Chapter III.B.1.

Nondisability Retired and Retainer Pay

Legislative Authority: Nondisability retirement and retired and retainer pay authority is set out in various provisions of Title 10, United States Code.[1]

Purpose: To establish a nondisability retirement system and authorize the payment of retired pay for service in the armed forces of the United States in order to insure that (1) the choice of career service in the armed forces is competitive with reasonably available alternatives, (2) promotion opportunities are kept open for young and able members, (3) some measure of economic security is made available to members after retirement from career military service, and (4) a pool of experienced personnel subject to recall to active duty during time of war or national emergency exists.

Background: Except for an 1855 statute that provided for the compulsory retirement of certain Navy officers, there was no legislative authority before 1861 that provided for either the voluntary or the involuntary retirement of active-duty members of the armed forces from military service. The effect of this lack of authority was described many years later in a Congressional study of Army retirement:

The unsatisfactory personnel conditions in the Regular Army which prompted these repeated recommendations of the War Department that Congress provide some form of retirement for the Regular Army were emphasized during the extended field service required over the period 1812-1861. While the law provided a pension of one-half pay for disabled officers, there existed no provision for compulsory separation from active service of old and disabled officers; there was no limit to active service save by dismissal or resignation of the officer. Thus, an officer could remain on active duty until death, despite incapacity due to old age, physical disability, etc. In consequence, many junior officers exercised commands in the field beyond their rank, the old and disabled officers who should have exercised these commands being left behind--often on leave--whenever field service was performed.[2]

The Act of February 28, 1855, ch. 127, §1, 10 Stat. 616 (1855), while not a retirement statute as such, permitted the Secretary of the Navy to convene examining boards to determine the capability of officers for "performing promptly and efficiently all their duty both ashore and afloat" and to remove any officer determined not capable of performing such duty from the active list. Officers removed from active duty under this provision were to be placed on a "reserved list" with either leave-of-absence pay (approximately 75 percent of sea-duty pay) or furlough pay (50 percent of leave-of-absence pay), unless it was also determined that the officer was himself to blame for the incapacity, in which case he was to be "dropped from the rolls" without pay. Though the main purpose of the Act of February 28, 1855, ch. 127, id., was to remove physically unfit officers from the active list, the following excerpt from a report of the examining board shows that it could also be used to separate officers for non-disability reasons:

An officer may possess a strong mind and a robust frame, yet, if his moral perception of right or wrong be so blunted and debased as to render him unreliable, he could hardly be ranked as the capable officer.[3]

The Act of August 3, 1861, ch. 42, §15 (officers of the Army and Marine Corps) and §21 (officers of the Navy), 12 Stat. 287, 289, 290 (1961), authorized the voluntary retirement, at the discretion of the President, of Regular officers of all branches of service after 40 years of duty. This retirement authority was broadened, first by the Act of December 21, 1861, ch. 1, §1, 12 Stat. 329 (1861), to provide for the involuntary nondisability retirement of Navy officers with 45 years of service or at age 62, and later by the Act of July 17, 1862, ch. 200, §12, 12 Stat. 594, 596 (1862), to provide for the similar retirement of Army and Marine Corps officers. While these laws authorized the Army, Navy, and Marine Corps to require the retirement of certain classes of officers, they did not mandate that the services should exercise this authority: an officer could be forced to retire after reaching the specified age or length-of-service, but nothing required relevant authorities to insist that an officer meeting these criteria be retired.

Army and Marine Corps officers retired for age or length of service under the Act of July 17, 1862, ch. 200, §12, 12 Stat. 594, 596 (1862), were entitled to retired pay in an amount equal to their "pay proper" plus four "rations." These rations had a commuted cash value of $36 a month. The inclusion of rations as part of the retired pay entitlement derives from then-current active duty pay practices. The active duty pay scale of the time prescribed but one rate of pay, called "pay proper," for each officer grade. In addition to pay proper, however, each officer was entitled to from four to six rations, depending on his grade, and to one additional "longevity" ration for each five years of service. In other words, rations were an integral part of an officer's "pay" and were used instead of "pay proper" to effect longevity pay increases. The retired pay formula arbitrarily gave each retired officer four longevity rations, regardless of the number the officer was actually receiving as part of his active duty pay at the time of retirement.

Since active duty Navy officers were not paid under the "pay-proper-plus-rations" system applicable to Army and Marine Corps officers, the Act of December 21, 1861, ch. 1, §1, 12 Stat. 329 (1861), which provided involuntary retirement authority for Navy officers, stated their retired pay entitlement in terms of a specified dollar amount for each grade, plus "four rations per day to be commuted at 30 cents each ration." The specified dollar amount being slightly more than the "pay proper" of an Army officer of corresponding grade, a Navy officer's retired pay entitlement was slightly larger than that of his Army counterpart.

The Appropriation Acts of 1871 for the Army and Navy (Act of July 15, 1870 (Army Appropriation Act of 1871), ch. 294, §24, 16 Stat. 315, 320 (1870), and Act of July 15, 1870 (Navy Appropriation Act of 1871), ch. 295, §3, 16 Stat. 321, 330-332 (1870)) created an active duty salary system for officers and did away with commutations for rations. Since the existing retired pay formula had been based in part on commuted rations, it had to be changed also. Retired pay based on age or years of service was fixed as 75 percent of base and longevity pay for Army and Marine Corps[4] officers, Act of July 15, 1870 (Army Appropriation Act of 1871), ch. 294, §24, 16 Stat. 315, 320 (1870), and as 50 percent of sea duty pay for Navy officers, Act of July 15, 1870 (Navy Appropriation Act of 1871), ch. 295, §5, 16 Stat. 321, 333 (1870). The Act of March 13, 1873, ch. 230, §1, 7 Stat. 547 (1873), raised retired pay for Navy officers to 75 percent of sea duty pay. In addition to changing the retired pay formula, the Act of July 15, 1870 (Army Appropriation Act of 1871), ch. 294, §4, 16 Stat. 315, 317 (1870), authorized the voluntary retirement, again at the discretion of the President, of Army and Marine Corps[5] officers after 30 years of service.

The Act of June 30, 1882, ch. 254, 22 Stat. 117, 118 (1882), made retirement mandatory at age 64 for officers of all branches of service. The existing authority for involuntary but nonmandatory retirement of officers with 45 years of service or at age 62 was not disturbed. The Act of June 30, 1882, ch. 254, id., also gave officers an absolute right to voluntary retirement after 40 years of service. Earlier laws had authorized voluntary retirement at this service point, but had given the President the power to grant or deny such retirement.

