift Savings Plan or TSP. The government will deposit a percentage of base pay into the TSP and the service member can elect the amount he or she wants to contribute to it, which the government will be match according to a formula.

Another component of the BRS is continuation pay, which is an optional bonus between the seventh and twelfth year that, if accepted, will require at least three more years of service.

Finally, under the BRS, when a service member becomes eligible to receive monthly pension payments, the retiree will have a new option of taking a lump-sum payment representing the amount that would be paid out until the age of Social Security retirement benefit eligibility. If the lump sum is chosen, regular pension payments will begin at retirement age.

New service members joining January 1 or later will be in the BRS. People with less than 12 years of service on that date will have the calendar year of 2018 to decide whether to opt into the BRS. Those with at least 12 years service will stay in the old system.

Anyone facing issues related to the BRS should speak with a lawyer for guidance about the many legal issues that will arise. For example, previous divorce orders that split pension payouts could be affected if the service member ex-spouse chooses the new plan. Future retirement division will be more complex with the new BRS components of the TSP, continuation pay and lump-sum option. In addition, how will the nonmilitary ex-spouse know when and if these choices are made?

Attorney Douglas C. Smith of the Law Office of Douglas C. Smith in El Paso represents active, retired and reserve military service members associated with Fort Bliss in Texas or with any other military installation in the country or around the world as well as the spouses of service members in all matters related to divorce or property division.

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