Thrift Savings Plan Contributions under the Blended Retirement System

The Blended Retirement System (BRS), implemented in 2018, aims to make Servicemembers more active participants in retirement saving. It does so by lowering the pension payments automatically available to Servicemembers upon completing 20 years of service (YOS) and instead automatically contributing an amount equal to one percent of the member’s basic pay to the member’s retirement savings account and by matching the member’s voluntary contributions to that retirement savings account. This allows Servicemembers to retain their retirement savings if they leave before qualifying for a pension, but means that career Servicemembers who do not proactively save for retirement will be worse off than under the previous system. This report examines how Servicemembers save for retirement and the characteristics associated with higher retirement contributions as a first step in determining whether these contributions are offsetting the reduction in pension payments.

Prior to the BRS, the Department of Defense (DOD) used a cliff-vesting pension program. Servicemembers became vested in the program (i.e., eligible for pension payments) only after 20 years of service (YOS), and received no pension benefit if they left the military prior to 20 YOS. The BRS instead provides benefits that Servicemembers may access even if they do not reach 20 YOS, while encouraging them to actively participate in their retirement planning. The BRS reduces the payment associated with the cliff-vesting program, but it compensates for the reduction by incentivizing participation in the Thrift Savings Plan (TSP), a retirement savings plan that vests member and matching contributions immediately and that vests automatic contributions after two years of service. It does so by matching Servicemembers’ contributions at a 100 percent rate up to 3 percent of basic pay and at a 50 percent rate between three and five percent of basic pay. BRS participants also receive an automatic contribution equal to 1 percent of their basic pay regardless of their contribution rate; thus, the government will contribute between 1 percent (for Servicemembers who make no contribution) and 5 percent (for Servicemembers who contribute at least 5 percent) of a Servicemember’s basic pay. Servicemembers who are ineligible for the BRS or who opt to remain in the legacy pension system still may contribute to the TSP, but they do not receive any matching funds or automatic contributions.

The BRS was implemented on January 1, 2018; TSP contributions prior to this date did not receive matching funds, regardless of a Servicemember’s eventual BRS enrollment status. Servicemembers with Dates of Initial Entry into Military Service (DIEMS dates) or Dates of Initial Entry into Uniformed Service (DIEUS dates) on or after January 1, 2018 were automatically enrolled in the BRS, though they will receive matching benefits only after two YOS. Those with DIEMS/DIEUS dates prior to January 1, 2018 could opt in to the BRS at any point in 2018 if they had fewer than 12 YOS, but they became ineligible upon reaching 12 YOS. Servicemembers who opted in to the BRS began receiving matching funds immediately, regardless of their YOS at the time of opt-in. Servicemembers who failed to opt in by the end of 2018 became ineligible for the BRS at the beginning of 2019.

This report examines how TSP contributions vary by Service, eligibility category, and Servicemember characteristics, using aggregate-level data provided by the Defense Manpower Data Center (DMDC) (for the Marine Corps) and TSP data (for the Army, Navy, and Air Force). We used different datasets because only the Marine Corps provided usable TSP data to DMDC in 2018. Each dataset has strengths and weaknesses—DMDC data let us observe Servicemembers’ characteristics but did not show whether they had an active TSP account or had opted in to the BRS (if eligible), whereas TSP provided data on only Servicemembers enrolled in the BRS. We examined how the Marine Corps’ contribution patterns varied prior to and during BRS implementation, along with how Marines who were ineligible for the BRS may have been affected during this process, but we could not determine whether contribution rates among eligible Marines changed because they planned to opt in to the BRS or because they were better informed about retirement savings more generally. Conversely, we could clearly view behavior by Soldiers, Sailors, and Airmen who opted in to the BRS, but we had a far more limited set of characteristics by which to evaluate them and could not observe how their behavior changed prior to or immediately upon opting in.

Our principal findings include the following:

• Auto-enrolled Servicemembers from all four Services are more likely than those who opted in to contribute the default rate of 3 percent.
• Soldiers and Airmen were much more likely than Sailors or Marines to make the default TSP contribution of three percent of basic pay, likely reflecting Service-level differences in BRS implementation.
• Both BRS-eligible and BRS-ineligible Marines became much more likely to contribute to the TSP in the May 2017 pay data, likely reflecting both Corps-wide education on the BRS and positive spillover effects.
• Age, regular military compensation (RMC), and paygrades (both enlisted and officer) exhibited clear correlations with contribution levels, as predicted by research on civilian retirement saving.
• Some Servicemembers may be contributing to the TSP at too high a rate and forgoing matching funds by reaching the elective deferral limit prior to December. This issue can likely be addressed at low cost to the Services.