The Act of March 3, 1899, ch. 413, §8, 30 Stat. 1004, 1006 (1899), introduced an unusual retirement program for Navy officers, the main purpose of which evidently was to improve promotion opportunities. It permitted officers in the grades of lieutenant commander through captain--today's pay grades O-4 through O-6--to request voluntary retirement regardless of age or length of service. Officers making such requests were placed on a list of "Applicants for voluntary retirement." If a specified number of promotion vacancies did not occur through "normal" attrition--death, resignation, age or service retirement, disability retirement--during a fiscal year, the applicants were retired in order of seniority in a number sufficient to create the desired number of vacancies. If voluntary retirements failed to achieve the specified vacancy level for any grade, the additional numbers needed to meet the requirement were obtained through involuntary retirements. This "promotion flow" retirement program remained in effect until 1915. The Act of May 13, 1908 (Naval Service Appropriation Act of 1909), ch. 166 [Public Law 115, 60th Congress], 35 Stat. 127, 128 (1908), authorized the voluntary retirement of Navy officers after 30 years of service.

The Act of August 29, 1916 (Naval Service Appropriation Act of 1917), ch. 417 [Public Law 241, 64th Congress], 39 Stat. 556, 578-579 (1916), brought two new principles to the nondisability retirement system. First, it established a retirement program integrated with an up-or-out selective promotion plan, and second, it initiated use of the formula that was, until 1980, the basis for determining retired pay entitlements--namely, 2.5 percent of final monthly basic pay for each year of service up to 30, or a maximum of 75 percent of basic pay.[6] The Naval Service Appropriation Act of 1917, ch. 417, id., also introduced the practice of rounding years of service in the computation of retired pay entitlements, under which a partial year of six months or more was counted as a whole year, and a partial year of less than six months was not counted. The Act permitted the Secretary of the Navy to convene annual selection boards to select officers for promotion to the grades of rear admiral, captain, and commander. A captain who reached age 56 without having been selected for promotion to the next higher grade became ineligible for further consideration for promotion and had to be retired; the corresponding ages for commanders and lieutenant commanders were 50 and 45, respectively. An officer so retired was entitled to retired pay of 2.5 percent of the shore duty pay[7] of his grade for each year of service, not to exceed 75 percent of such pay.

The Act of June 4, 1920 (National Defense Act Amendments of 1920), ch. 227 [Public Law 242, 66th Congress], §24, 41 Stat. 759, 773-774 (1920), adding a new Section 24b to the Act of June 3, 1916 (National Defense Act of 1916), ch. 134 [Public Law 85, 64th Congress], 39 Stat. 166 (1916), provided for the evaluation of Army officers and their separation into two classes-- Classes A and B. An officer identified as "inefficient" was placed in Class B and further evaluated; all officers not so identified were deemed Class A officers. A Class B officer was retired if he had at least 10 years of commissioned service and the evaluation board affirmed his "B" classification and found that it was not due to his own "neglect, misconduct, or avoidable habits." Unless he had been appointed at age 46 or older, a retired Class B officer was entitled to retired pay of 2.5 percent for each of his years of commissioned service, not to exceed 75 percent; if he had been appointed at age 46 or older, he was entitled, in a rare departure from the 2.5 percent-per-year principle, to a 4-percent-per-year multiple in computing retired pay, though the 75 percent ceiling continued to apply. Class A officers were continued in service, subject to future reclassification.

The Act of June 30, 1922 (War Department Appropriation Act of 1923), ch. 253 [Public Law 259, 67th Congress], 42 Stat. 716, 721-722 (1922), required a reduction in the strength of the Army, and the retirement system was used to help effect the reduction. The Act provided for a "plucking" board to eliminate officers from the active list. Those chosen for elimination could be retired if they had at least 10 years of commissioned service. Officers "plucked" for retirement after more than 20 years of commissioned service were entitled to retired pay of three percent for each year of such service, not to exceed 75 percent; those retired with between 10 and 20 years of commissioned service had the same entitlement, except that their multiple was 2.5 instead of three percent. The Act also authorized retirement in the rank of warrant officer for eliminated officers with less than 10 years of commissioned service but at least 20 years of total service. Affected officers were entitled to two percent of the pay of such rank for each year of service. While the Act did not place a 75 percent ceiling on this computation, it appears doubtful that any officer retired under this provision would have had the 38 or more years of service needed to attain a retired pay entitlement in excess of 75 percent.

The Act of June 22, 1926, ch. 649 [Public Law 412, 69th Congress], 44 Stat. 761 (1926), replaced the Navy's age-in-grade promotion program with one based on service-in-grade. Under this Act, a captain who had completed 35 years of service without being selected for promotion became ineligible for further consideration and had to be retired; the break points for commanders and lieutenant commanders were 28 years and 21 years, respectively. The Act of May 29, 1934, ch. 367 [Public Law 263, 73d Congress], §1, 48 Stat. 811, 811-812 (1934), provided that the promotion and retirement systems for commissioned officers of the Navy--including those "hereafter enacted"--should thenceforth apply to commissioned officers of the Marine Corps. A second law enacted the same day altered the promotion and retirement provisions affecting Navy junior officers. The Act of May 29, 1934, ch. 368 [Public Law 264, 73d Congress], §4, 48 Stat. 814 (1934), amending the promotion provisions of the Act of March 3, 1931, ch. 397 [Public Law 784, 71st Congress], §3, 46 Stat. 1482, 1483 (1931), extended the selection program for promotion to the grades of lieutenant commander and lieutenant and provided that a lieutenant who had not been selected for promotion after 14 years of service, or a lieutenant (junior grade) who had not been selected after seven years, had to be retired. The Act of July 22, 1935, ch. 402 [Public Law 212, 74th Congress], §3, 49 Stat. 487, 488 (1935), amended this feature by stipulating that lieutenants or lieutenants (junior grade) who had not been selected for promotion by the 14- or 7-year points, respectively, could be retained on the active list as additional numbers in grade until they completed 21 or 14 years of service, respectively, and then retired. Retired pay under all these laws was computed at the standard rate of 2.5 percent per year of service, up to a 75 percent ceiling. The 7-year retirement provision of the Act of May 29, 1934, ch. 368 [Public Law 263, 73d Congress], §1, 48 Stat. 811, 811-812 (1934), is notable as representing the shortest length of service ever fixed for nondisability retired pay eligibility.

The Act of July 31, 1935, ch. 422 [Public Law 225, 74th Congress], §5, 49 Stat. 505, 507 (1935), authorized the voluntary retirement of Army officers after 15 years of service, with retired pay of 2.5 percent for each year of service up to a ceiling of 75 percent. This 15-year authority was intended as a temporary measure to help relieve an officer "hump" created by a large influx of World War I officers into the Regular Army. Notwithstanding its temporary purpose, the 15-year authority, though it was suspended during World War II, remained in effect until 1948.

The Act of June 23, 1938, ch. 598 [Public Law 703, 75th Congress], 52 Stat. 944 (1938), revised the Navy's officer selection and retirement processes to provide a "merit system for promotion" that became the model for the present promotion and retirement system. The Act required that captains, commanders, and lieutenant commanders who had twice failed of selection for promotion to the next higher grade be retired after completion of 30, 28, and 26 years of commissioned service, respectively. Act of June 23, 1938, ch. 598, id., §12(d), 52 Stat. at 949. The Act also authorized the voluntary retirement of Navy officers after 20 years of commissioned service. Act of June 23, 1938, ch. 598, id., §12(e), 52 Stat. at 950. The "standard" retired pay formula --2.5 percent per year of service--was used for both voluntary and involuntary retirements under the Act. Act of June 23, 1938, ch. 598, id., §12(b) and (e), 52 Stat. at 949, 950.

