The GAO made 3 recommendations based on its evaluation of how the military is lacking in helping servicemembers understand their retirement plan. Employers take note. (Photo: Shutterstock)
The switch to the new blended retirement system for members of the U.S. military saw an effort on the part of the Department of Defense to provide training to soldiers, sailors and airmen and airwomen on its still relatively new Blended Retirement System (BRS).
However, those efforts have been less successful than they could have been, thanks in part to a lack of financial literacy on the part of servicemembers that keeps them from getting the full benefit of such training.
That's according to a report by the Government Accounting Office, which points out that it's not that DoD is failing to provide training, but that it does not assess servicemembers' level of financial literacy or evaluate how well the training succeeds at providing necessary information so that servicemembers benefit from it.
In fact, some of the recommendations certainly wouldn't hurt in the civilian world, either.
Servicemembers face financial literacy challenges when it comes to retirement, the GAO says, including understanding the DoD-provided training because their initial level of financial literacy is low. In addition, they can have a tough time relating to retirement's long-term goals, because of the immediacy of short-term life goals.
And in addition to experiencing difficulties taking the Opt-In Course for BRS that may lay the groundwork for ongoing and future DOD training, many have problems setting up online access to Thrift Savings Plan accounts.
The GAO made three recommendations based on its evaluation of the training:
1. Find gaps in knowledge. First, it said, financial literacy training assessments need to be reworked to find the gaps in servicemembers' financial knowledge, and then training sessions should be modified accordingly.
2. Explain pros and cons. Next, the Secretary of Defense should provide servicemembers disclosures about the lump-sum payment option that explain key pieces of information, including the relative value of the payment, the potential positive and negative financial ramifications of choosing that option and a description of how it was calculated.
This can be particularly important since, the report says, "DoD determines BRS lump-sum payment amounts at retirement by applying an interest rate (or discount rate) to calculate the present value of annuity payments servicemembers forego by taking a lump sum. The BRS discount rate exceeds the rate used by private-sector pension plans, resulting in a lower lump sum than if private-sector rates applied."
It continues, "DoD can take certain steps to help servicemembers understand how to compare the BRS lump-sum payment option with the full annuity option. Without this information, servicemembers may not make informed decisions and potentially risk their retirement savings."
3. Make access to accounts easier. And last but not least, access to Thrift Savings Plan accounts needs to be made easier and quicker, with the report recommending that the executive director of the Federal Retirement Thrift Investment Board and the Secretary of Defense need to work together to find alternative ways for servicemembers to get their initial password so they can access and manage their online accounts without additional delays.
An evaluation by employers of employees' financial literacy, with plan materials adjusted accordingly, would be a welcome addition for many in the civilian world whose knowledge and understanding of financial principles is low. And in cases in which employees are offered a lump sum in place of annuitized payments, a breakdown in laymen's terms of how the two compare would be helpful in choosing the right option.
And for employees who have trouble accessing online accounts, better ways of facilitating such access could make life much simpler as they struggle with financial wellness issues.
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
