Military Retirement: Background and Recent Developments
Military Retirement: Background and Recent Developments
Updated July 28, 2022
Congressional Research Service RL34751
Military Retirement: Background and Recent Developments
Summary
The military retirement system is a government-funded, noncontributory, defined benefit system that has historically been viewed as a significant incentive in retaining a career military force. The system currently includes monthly compensation for qualified active and reserve retirees, disability benefits for those deemed medically unfit to serve, and a survivor annuity program for the eligible survivors of deceased retirees. The amount of compensation is dependent on time served, basic pay at retirement, and annual Cost-of-Living-Adjustments (COLAs). Military retirees are also entitled to nonmonetary benefits including health care benefits, exchange and commissary privileges, and access to Morale, Welfare and Recreation (MWR) facilities and programs. Currently, there are three general categories of military retiree?active component, reserve component, and disability retiree. Active component personnel are eligible for retirement (i.e., vested) after completing 20 years of service (YOS). Reserve personnel are eligible after 20 years of creditable service based on a points system, but do not typically begin to draw retirement pay until age 60. Finally, those with a disability retirement do not need to have served 20 years to be eligible for retired pay; however, they must have been found unqualified for further service due to a permanent, stable disability. In FY2020, DOD obligated $61.8 billion for 2.3 million military retirees and survivors. Given the size of the program, some have viewed military retirement as a place where substantial budgetary savings could be made. Others have argued that past modifications intended to save money have negatively affected military recruiting and retention. Military retirees, families, and veterans' interest groups closely monitor potential changes to the retirement system. When considering alternatives to the current system, Congress may choose to consider the balance among (1) the benefits of the military retirement system as a retention incentive, (2) budget constraints, and (3) the needs and concerns of constituents.
Congressional Research Service
Military Retirement: Background and Recent Developments
Contents
Overview ......................................................................................................................................... 1 Retirement System Eligibility and Pay Calculations....................................................................... 3
Active Component Retirement.................................................................................................. 4 Final Basic Pay (prior to September 8, 1980) ..................................................................... 4 High Three .......................................................................................................................... 5 Redux .................................................................................................................................. 5 Blended Retirement System (BRS) .................................................................................... 6
Reserve Component Retirement.............................................................................................. 10 Disability Retirement .............................................................................................................. 12 Extraordinary Heroism Pay ..................................................................................................... 13 Military Retired Pay, Social Security, and Federal Income Tax .................................................... 13 Retired Pay and the Cost-of-Living Adjustment (COLA) ............................................................. 14 COLAs for Pre-August 1, 1986, Entrants ............................................................................... 14 COLAs for Personnel Who Entered Service On or After August 1, 1986 .............................. 14
Non-Redux Recipients ...................................................................................................... 14 Redux/$30,000 Cash Bonus Recipients ............................................................................ 14 Military Retirement Budgeting and Costs ..................................................................................... 15 Treasury Payments for the Unfunded Liability ....................................................................... 17 Concerns about Implementation of the BRS ................................................................................. 19 Retention Effects ..................................................................................................................... 19 Effects on Financial Well-Being ............................................................................................. 20 Lump Sum Option ............................................................................................................ 20 Effectiveness of Financial Literacy Training .......................................................................... 21
Figures
Figure 1. Active Duty, Non-Disability (Longevity) Retirement Eligibility Flowchart ................... 4 Figure 2. Normal Cost Contributions to the MRF, FY1985-FY2020............................................ 19
Tables
Table 1. DOD Retired Military Personnel, Survivors, and Program Obligations, FY2007FY2020......................................................................................................................................... 2
Table 2. Government Automatic and Matching Contributions........................................................ 8 Table 3. Potential Continuation Pay Multipliers ............................................................................. 9 Table 4. Retirement System Comparisons..................................................................................... 10 Table 5. DOD's Normal Cost Percentages (NCPs) for FY2017 and FY2021............................... 16
Appendixes
Appendix. Retirement Reform Recommendations in Selected Prior Reviews ............................. 22
Congressional Research Service
Military Retirement: Background and Recent Developments
Contacts
Author Information........................................................................................................................ 23 Acknowledgments ......................................................................................................................... 24
Congressional Research Service
Military Retirement: Background and Recent Developments
Overview
The military retirement system is a government-funded benefit system that has been viewed historically as a significant incentive in retaining a career military force. The system includes a defined benefit element for all retirees and a defined contribution element for certain eligible retirees. The defined benefit includes a monthly annuity for qualified active and reserve retirees paid out of the Military Retirement Fund. The defined contribution benefit includes governmentmatching payments into an individual retirement Thrift Savings Plan (TSP) account. The amount of the retirement annuity depends on years of service (YOS) and basic pay at retirement. It is adjusted annually by a Cost-of-Living Adjustment (COLA) to help protect the annuity from the effects of inflation. Military retirees are also entitled to nonmonetary benefits, which include health care benefits, exchange and commissary privileges, and access to Morale, Welfare and Recreation (MWR) facilities and programs.
The military retirement system has evolved since the late 1800s to meet four main goals.
To keep the military forces of the United States young and vigorous and ensure promotion opportunities for younger members,
To enable the Armed Forces to remain competitive with private-sector employers and the federal Civil Service,
To provide a reserve pool of experienced military manpower that can be called upon in time of war or national emergency to augment active forces, and
To provide economic security for former members of the Armed Forces during their old age.1
Among active duty personnel, eligibility for a monthly pension is generally based on a service requirement of at least 20 years of (active) service. For reserve component personnel, the system is based on a point system, and reservists do not generally begin to receive retired pay until the age of 60. Both the active and reserve component retirement systems vest at 20 years of qualifying service.2 However, some members who are retired with a physical disability may receive a pension with fewer years of service. Disability retirement offers two retirement compensation options: based either on years of service (longevity) or on the severity of the disability.
In FY2020, DOD obligated $57.8 billion for approximately 2 million military retirees, and an additional $4.0 billion for 317,163 survivors.3 As shown in Table 1, the number of military retirees and the cost of their retirement benefits have increased over the past decade.
1 Department of Defense, Military Compensation Background Papers: Compensation Elements and Related Manpower Cost Items, Their Purposes and Legislative Backgrounds, Eighth Edition, July 2018, p. 55.
2 Vesting in the military retirement system is commonly referred to as "cliff vesting." Until the 20-year point, there is generally no vesting. At 20 years, the servicemember becomes fully vested. However, individuals can receive retirement benefits with fewer than 20 years of service under the disability retirement system and under Temporary Early Retirement Authority (Section 4403, P.L. 102-484, October 23, 1992; 10 U.S.C. ?1293 note).
3 Department of Defense, Statistical Report on the Military Retirement System; Fiscal Year Ended September 30, 2020, Office of the Actuary, September 2021, p. 22.
Congressional Research Service
1
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.
Related download
- department of the army retirement planning briefing
- the blended retirement system brs new fact sheet may 22
- mortality rates and life expectancy of veterans
- 2020 military basic pay table military compensation
- employee publication a027000 military discount
- air force compensation fact sheet military onesource
- military retirement background and recent developments
- military service and social security 2021
- winds of change new rules for dividing the military
- dod 7000 14 r department of defense financial management
Related searches
- tax rate on military retirement pay
- military retirement pay tax calculator
- military retirement pensions
- estimate military retirement pay
- when is military retirement pay not taxable
- military retirement high 3
- military retirement pay calculator 2019
- military retirement pay chart
- military retirement pay calculator
- military retirement calculator high 3
- retired military retirement pay tables
- federal tax rate on military retirement pay