The Act of February 21, 1946, ch. 34 [Public Law 305, 79th Congress], §3, 60 Stat. 26, 27 (1946), authorized the Secretary of the Navy to convene boards to consider and recommend officers in the grades of captain or below, in the case of the Navy, or colonel or below, in the case of the Marine Corps, for involuntary retirement or elimination. It also lowered the statutory retirement age for Navy and Marine Corps officers from 64 to 62, Act of February 21, 1946, ch. 34, id., §9, 60 Stat. at 28-29, and permitted voluntary retirement after 20 years of active service at least 10 years of which consisted of commissioned service, Act of February 21, 1946, ch. 34, id., §6, 60 Stat. at 27, with retired pay to be computed under the "standard" 2.5 percent per year formula, Act of February 21, 1946, ch. 34, id., §7, 60 Stat. at 27. The purpose of the Act was to provide a means to break up the officer logjam that had arisen out of the large number of World War II accessions who could no longer be effectively employed. The Act's "plucking" board authority expired June 30, 1949, but its other retirement provisions became permanent law.

The Army and Air Force Vitalization and Retirement Equalization Act of 1948, ch. 708 [Public Law 810, 80th Congress], §202, 62 Stat. 1081, 1084 (1948), authorized the voluntary retirement of Army and Air Force officers after 20 years of active service at least 10 years of which consisted of commissioned service, with retired pay computed by the standard 2.5 percent formula. This law resulted, for the first time in history, in uniform voluntary retirement authority among the officers of all branches of service.

The Officer Personnel Act of 1947, ch. 512 [Public Law 381, 80th Congress], 61 Stat. 795 (1947), as amended by the Officer Grade Limitation Act of 1954, ch. 180 [Public Law 349, 83d Congress], 68 Stat. 85 (1954), was for nearly 35 years the main authority for the officer promotion and involuntary retirement systems for the armed forces. Although it incorporated all the systems in one piece of legislation, the Act was a product of separate service planning and policies and its Army and Air Force program was different from that of the Navy and Marine Corps. The principal involuntary retirement provisions of the Officer Personnel Act of 1947, ch. 512, id., were:

In the Defense Officer Personnel Management Act (DOPMA), adopted December 12, 1980, Public Law 96-513, 94 Stat. 2835 (1980), Congress, after some 30 years of experience with these involuntary retirement and force management provisions, and believing that the apparent differences in the treatment accorded officers in different branches of service did not in fact reflect "actual management needs," set out to provide unified retirement authority in an effort to make the career expectations of members more "clearly defined and uniform ... across the services."[8] The principal provisions of DOPMA relating to involuntary retirement or release from active duty of officers in different pay grades are set out below:

In addition to the above, officers in pay grades O-8, O-7, and O-6 who had at least four years in grade and were not on a list recommended for promotion, together with officers in pay grade O-5 who twice failed of selection for promotion to the next higher pay grade, could be considered for selective early retirement and, if selected, were to be retired either immediately or as soon as they became eligible.[9] Officers in pay grades O-8 through O-5 who were selected for continuation on active duty could not be so continued for more than five years or beyond the time they reached age 62, whichever occurred first.[10]

The Warrant Officer Act of 1954, ch. 249 [Public Law 379, 83d Congress], §14, 68 Stat. 157, 162-163 (1954), established separate retirement rules for warrant officers, including commissioned warrant officers. Under the Act a warrant officer could be retired at his own request after 20 years of active service and was required to be retired at age 62 or upon completion of 30 years of active service, whichever occurred first. Retired pay for warrant officers under the Act was computed at the standard rate of 2.5 percent times years of service, not to exceed 75 percent.

The legislative authority for nondisability retirement for enlisted personnel is of more recent vintage than that for officers. This is in large part due to the fact that the reasons underlying the development and establishment of the earliest forms of nondisability retirement authority were to provide for involuntary retirement of superannuated officers--in order to promote efficiency, to obtain a youthful and vigorous officer force, and to improve promotion opportunities for younger officers--whereas the same objectives could be met, in the case of the enlisted force, by a judicious policy of nonacceptance of applications for reenlistment. It was only after officers obtained voluntary retirement authority--in order to make the choice of career service in the armed forces competitive with reasonably available non-military alternatives, to provide a measure of economic security for retired armed forces personnel, and to provide a pool of experienced personnel who could be called on in time of war or national emergency to augment the active-duty forces on short notice--that the question of retirement authority for enlisted personnel came to the fore.

The Act of February 14, 1885, ch. 67, 23 Stat. 305 (1885), provided the first enlisted nondisability retirement authority. It authorized the voluntary retirement, at the discretion of the Secretary concerned, of Army and Marine Corps enlisted personnel after 30 years of service. Retired pay for such personnel was fixed at 75 percent of the active duty pay of an affected member, plus an allowance in lieu of quarters, fuel, and light. The 30-year retirement privilege was extended to enlisted personnel of the Navy by the Act of March 3, 1899, ch. 413, §17, 30 Stat. 1004, 1008 (1899). The Act of March 2, 1907, ch. 2515 [Public Law 174, 59th Congress], §1, 34 Stat. 1217, 1217-1218 (1907), consolidated the 30-year voluntary retirement authority for the enlisted personnel of all branches of service.

The Act of August 29, 1916 (Naval Service Appropriation Act of 1917), ch. 417 [Public Law 241, 64th Congress], 39 Stat. 556, 587, 589-591 (1916), created the Fleet Naval Reserve to provide a pool of experienced personnel who could be recalled to active duty on short notice in time of war or emergency. While there are technical differences between the Fleet Naval Reserve, now divided into separate entities named the Fleet Reserve and the Fleet Marine Corps Reserve, and the retired list, and though the pay received by Fleet Reserve members is known as "retainer" rather than "retired" pay, transfers to the Fleet Reserve are for practical purposes the same as retirements. The Act of August 29, 1916, ch. 417, id., permitted enlisted personnel of the Navy and Marine Corps to voluntarily transfer to the Fleet Reserve or the Fleet Marine Corps Reserve after 16 or more years of active service. Those with between 16 and 20 years of service were entitled to retainer pay equal to one-third of their base and longevity pay. Those with 20 or more years of service were entitled to one-half their base and longevity pay.

