Association of Military Banks of America

Retirement Overhaul and Increased Financial Education in Mark Up of FY2016 NDAA

The House Armed Services Committee is currently working on their markup for the FY 2016 National Defense Authorization Act (NDAA).  The personnel subcommittee is focusing on recommendations from the Military Compensation & Retirement Modernization Commission (MCRMC).  These changes are complex and your military bank can be a resource to help you understand how they will relate to your overall financial well-being.

Retirement Overhaul

One of the MCRMC’s recommendations is the retirement overhaul that includes changes to the current defined benefit retirement plan that begins at 20 years.  The new hybrid plan would combine a defined contribution Thrift Savings Plan (401(k)-type plan) with a 5% matching contribution and a 20% reduction of the current 20-year defined benefit retirement plan.

The purpose of this change is to give Servicemembers a retirement fund if they serve less than 20 years.  Servicemembers who retire at 20 years under the current plan receive 50% of their base pay in retirement.  Under the new proposed plan, this would be reduced to 40% at 20 years.   The percentage would increase 2% for each year of service (over 20 years) instead of the current rate of 2.5%.  The 5% match prior to 20 years of service would augment the 20% defined benefit plan reduction.  The new plan also includes a lump sum retention bonus at 12 years when you contract to serve another 4 years.

The proposed MCRMC retirement recommendation would give currently serving Servicemembers the option to switch to the new hybrid plan or stay on the current defined benefit retirement plan.  Once the bill becomes law, new enlistees/officers will be automatically put on the new hybrid plan.

Stay tuned for another blog installment that compares the two plans.

Increased Financial Education

Another provision in the markup of the FY2016 NDAA is a change and enhancement of the current financial education program.  The proposed changes would include adding financial literacy training:

  1. Into initial entry training
  2. Upon arrival at first duty station
  3. At subsequent duty locations (for E-4, O-3 and below)
  4. On the date of promotion (E-5, 0-4 and below)
  5. When the member vests in the Thrift Savings Plan (as part of the proposed retirement overhaul)
  6. At major life events
    • Marriage
    • Divorce
    • Birth of first child
    • Disabling sickness or condition
  7. During leadership training
  8. During pre and post deployment training
  9. Transition points
    • Regular to reserve status
    • Separation from service
    • Retirement
  10. Periodically recurring required training that is provided at the installation

As the FY2016 NDAA continues to be in flux, these items can be altered and/or removed.  After the final HASC markup the FY2016 NDAA still must be voted on at the full House session and the Senate Armed Services Committee will also work on its own version.  The final bills will be negotiated between the two chambers before going to the White House for approval.

For more military family issues that are being discussed as part of the NDAA mark-up check out this blog by the National Military Family Association.