Abstract
We evaluate the 2018 option for U.S. military service members to switch from the legacy defined benefit (DB) pension to the new DB/DC hybrid Blended Retirement System. We show that the required return on the pre-retirement matching and incentives in the new system is unrealistically high. Alternatively, those switching to the new system must anticipate a substantial improvement to the current levels of incentive Continuation Pay. We construct our own analysis and a calculator that takes a financial economics perspective missing from previous analyses of the decision as well as consider the positive attributes of the Blended Retirement System. We conclude that those facing the 2018 choice between the two plans should favor the current DB plan if they anticipate serving 20 years.
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