The Act of February 28, 1925 (Naval Reserve Act of 1925), ch. 374 [Public Law 512, 68th Congress], §23, 43 Stat. 1080, 1087 (1925), fixed the minimum length of active service required for transfer to the Fleet Reserve or Fleet Marine Corps Reserve at 20 years.[11]^,[12] The retainer pay formula for 20-year transferees was continued as one-half of base and longevity pay. The Naval Reserve Act of 1938, ch. 690 [Public Law 732, 75th Congress], §203, 52 Stat. 1175, 1178 (1938), authorized a 10 percent increase in retainer pay for personnel whose conduct marks had averaged 95 percent during their terms of active service or who had been credited with extraordinary heroism in the line of duty. The Act of August 10, 1946, ch. 952 [Public Law 720, 79th Congress], §3, 60 Stat. 993, 994 (1946), again changed the retainer pay formula to the standard rate of 2.5 percent times years of service, now up to a maximum of 75 percent, and eliminated the extra 10 percent for good conduct, but not for extraordinary heroism.

The Act of October 6, 1945, ch. 393 [Public Law 190, 79th Congress], §4, 59 Stat. 538, 539 (1945), authorized the voluntary retirement and transfer to the Reserve of Army enlisted personnel with at least 20 but not more than 29 years of active service, with monthly retired pay to be computed at 2.5 percent of the last 6-month's average monthly pay times the number of years of service, up to a maximum of 29 years. As is readily apparent, this formula deviated from the "standard" in two ways--it used an average pay rather than terminal pay as its base, and the highest multiple it allowed was 72.5 percent instead of 75 percent (since only 29 years of service could be used in the computation). The Act of August 10, 1946, ch. 952 [Public Law 952, 79th Congress], §6, 60 Stat. 993, 995-996 (1946), rectified this situation by permitting retirements up to the 30-year point and by providing for the computation of retired pay under the standard formula. It also provided a 10 percent increase in retired pay for extraordinary heroism.

Before adoption of the Military Personnel and Compensation Amendments of 1980, Public Law 96-343, 94 Stat. 1123 (1980), only Regular enlisted members of the Army and Air Force could retire, after completion of 20 or more years of active service, with immediate entitlement to retired pay. While Army and Air Force Reserve enlisted members could in fact retire upon completion of 20 years of active service, they were not, under preexisting law, eligible to receive retired pay until they reached 60 years of age, in contrast to retired enlisted members of the Navy and Marine Corps Reserve components, who could retire after 20 years of active service with immediate entitlement to retired pay. To remedy this disparity in treatment, and to insure that there were no unnecessary disincentives to enlisted service in the Army and Air Force Reserve, Congress, in the Military Personnel and Compensation Amendments of 1980, Public Law 96-343, §9(a)(1) (Army) and (b)(1) (Air Force), 94 Stat. 1123, 1128-1129 (1980), authorized twenty year retirement, with immediate entitlement to retired pay, for Army and Air Force Reserve enlisted members.[13]^,[14]^,[15]

The Department of Defense Authorization Act of 1981, Public Law 96-342, §813(a)(1) and (b)(3)(A), 94 Stat. 1077, 1100-1103 (1981), effected the first major change in the computation of retired or retainer pay entitlements since uniform voluntary retirement authority was adopted for officers of all branches of service in the Army and Air Force Vitalization and Retirement Equalization Act of 1948. Under the 1981 Authorization Act, the retired or retainer pay of any member of an armed force who first became a member on or after the date of enactment of the Act[16] is computed on the basis of the member's "monthly retired pay base," or "monthly retainer pay base," as applicable, instead of on the basis of the member's terminal basic pay. In practice, a member's monthly retired or retainer pay base is, in turn, an average of the member's highest three years of basic pay. As noted in the relevant Congressional Report:

The committee recommends this change because of the high and increasing costs of military retired pay and because of the need to increase pay for military personnel while they serve on active duty instead of after their active duty careers are finished. The use of the highest three years pay instead of just terminal basic pay is the same computation used for Federal Civil Service retirement and has been endorsed by the Interagency Committee, the Defense Manpower Commission, and the President's Commission on Military Compensation.[17]^,[18]

Persons who were members of the armed forces before the date of enactment were excluded from the new computational method for determining retired or retainer pay entitlements in order to avoid changing the rules after they may have made career decisions on the basis of the preexisting retirement rules and out of concern that such a change could have an adverse effect on the retention of certain critical classes of personnel.

Having adopted a "high three year average" in an attempt to contain what was generally perceived as rapidly mounting military retirement cost liabilities, Congress next took affirmative steps to get better and more complete information on the future retirement costs associated with the current active duty force. In the Department of Defense Authorization Act, 1984, Public Law 98-94, §925, 97 Stat. 614, 644-648 (1983), Congress established an accrual accounting system for retired pay. This system--implemented as the Department of Defense Military Retirement Fund--gives Congress and the Department of Defense direct and immediate information on the future retirement costs associated with current manpower decisions.[19] Under the accrual accounting system, an additional percentage of the annual appropriation for basic pay for members of the armed forces--amounting in 1986 to approximately 51% of the basic pay account for all members of the armed forces[20]--is separately appropriated for the Department of Defense Military Retirement Fund in order to defray the future costs of retirement benefits earned during the year covered by the appropriation.

In addition to establishing an accrual accounting system for military retired and retainer pay entitlements, the Department of Defense Authorization Act, 1984, made three other changes to the retirement system that were also expressly intended to contain military retirement costs. The first of the changes, adopted as Section 921 of the 1984 Authorization Act, Public Law 98-94, id., §921, 97 Stat. at 640-641, repealed the so-called "one-year `look-back'" provision of prior law. Under the one-year "look-back" rule, military retirees were permitted to base their retired or retainer pay either on the pay scale in effect on the date of their retirement or on the immediately preceding pay scale as adjusted for changes in the cost of living pursuant to 10 U.S.C. §1401a, whichever was greater. The 1984 Authorization Act eliminated the latter option--basically because of budgetary concerns.[21]

The second change, adopted as Section 922 of the 1984 Authorization Act, Public Law 98-94, id., §922, 97 Stat. at 641-642, required that monthly retired or retainer pay entitlements, both as initially computed and as subsequently adjusted pursuant to 10 U.S.C. §1401a, be rounded down to the next lower full dollar. As explained by the Senate Committee on Armed Services:

The Committee proposal to round down monthly retired [and retainer] pay to the next lower dollar is consistent with the provisions of the Omnibus Reconciliation Acts of 1981 and 1982 which rounded down monthly Social Security benefits and civil service annuities, respectively. Although each [military] retiree would only lose from $.12 to $11.88 per year, the Department of Defense estimates that rounding down would save an estimated $9 million annually through fiscal year 1987.[22]

The third of the changes, adopted as Section 923 of the 1984 Authorization Act, Public Law 98-94, id., §923, 97 Stat. at 642-644, terminated the so-called "six-month rounding rule" for computing retired and retainer pay entitlements. Under the "six-month rounding rule," members of the armed forces who were eligible to retire and had fractional years of service could, in computing retired or retainer pay entitlements, round their years of service to the next highest whole year for the purpose of computing retirement multipliers if they had six or more months of fractional years of service, whereas members with less than six months of fractional years of service were required to round their years of service down to the next lowest whole year. For several years prior to adoption of the 1984 Authorization Act, Public Law 98-94, id., however, budget constraints, as reflected in the Department of Defense Appropriation Acts for 1982 and 1983, had required members with six or more months of fractional years of service to round down to the next lowest whole month, while members with less than six months of fractional years of service lost all credit for any fractional years of service. The 1984 Authorization Act required all members to round to the next lowest whole month for the purpose of determining retirement pay multipliers.[23]

