Source: https://statesidelegal.org/silent-partner-blended-retirement-system-and-divorce
Timestamp: 2019-04-25 02:52:38+00:00

Document:
MST is an experience, not a diagnosis.
Introduction: SILENT PARTNER is a lawyer-to-lawyer resource for military legal assistance attorneys and civilian lawyers, published by the Military Committee of the American Bar Association’s Family Law Section. Please send any comments, corrections and suggestions to the address at the end of this Silent Partner. There are many SILENT PARTNER infoletters on military pension division, and other aspects of military divorce. Just go to www.abanet.org/family/military(the website of the above committee) or www.nclamp.gov(the website of the military committee, N.C. State Bar) > “For Lawyers.” Credit for writing the initial draft of this SILENT PARTNER goes to Major Amelia B. Kays, a Policy Analyst at Headquarters Marine Corps, Manpower and Reserve Affairs, Reserve Affairs Policy Branch, in Quantico, Virginia.
In the National Defense Authorization Act for 2016, Congress passed legislation to modernize the retirement systems for the uniformed services. This involved implementing a “blended” retirement system which combines a “defined contribution” component with a “defined benefit” program. The new Blended Retirement System, effective as of January 1, 2018, applies to everyone who enters service after that date. Those who entered the uniformed forces on or before December 31, 2017 will have a choice: to opt-in to the new system or to remain “grandfathered” in the current military retirement system.
The current military retirement system is a defined benefit system. Servicemembers (SMs) who serve honorably for 20 years become vested in the retirement system. When active-duty SMs retire, they receive a monthly pension calculated by multiplying the average of the SM’s highest three years of continuous pay (the retired pay base) by 2.5% times the years of service (the retired pay multiplier). For example, assume that John Doe is an E-7 who served for at least three years as an E-7 and has a total of 21 creditable years. He retires in 2016 and his “high-3” (retired pay base) is $4,423.80. John’s retired pay multiplier is 21 years of service x 2.5 = 52.5%. This means that he would receive retired pay based on 52.5% of his high three basic pay, or $2,322.50 per month.
The current Reserve Component (RC) retirement is based on a combination of satisfactory years and points achieved each year. An RC member (that is, a member of the National Guard or Reserves) earns 15 points each year for participation, one point each day for two weeks of annual training and any other active-duty time served, and points for weekend drills, performing funeral honors, and completing correspondence courses, depending on how many hours of work are performed. RC members must earn 50 points annually to have a satisfactory year. Once the RC member has 20 satisfactory years, he or she can apply for retirement. Although it may commence earlier, RC retired pay generally begins at age 60.
The calculation of RC retired pay is a bit more complicated than that used for a “regular retirement,” that is, one from active duty. Assume that Roberta Roe is an E-7 who has served for at least three years as an E-7 and served a total of 21 satisfactory years. She applies for discharge in 2016 and she has a “high-3” pay rate of $4,423.80 for her retired pay base.
Her retired pay multiplier is the number of points she earned during her career divided by 360, multiplied by 2.5%. In this case, assume that Roberta earned 365 points during her first year of service − attending recruit training and her Military Occupational Specialty (MOS) school while on active duty − and then she earned the minimum 50 points each year thereafter for 20 years. Accordingly Roberta has 365 + 1,000 points or 1,365 retirement points. The number of points divided by 360 equals 3.79 – this is the equivalent of active-duty time. This number is then multiplied by 2.5% to get the retired pay multiplier, that is, the percentage of her base pay that will establish the amount of the pension. In this case it’s 3.79 x 2.5 = 9.475%.
The last step is to determine the monthly pension payment. This is the product of the retired pay base (shown above) and the retired pay multiplier just established: $4,423.80 x 9.475% = $419.16 per month retired pay.
From two years of service forward, members are vested in the BRS and can keep their DoD automatic contributions and matching amounts if they choose to separate from their uniformed service.
The BRS will also provide SMs with mid-career Continuation Pay between the beginning of the eighth and the start of the twelfth year of service. The amount of Continuation Pay will range from 2.5 to 13 times the amount of monthly base pay for active duty service members and .5 to 6 times the amount of monthly base pay for Reserve SMs. Members who accept Continuation Pay will be required to serve for at least an additional three years.
Additionally, participants in the BRS will have the option to take a lump-sum payment upon becoming eligible to receive retired pay. SMs will have the option to take either 25% or 50% of their monthly pension payments between the date of retired pay eligibility (upon retirement from active duty and, for RC members, usually at age 60) and the age of Social Security payment eligibility when they retire from military service; as of this writing (2017), this is at age 67. The lump sum will be discounted by a “Discount Rate,” which will be determined by combining the 10-year average of the Department of the Treasury High-Quality Market Corporate Bond Spot Rate Yield Curve at a 23-year maturity plus an adjustment factor intended to account for unique aspects of the military retirement program. The rate will be published annually on June 1 and go into effect on the following January 1. When the SM reaches the age for collection of Social Security, the pension payments will return to the full rate.
Those who enter the uniformed services on or after January 1, 2018 will be enrolled in the BRS. Active-duty members entering service after January 1, 2006 but before January 1, 2018 and RC members with fewer than 4,320 points on December 31, 2017 can choose between opting in to the new system and remaining in the current retirement system. Members with 12 years of service (for RC members this is calculated as 4,320 points or more on December 31, 2017) will remain grandfathered in the current retirement system. Those SMs who are eligible to opt-in to the BRS will begin receiving on-line training about the BRS in January 2017 and will have all of calendar year 2018 to decide whether to enroll in the new system. Anyone may access this on-line training about the BRS through Military OneSource, http://www.militaryonesource.mil/. Additional BRS information may be found at http://militarypay.defense.gov/BlendedRetirement/.
