In early 2018, big changes came to military retirement plans. These changes affected millions of current personnel and would also affect newcomers. Like many employers of the past, the U.S. government once structured its pension plan based on tenure.
Put simply, to take advantage of the amazing pension plan available, military personnel had to serve the country for at least 20 years. Unfortunately, most people do not remain in the military for this long.
Modernizing pension plans
CNBC reports that this change took effect on January 1, 2018. Here are some of the new changes underway:
- Those who acquired 12 years or more of service as of the end of 2017 earn the guaranteed pension provided by the old legacy plan.
- Military personnel who had not yet served the country for 12 years needed to make a decision about what plan to opt into by the end of 2018.
- Military personnel who chose the new plan could make contributions that the government matches up to 5% of the pay rate.
- Personnel who opt in might also still receive a pension after 20 years of service.
- There are classes available that people can take to help them make an informed decision.
Comparison with civilian plans
The New York Times describes the old legacy plan as a pension cliff that required all or nothing for military personnel to get retirement benefits. It believes the new plan more closely resembles the plans that civilian Americans receive from work. The changes represent the most comprehensive overhaul since World War II.
The career path that military personnel take as they near the 12-year and 20-year thresholds can determine financial stability for years to come. This is just one of the many reasons planning ahead and making the right decisions is so important.