Armed with information gained from the new accrual accounting system, Congress next took action to require a $2.9 billion reduction in nondisability retirement cost accruals for fiscal year 1986. In the Department of Defense Authorization Act, 1986, Public Law 99-145, §667, 99 Stat. 583, 659-661 (1985), Congress required the Department of Defense to produce a report and draft legislation "proposing two separate sets of changes" to effect the desired reduction. According to Congressional direction contained in the 1986 Authorization Act, the "proposed changes" should "apply only to individuals who initially become members of the Armed Forces after the effective date of such changes" and should also, "to the maximum extent possible and consistent with military requirements, encourage members who are eligible for retirement to remain on active duty beyond 20 years of service."[24] In response to this mandate, the Secretary of Defense submitted a report and draft legislation to Congress in November 1985.[25]

After reviewing the report and draft legislation submitted by the Secretary of Defense, Congress, in the Military Retirement Reform Act of 1986, Public Law 99-348, 100 Stat. 682 (1986), made certain structural changes to the military retirement system. As Congress stated:

The uniformed services retirement system has existed essentially unchanged for the last 50 years, and its basic form was established over a century ago. During the past two decades, the uniformed services retirement system has come under increasing scrutiny and attack. By recommending the [current] changes ..., the conferees are attempting to put the issue of structural reform of the uniformed services retirement system to rest for the foreseeable future. The conferees believe that, as a result of these changes, the criticism of the uniformed services retirement system will subside and the concerns of service members regarding the uncertainty of retirement benefits can be assuaged.

The conferees emphasize that the changes to the uniformed services retirement system included in this conference report would apply only to those who first become members of a uniformed service on or after August 1, 1986. No member who had joined a uniformed service before that date--much less any current retiree of a uniformed service--would be affected.

Most of the features of the current uniformed services retirement system are well known.

(1) An immediate annuity is available to a service member who completes 20 years of service; no benefit is available to a service member who does not complete 20 years of service.

(2) Retired pay equals high-3 average basic pay times a multiplier. (For those becoming members of a uniformed service for the first time before September 7, 1980, [sic][26] retired pay is based on final basic pay instead of high-3 average basic pay.) The multiplier equals 2 1/2 percent times years of service and ranges from 50 percent at 20 years of service to 75 percent at 30 or more years of service.

(3) Retired pay is adjusted annually by the increase in the cost of living as measured by the consumer price index (CPI).

The uniformed services retirement system is noncontributory. However, the service member contributes, while on active duty, to the social security system and, thereby, earns eligibility for a social security retirement benefit. The receipt of uniformed services retired pay has no effect on social security retirement benefits and vice versa.

The conferees agreed to change the uniformed services nondisability retirement system as follows:

(1) The formula for the multiplier would remain unchanged--2.5 percent for each year of service up to 30 years of service. However, for members who retire with less than 30 years of service, the multiplier would be reduced by 1 percentage point [from what it otherwise would have been] for each year of service the member retired [with] less than 30 [years of service]. The reduction would be eliminated when the member reached age 62.

(2) The cost-of-living adjustment mechanism would be changed to provide CPI minus 1 for life with a one time restoral in the purchasing power of the annuity at age 62.

With regard to the multiplier, the formula would provide a two-tiered retirement annuity: a reduced annuity between the time the member retires from the uniformed service and the normal retirement age and an unreduced annuity thereafter.

For example, a member who retires with twenty years of service would receive retired pay based on a multiplier of 40 percent from retirement until age 62 and retired pay based on a multiplier of 50 percent thereafter. For a member who retires with 30 years of service, no reduction in the multiplier would be made and retired pay would be based on the maximum multiplier of 75 percent.[27]

Thus, under the changes to the uniformed services retirement system effected by the Military Retirement Reform Act of 1986, Public Law 99-348, 100 Stat. 682 (1986), new and generally lower percentage multipliers are used in determining the initial retired or retainer pay entitlement of persons who first became members of the uniformed services on or after August 1, 1986--except for members who do not retire until they reach age 62 or who retire with 30 or more years of creditable service. As indicated in the language of the House-Senate Conference Report previously quoted, the new percentage multipliers are determined by taking the product of a member's years of "creditable service" and two and one-half percent and reducing that factor, stated as a percentage, by one percentage point for each full year of service by which the member retires with less than thirty years of "creditable service", and by a further one-twelfth of a percentage point for each month by which the member's years of "creditable service" are less than a full year.[28] Thus, for example, a member less than 62 years of age who retired with twenty-five years and four months of "creditable service" would have a percentage multiplier of fifty-eight and two-thirds percent--determined by multiplying twenty-five and four-twelfths by two and one-half percent and subtracting from that total, stated as a percentage, four and eight-twelfths percentage points. The percentage multiplier, as thus determined for a particular individual, is then applied to the member's "monthly retired or retainer pay base" to determine the member's initial retired or retainer pay entitlement.[29] When the member reaches age 62, the percentage multiplier is then adjusted back to what it would have been but for the reduction--in the case of the above example, back to sixty-three and one-third percent--to determine the member's final or permanent retired pay entitlement.[30] As is true for persons who first became members of a uniformed service before August 1, 1986, persons who first became members on or after that date may under no circumstances have a percentage multiplier that exceeds seventy-five percent.

For the convenience of the reader, the following table shows the different percentage multipliers that would be applied to the "monthly retired or retainer pay base" of a member of a uniformed service who first became a member of such a service on or after August 1, 1986, in order to determine the member's initial retired or retainer pay entitlement:[31]

The relationship between the establishment of the Department of Defense Military Retirement Fund and the proposal and adoption of the Military Retirement Reform Act of 1986, Public Law 99-348, 100 Stat. 682 (1986), was explained by Congress as follows:

In the past [prior to adoption of the accrual accounting system for military retired and retainer pay in the Department of Defense Military Retirement Fund], appropriations were paid each year to cover the military retired pay actually paid to retirees in that year.

Consequently, when structural changes to the retirement system were proposed, assuming that changes would not apply to individuals already retired (whose retired pay accounted for almost the entire retired pay budget in the near term) and would apply only marginally to those on active duty or who were nearing retirement, no significant change in the cost of the system would be achieved for 10 or 20 years in the future. Any offsetting improvements, such as earlier vesting or a lump sum early withdrawal option, would, in fact, result in higher costs in the near term, thus further reducing the prospects for action on systematic reforms.

Beginning in fiscal year 1985, however, a revised accounting system for military retirement was implemented; a new retirement fund was established outside of the defense budget. The Department of Defense is required to set aside in the fund a percentage of its military payroll sufficient to pay for the projected retirement benefits earned in that year based on the benefits for the group of individuals who join the military that year (but who will retire in the future).

