The new Blended Retirement System (BRS) provides members with a defined pension (albeit lower than the previous system), but adds a defined benefit contribution to the Thrift Savings Plan (TSP). The new system took effect on January 1, 2018, and applies to everyone who enters service after that date. Members who entered the service between January 1, 2006 and December 31, 2017 will have a choice: to opt-in to the new system or to remain “grandfathered” in the current military retirement system, which is lifetime monthly payments after 20 years of service. A positive aspect of BRS is that members who separate before completing 20 years of service can receive some retirement benefit, whereas under the old system, it was all or nothing.
Under BRS, servicemembers still receive a defined pension benefit which is based upon the members’ base pay and how many years of service have been completed. However, the defined pension benefit is lower than that of the current system. With the reduction in the defined pension benefit, the military provides the servicemember with a contribution to their TSP. The member is automatically enrolled at 3%, but can change that amount at any time. The military will match up to 5% of TSP contributions after a trial period. If a member elects to join the new system, then their TSP is subject to equitable distribution in a divorce.
The member can choose one of three payment options under BRS: (a) monthly pension payment for life, (b) lump sum + smaller payments until full social security, or (c) lump sum + no payments until full social security. The ability to opt in to BRS is likely to have a direct impact on the amount of ‘retired pay’ the former spouse receives and should be addressed in the settlement agreement to address how this choice affects the distribution of the marital share of the member’s military retired pay.
VETERAN’S AFFAIRS (VA) DISABILITY WAIVER
VA disability compensation covers injuries or disabilities that occurred while the member was on active duty, or that were pre-existing and worsened by active service. The disability rating system used for VA compensation measures the extent of the disability and its effect on the service member’s ability to work and become employed.
Under the Uniformed Services Former Spouses’ Protection Act, VA disability benefits are not subject to division in a divorce. They are the sole property of the member who earned them. Present and future military disability benefits are not subject to distribution to a former spouse by a divorce court.
The law does not require the consent of a former spouse for the Service member to elect disability benefits. However, if a service member elects VA disability compensation, it usually requires a dollar-for-dollar waiver of retired pay. As a consequence, the amount waived is subtracted from the ‘disposable retired pay’ available to pay the former spouse under a previous Final Judgment. As a result, many years after the entry of a Final Judgment, the former spouse may wind up receiving a substantially reduced monthly support payment without advance warning.
There are several methods available to the parties to anticipate and plan for this type of future event. One way is for the parties to include an indemnification clause or reimbursement provision in their settlement agreement. Another is to address any potential changes through alimony with a dollar-for-dollar offset from the alimony obligation or permanent nominal alimony (alimony that is permanent and of minimal value) that does not terminate upon remarriage. Alternatively, the parties may be able to return to Court to adjust spousal support for retired pay that was lost or seek indemnification for the reduction in military retired pay if a party can prove the military retired pay was not considered for purposes of settlement.
Survivor Benefit Plan (Former Spouse designation)
The Survivor Benefit Plan (SBP) is the survivor annuity associated with military retired pay. It is essentially insurance for the pension. If a service member were to pass away, the spouse, former spouse or children would be eligible to receive up to 55% of the service member’s pension for life.
SBP is not free and is deducted from the service member’s retiree paycheck (Note: this may reduce the amount of money available to a spouse). The current cost of SBP is 6.5% of the selected base amount (between $300 and the full amount of the service member’s monthly retired pay). Federal rules require that the premium be subtracted from the service member’s retired pay before the pension is divided. This causes, in effect, a splitting of the cost of the premium between the service member and the former spouse in the same proportion as their shares of the pension. This deduction cannot be changed by the parties and DFAS will not honor an order to the contrary. If a service member wishes to receive an offset for this cost, it must be negotiated by the parties.
Either party can effectuate coverage. Therefore, for coverage to occur, the service member or retiree must transmit the correct form to DFAS within one year of the divorce. If the service member/retiree fails or refuses to make the election within a year of the divorce, the former spouse can submit a deemed election form to get SBP coverage, which must be done within one year of entry of the divorce.
A divorcing spouse must also be aware that if they remarry before age 55, SBP payments are suspended, but can be reinstated if the remarriage ends by death or divorce. If remarriage occurs at age 55 or older, SBP will continue uninterrupted for the duration of the surviving former spouse's life.
If the former spouse passes, and the service member has remarried, or remarries at a later date, the new spouse may be eligible for SBP coverage if certain conditions are met. A request for transfer of the coverage must be made within one year of the death of the former spouse or within one year of the remarriage.