Enrollment in the new retirement system is a significant change in retirement planning. It will not only affect a member’s family; it also could affect, when applicable, the SM’s former spouse. This is because under the new system, the annuity will be reduced from 50% of the “high-3” base pay for those who serve 20 years to 40%. For members who have already signed a separation agreement or received a divorce decree, dissolution of marriage, property division judgment or court-ordered property settlement providing a percentage of retired pay to a former spouse, the choice to opt-in to the new retirement system will directly impact the amount of retired pay that the former spouse receives. Additionally, members or military spouses who file for divorce in cases where the SM is eligible to opt-in to the BRS will need to include provisions in their separation agreements and settlements to address how this choice affects the distribution of the marital or community-property share of the SM’s military retired pay. The same issues will be present when the case is tried, not settled – the judge will need to be educated on the options and their impact.
The legal issues presented by the BRS are similar to those created by the Career Status Bonus (CSB)/REDUX election. CSB/REDUX is an election that all SMs are eligible to make when they reach 15 years of service under the current retirement system. In exchange for an agreement to serve an additional five years, SMs receive $30,000. However, CSB/REDUX reduces a SM’s retired pay multiplier by one percent for each year of creditable service less than 30, and 1/12th of one percent for each month of creditable service less than a full year. Additionally, under CSB/REDUX, a SM’s Cost of Living Adjustments (COLAs) to his or her retired pay are reduced by one percent. CSB/REDUX and the BRS both create lasting reductions in the defined benefit payments received by the SM, and accordingly they reduce the amount of divisible retired pay. The best way to address these potential problems is through anticipatory drafting.
The parties consent to the court’s retaining continuing jurisdiction to adjust the pension division payments or the property division specified herein if Defendant elects to opt-in to the Blended Retirement System or waives military retired pay in favor of disability compensation or takes any other action (such as receipt of military disability retired pay, severance pay, or a separation bonus or incentive) which reduces the amount or share of retired pay for Plaintiff as set out herein.
Unlike most retirement plans, the uniformed services retirement program allows for pre- and post-retirement changes in retired pay, whether they are initiated by the member (such as selecting an early-out bonus or incentive, electing CSB/REDUX or opting into the Blended Retirement System), initiated by the government (such as disability retired pay and some forms of severance or separation pay), or caused by a combination of action and inaction by the member. In the event of a reduction in the amount or share of the Plaintiff, the Defendant will pay back any loss to the Plaintiff in consequence thereof.
The language in either of these paragraphs will help to indemnify the Plaintiff if the Defendant remains in the current retirement system and elects CSB/REDUX or if the Plaintiff opts-in to the BRS causing the retired pay multiplier to be reduced. There is additional protection if other alternatives occur outside of electing BRS.
If you are representing the SM, you should reject any provision that attempts to limit the SM’s ability to opt-in to the BRS or to restrict in any way the ability of the SM to choose plans, benefits or programs which are available under federal law. Such provisions are probably not legally enforceable but including them in a separation agreement or property division judgment may be read as an agreement between the parties that the SM will not take any steps to reduce the divisible retired pay of the spouse. This could allow the court to reallocate the marital assets or require reimbursement should the SM choose to opt-in to the BRS under the concept that the SM has violated the covenant of good faith and fair dealing.
If you have a client who already has a separation agreement, property division judgment or court-ordered property settlement dividing a military pension, and that client later finds out that the former spouse has opted-in to the BRS, examine the language of the document to determine if there is an indemnification clause or a provision that allows the court to retain jurisdiction over the matter. With these clauses in place, the court may be able to reallocate other marital assets or require reimbursement to compensate the client for the SM’s action in reducing the divisible retired pay.
This SILENT PARTNER was prepared by Major Amelia Kays, USMC and COL Mark E. Sullivan (USA-Ret.). For revisions, comments or corrections, contact him at Sullivan & Tanner, P.A. in Raleigh, N.C. - 919-832-8507, or at mark.sullivan@ncfamilylaw.com(alternate: 919-306-3015, law.mark.sullivan@gmail.com).
“Uniformed services” means the Army, Navy, Air Force, Marine Corps and Coast Guard, plus the commissioned corps of the Public Health Service and the National Oceanic and Atmospheric Administration.
If Roberta had applied for transfer to the Retired Reserve, her actual retired pay would be based on the current pay of an E-7 at the time the pension payments started, rather than the payment shown in the text above. Unlike a discharged SM, however, she would have been subject to recall to the Reserves or to active duty after her transfer.
SMs who “opt-in” to the BRS will receive 1% contributions to TSP and government matching of the contribution amount that they select when they opt-in to the BRS on the first pay period following their opt-in election.
CSB/REDUX will be discontinued on January 1, 2018.
For cases stating that a judge cannot prohibit a SM/retiree from electing VA disability compensation, see Pederson v. Pederson, No. 1178-15-4 and No. 2093-15-4, 2016 Va. App. LEXIS 217, Cunningham v. Cunningham, 171 N.C. App. 550, 615 S.E.2d 675 (2005), Freeman v. Freeman, 133 S.W.3d 277 (Tex. App. 2003). The court, however, can order that the member indemnify the former spouse for any loss suffered because of the actions of the member. Jones v. Jones, No. 0062-15-2, 2016 Va. App. LEXIS 29; Hubble v. Hubble, No. 2015-01-4, 2002 Va. App. LEXIS 459, Poziombke v. Poziombke, No. 1150-05-1, 2006 Va. App. LEXIS 61, and Pederson, supra.
See, e.g., Krapf v. Krapf, 55 Mass. App. Ct. 485, 771 N.E. 2d 819 (2002) and Boedecker v. Larson, 44 Va. App. 508, 605 S.E.2d 764 (2004).

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