In other words, until fiscal year 1985, the Department of Defense had to pay for retirement benefits earned in the past but due in the present; now the department must pay for retirement benefits as they are earned. The new method of budgeting for military retirement is similar to the "normal cost" calculations made by private sector employers.

. . .

A permanent change to the military retirement system carries with it a change to the accrual charge. In other words, a reduction in future benefits means that less money needs to be set aside to pay for benefits for those affected by the change.

. . .

In summary, under the accrual accounting system, a change to the military retirement system that decreased the value of military retired pay for new entrants would immediately decrease budget authority and outlays; such a change would also decrease Federal budget authority but would have no effect on overall Federal outlays (or the deficit). The only changes that would affect Federal outlays in the near-term are changes in the structure of military retirement annuities for those members already retired (including changes in the cost-of-living adjustment), and, to a substantially lesser extent, changes in the structure of benefits for those on active duty who are near retirement at the time of the change.[32]

In other words, adoption of the accrual accounting system for military retired and retainer pay in the Department of Defense Military Retirement Fund made it possible for Congress to reduce apparent Defense appropriations for the current year without affecting the retired or retainer pay entitlements of any current retiree or any member of the armed forces who had first become a member before August 1, 1986--the effective date of the retirement reform provisions contained in the Military Retirement Reform Act of 1986, Public Law 99-348, 100 Stat. 682 (1986). Given the imperatives to reduce the Federal budget deficit in general and Department of Defense appropriations in particular, Congress achieved such reductions by the relatively painless expedient of changing the military retirement system in a way that would affect only persons who first became members of a uniformed service on or after August 1, 1986: the reduction in appropriations was immediate but the effect of such reductions insofar as the nondisability retired or retainer pay entitlements of particular individuals are concerned would not be felt until the year 2006.

The National Defense Authorization Act for Fiscal Year 1993, Public Law 102-484, §4403, 106 Stat. 2315, 2702-2704 (1992), adopted early retirement authority--for members with between 15 and 20 years of service--as a "temporary additional force management tool with which to effect the drawdown of military forces through 1995." National Defense Authorization Act for Fiscal Year 1993, Public Law 102-484, id., §4403(a), 106 Stat. at 2702.[33] Under the subject authority, the Secretaries of the military departments are authorized to accept applications of members of the Army, the Navy, the Marine Corps, and the Air Force having at least 15 but less than 20 years of service for voluntary early retirement.[34] This early retirement authority is applicable during the "active force drawdown period", which as originally enacted, was defined to be the period beginning on the date of enactment of the National Defense Authorization Act for Fiscal Year 1993, Public Law 102-484, id., i.e., October 23, 1992, and ending on October 1, 1995.[35] The National Defense Authorization Act for Fiscal Year 1994, Public Law 103-160, §561(a), 107 Stat. 1547, 1667 (1993), subsequently extended the termination date for the "active force drawdown period" to October 1, 1999. A member whose application for early retirement is accepted is entitled to retired or retainer pay effectively computed by multiplying the member's "retired or retainer pay base" by an adjusted "retired or retainer pay multiplier."[36] The adjusted "retired or retainer pay multiplier" of a member seeking early retirement is determined by multiplying 2.5 percent times the member's years and months of creditable service (counting 1/12th of a year for each month of creditable service in excess of the number of whole years of service) and then subtracting from that result, stated as a percentage, 1/12th of one percent for each full month by which the member's total months of active service at retirement are less than 240.[37]

In support of the early retirement authority granted by the National Defense Authorization Act for Fiscal Year 1993, Public Law 102-484, §4403, 106 Stat. 2315, 2702-2704 (1992),[38] the Senate Armed Services Committee, which sponsored the proposal, noted:

The committee anticipates that the active component strength levels of some of the military services in the current DOD Base Force Plan, which total to an active duty strength level of 1,626,300 by the end of fiscal year 1997, are likely to be reduced substantially. The committee expects such a reduction will result from the Defense Department's own revisions to its current Base Force Plan as a result of budget decisions, a more efficient allocation of roles and missions among the military services, a more efficient active/reserve force mix, and other economies and efficiencies that are discussed elsewhere in this report.[39]

In order to cope with the active duty strength reductions that are currently planned by the DOD, the Congress provided authorities to the military services to assist them in implementing the planned reductions prudently. These authorities included separation benefits that the military services could offer to career personnel to induce them to voluntarily separate from active duty.

The committee notes that these authorities have been effective in helping the military services reduce strength in the six to 15-years-of-service element of the career inventory. At the same time, the committee notes that the military services do not have an effective tool to reduce active duty strength in the 15 to 20-year element of the career inventory.

In view of the committee's expectation that the active duty strengths in the current Base Force Plan will be reduced substantially, and in view of the absence of an effective tool that the military services can use to reduce the 15 to 20-year element of the personnel inventory, the committee believes that existing transition provisions should be augmented....

Therefore the committee recommends...

Section 534 [of the Senate bill, S. 3114, 102d Congress, 2d Session (1992)] would authorize active duty personnel who have 15 but less than 20 years of service to apply for and be approved for early retirement. The committee expects the military services to use this authority selectively to trim surpluses in the 15 to 20-year element of the personnel inventory.[40]

The Senate proposal was amended in conference, with the Conference Committee noting:

The amendment would clarify that the purpose in providing this authority is to give the Department of Defense a temporary, additional force management tool to effect the reduction in military personnel through fiscal year 1995. The amendment would clarify that the Secretaries of the military departments may prescribe appropriate regulations or policies regarding the criteria for eligibility and approval of applications under this section [H.R. 5006, §4403, 102d Congress, 2d Session (1992)]. These criteria may include, but are not limited to, such factors as grade, skill, and years of service. The amendment would provide that the retired pay of a member who retires under this section would be reduced by one percent for each year of service less than 20 years.[41]

In extending the "active force drawdown period" from October 1, 1995, to October 1, 1999, the House-Senate Conference Committee noted as follows:

The Senate amendment contained a provision ... that would extend through fiscal year 1998 certain temporary authorities which provide tools to the military services for managing personnel reductions, and which provide a safety net of benefits for separating military personnel during the defense drawdown.

...

The House ... [proposes to] extend these transition authorities through 1999. The conferees believe that by providing the Department of Defense with these authorities for the foreseeable length of the drawdown, they will encourage DOD to develop and implement coherent, integrated, long-term drawdown plans that will minimize the uncertainties and personnel turbulence associated with such a drawdown.[42]

* * * * *

In summary, as of the date of publication of this Fifth Edition of the Military Compensation Background Papers, three basically similar but slightly different nondisability, active-duty retirement systems are in effect for members of the uniformed services. The retirement system that applies to a particular individual depends on when that individual first became a member of a uniformed service. The first system applies to individuals who first became members of a uniformed service before September 8, 1980; the second, to an individual who first became a member of a uniformed service after September 7, 1980, but before August 1, 1986; and the third, and last, to an individual who first became a member of a uniformed service on or after August 1, 1986. The three systems are similar in that the retired or retainer pay entitlements of members of the uniformed services are, under each of the three systems, determined by applying a percentage multiplier to a number that is in some way related to a member's basic pay at the time of retirement. The percentage multiplier for a particular member of a uniformed service is, in turn, determined by reference to the number of years of service with which the member may be credited in computing retired or retainer pay.

Under the first system--which, as above indicated, applies to persons who first became members of a uniformed service before September 8, 1980--the initial retired or retainer pay entitlement of a particular member is determined by multiplying that member's terminal basic pay by a percentage factor computed as the product of the number of years of service with which the member may be credited for computing retired or retainer pay and 2 1/2 percent. Under the second of the three systems--which applies to all members of the uniformed services who first became members after September 7, 1980, but before August 1, 1986--the initial retired or retainer pay entitlement of a particular member is determined by multiplying that member's "monthly retired or retainer pay base" by a percentage factor computed in the same fashion as applies in the case of the first retirement system, but where the member's "monthly retired or retainer pay base" is equal to the member's "high three year" average monthly basic pay. Under the third, and last, of the retirement systems--which applies to all members of the uniformed services who first became members on or after August 1, 1986--the initial retired or retainer pay entitlement of a particular member is determined by multiplying that member's "monthly retired or retainer pay base" by a percentage factor computed as the product of the member's years of creditable service and 2 1/2 percent, stated as a percentage, and reduced by one percentage point for each full year of service by which the member retires with less than 30 years of creditable service, and by a further one-twelfth of a percentage point for each month by which the member's years of creditable service are less than a full year. After a member subject to this third system reaches age 62, the "percentage factor" is recomputed by simply eliminating the percentage-point reduction described in the preceding sentence.

The three different retirement systems currently in effect for members of the armed forces may be conveniently summarized as follows:

* * * * *

The primary concern of the retirement legislation so far discussed has been with Regular and Reserve forces personnel who serve on active duty with the Regular components of the armed forces for a minimum of 20 years. Title III of the Army and Air Force Vitalization and Retirement Equalization Act of 1948, ch. 708 [Public Law 810, 80th Congress], §§301-313, 62 Stat. 1081, 1087-1091 (1948) (which, despite the limitations implicit in the name of the Act, covered the Reserve components of all branches of service), created a retirement system for Reserve personnel who do not undertake a 20-year active duty career. This retirement authority was adopted in an attempt to provide incentives to induce Reserve forces personnel to remain in Reserve components of the armed forces for a minimum of 20 years of "satisfactory federal service."[43] The Reserve retirement system remains basically unchanged from the way it was enacted in 1948.

To qualify for retired pay for non-Regular service, a member must complete at least 20 years of "satisfactory Federal service," the last eight years of which must be in a Reserve component. Each one-year period in which the member earns 50 or more retirement credit "points" counts as a year of satisfactory Federal service. Points are earned at the rate of 15 a year for Reserve membership, plus an additional point for each day of active duty or active duty for training and for each attendance at a drill or prescribed period of equivalent instruction.[44] Entitlement to retired pay for reserve service begins at age 60 under the Act because that was, at the time of enactment, the minimum age at which Federal civil service employees could voluntarily retire. Retired pay is computed by first converting the member's cumulative point total into service at the rate of one day for each point, subject to a maximum of 60 days' credit for inactive-duty training for any one year. The basic pay for the member's grade is then multiplied by 2.5 percent of the years of service credited through the point conversion process, up to a ceiling of 75 percent. Years of service are not rounded in this computation; the percentage multiple reflects the precise number of the member's years, months, and days of service. The Department of Defense Authorization Act, 1981, Public Law 96-342, 94 Stat. 1077 (1980), previously discussed in connection with retired or retainer pay for other than non-Regular service, provides that retired pay for non-Regular service will, for personnel first joining an armed force after the date of enactment of that Act,[45] be based on the average basic pay for the member's retired grade using the pay tables in effect for the three years prior to the member's becoming eligible for retired pay at age 60, and not on actual pay received by the member.[46]

* * * * *

Until the beginning of fiscal year 1985, military retired pay was financed on a pay-as-you-go basis. Funds were appropriated by Congress each year to cover the costs of retired pay for the current retired population and charged to the Department of Defense operating budget. No "fund" existed from which retired pay obligations were met. It was long recognized that this procedure did not adequately recognize the future retired pay costs associated with the current active duty force and thus led at different times to various proposals for normal costing in management and budget processes and even to consideration of a funded retirement system. The Department of Defense Authorization Act, 1984, Public Law 98-94, §925, 97 Stat. 614, 644-648 (1983), dealt with this deficiency by establishing the Department of Defense Military Retirement Fund.[47] As previously indicated, this fund, the details of which are discussed more fully in Appendix A hereto, established the underpinnings of an accrual accounting system for military retirement. Under this accrual accounting system, funds are appropriated for the Department of Defense every year by Congress and transferred to the Military Retirement Fund in an amount sufficient to defray the expected retirement costs associated with the current active duty force. By this expedient, Congress and the Department of Defense are fully apprised of the total costs--present as well as future--of manpower decisions made for each year.

* * * * *

Members on the retired rolls of Regular and Reserve components of the armed forces who have completed at least 20 years of active service are explicitly subject to recall to active duty at any time in order to augment active duty forces. 10 U.S.C. §688(a). Under the Defense Officer Personnel Management Act, Public Law 96-513, §106, 94 Stat. 2835, 2868 (1980), effectively amending prior 10 U.S.C. §3504(a) and 8504(a), such members may be ordered to active duty by the Secretaries of the affected military departments under regulations prescribed by the Secretary of Defense and assigned to any duties deemed "necessary in the interests of national defense."[48] While this new provision merely "restated" the existing authority with respect to Army and Air Force personnel, it specifically included Navy and Marine Corps personnel for the first time.[49]

* * * * *

Under the provisions of 38 U.S.C. §§5304-5305, a member or former member of the armed forces may receive a pension or compensation from the Department of Veterans Affairs for disabilities compensable by that department at the same time he receives retired or retainer pay, including disability retired pay, based on service as a member of the armed forces only if he files a "waiver" of that portion of his retired or retainer pay (including disability retired pay) entitlement equal to the amount of pension or compensation to which he is entitled from the Department of Veterans Affairs.[50]

Summary: The more significant statutes relating to nondisability retirement and retired pay are displayed in capsulized form on the pages following the cost figures on the following page.[51]^,[52]

Cost: The average number of personnel receiving nondisability retired or retainer pay, and the fiscal-year, pay-as-you-go costs associated therewith, are as follows:

Note: The figures reported above for fiscal years 1972 through 1975 reflect fiscal years beginning July 1 and ending June 30; the figures for fiscal year 1977 and following reflect fiscal years beginning on October 1 and ending September 30; the figures for fiscal year 1976 reflect the average number of personnel and costs for the 15-month period including the transitional quarter July 1, 1976-September 30, 1976. The figures for 1972 are estimates. The costs shown for fiscal years before 1979 are averaged over the fiscal years identified. No figures are available for fiscal years after 1995.

[1]Retired pay for non-Regular, i.e., Reserve, service is dealt with in Chapter III.B.2. hereof, "Retired Pay for Non-Regular Service (Reserve Retirement)".

[2] Promotion and Retirement: Hearings before the House Military Affairs Committee, Part I, p. 207, 69th Congress, 2d Session (1926).

[3] Appendix to the Secretary of the Navy's Annual Report to the President for 1855.

[4] Although the Act of July 15, 1870 (Army Appropriation Act of 1871), ch. 294, 16 Stat. 315 (1870), dealt only with the Army, Marine Corps officers received the same treatment as Army officers by virtue of a special linkage provision.

[5]See footnote 4 to this chapter, above.

[6] This formula is still the formula used to determine monthly retired and retainer pay entitlements for all persons who first became members of the uniformed services before September 8, 1980. See discussion of the Department of Defense Authorization Act, 1981, Public Law 96-342, 94 Stat. 1077 (1980), in this chapter, below. (The 2.5 percent times years-of-service formula is subject to adjustment, in the case of enlisted members of the armed forces, for "extraordinary heroism." See footnote 51 to this chapter, below.)

[7]See Chapter II.D.3.d., "Special Pay for Career Sea Duty," above, for a discussion of sea and shore duty pay for Navy personnel.

[8] House Report No. 96-1462 (Committee on Armed Services), p. 53, accompanying S. 1918, 96th Congress, 2d Session (1980); also see id., pp. 48 and 52.

[9] In adopting this provision, Congress indicated the selective retirement authority was "to be used sparingly and ... primarily as a means of reducing the number of officers in [the affected] grades when necessary to accommodate to such actions as a reduction in officer personnel strengths. These provisions are not intended to be used solely for the purpose of maintaining or improving promotion opportunity or timing." Senate Report No. 96-375 (Committee on Armed Services), p. 7, accompanying S. 1918, 96th Congress, 1st Session (1979). Also see House Report No. 96-1462 (Committee on Armed Services), p. 53, accompanying S. 1918, 96th Congress, 2d Session (1980).

[10] In addition to the changes to the retirement system outlined above, the Defense Officer Personnel Management Act, Public Law 96-513, §112, 94 Stat. 2835, 2876 (1980), established, subject to waiver only by the President, a three year time-in-grade requirement for voluntary retirement; it also explicitly provided that retired members of Regular components of the armed forces could be recalled to active duty at any time, DOPMA, Public Law 96-513, id., §106, 94 Stat. at 2868, which added 10 U.S.C. §688.

[11] In a saving provision, the 16-year retirement authority for personnel on active duty on July 1, 1925, was preserved. Act of February 28, 1925 (Naval Reserve Act of 1925), ch. 374 [Public Law 512, 68th Congress], §24, 43 Stat. 1080, 1087 (1925).

[12]For parallel provisions affecting the Fleet Marine Corps Reserve, see Act of February 28, 1925 (Naval Reserve Act of 1925), ch. 374 [Public Law 512, 68th Congress], §2, 43 Stat. 1080, 1080-1081 (1925).

[13]See, e.g., Senate Report No. 96-424 (Committee on Armed Services), pp. 24-26, accompanying H.R. 5168, 96th Congress, 1st Session (1979).

[14] The 20-year retirement authority here in issue for enlisted members of the Army and Air Force Reserve is different from the 20-years-of-satisfactory-federal-service retirement authority for members performing non-Regular service: the present 20-year retirement authority relates to 20 years of active-duty service by enlisted members of the Army and Air Force Reserve. See discussion of retirement authority for members of the armed forces performing non-Regular service in Chapter III.B.2., "Retired Pay for Non-Regular Service," immediately following the present chapter.

[15]A regular enlisted member of the Army or Air Force who retires under this authority with less than 30 years of active service becomes a member of the Army or Air Force Reserve, with "such active duty [requirements] as may be prescribed by law," until the total of the member's active and Reserve service equals 30 years.

[16]The Department of Defense Authorization Act, 1981, Public Law 96-342, 94 Stat. 1077 (1980), was enacted September 8, 1980.

[17]Senate Report No. 96-826 (Committee on Armed Services), p. 130, accompanying H.R. 6974, 96th Congress, 2d Session (1980). Also see House Report No. 96-1222 (Committee of Conference), p. 98, and Senate Report No. 96-895 (Committee of Conference), p. 94, accompanying H.R. 6974, 96th Congress, 2d Session (1980).

[18]In accordance with Congress's declared intent "to increase pay for military personnel while they serve on active duty instead of after their active duty careers are finished," the Department of Defense Authorization Act, 1981, Public Law 96-342, §801(b)(1), 94 Stat. 1077, 1090-1091 (1980), also provided an 11.7 percent increase for the cash elements of regular military compensation--namely, basic pay, basic allowance for quarters, and basic allowance for subsistence--effective October 1, 1980, and the Uniformed Services Pay Act of 1981, Public Law 97-60, §101(b)(1)-(3), 95 Stat. 989, 989-992 (1981), provided a further 14.3 percent increase to those same cash elements of military compensation, this time with an effective date of October 1, 1981.

[19]The background and reasons for adoption of the Department of Defense Military Retirement Fund, codified as Chapter 74 of Subtitle A, Part I, Title 10, United States Code, "Armed Forces," 10 U.S.C. §§1461-1467, are discussed in more detail in Appendix I, below.

[20]See, e.g., Senate Report No. 99-292 (Committee on Armed Services), p. 3, accompanying S. 2395, 99th Congress, 2d Session (1986) (relating to the legislative proposal ultimately enacted as the Military Retirement Reform Act of 1986, Public Law 99-348, 100 Stat. 682 (1986), but discussing the Department of Defense Military Retirement Fund).

[21] See, e.g., House Report 98-352 (Committee of Conference), p. 227, Senate Report No. 99-213 (Committee of Conference), p. 227, and Senate Report No. 98-174 (Committee on Armed Services), pp. 219-220, accompanying S. 675, 98th Congress, 1st Session (1983).

[22] Senate Report No. 98-174 (Committee on Armed Services), p. 219, accompanying S. 675, 98th Congress, 1st Session (1983). Also see House Report No. 98-352 (Committee of Conference), p. 227, and Senate Report No. 98-213 (Committee of Conference), p. 227, accompanying S. 675, 98th Congress, 1st Session (1983).

[23]See House Report No. 98-107 (Committee on Armed Services), p. 213, accompanying H.R. 2969, 98th Congress, 1st Session (1983). Also see House Report No. 98-352 (Committee of Conference), p. 227, Senate Report No. 98-213 (Committee of Conference), p. 227, accompanying S. 675, 98th Congress, 1st Session (1983).

[24] See, e.g., House Report No. 99-235 (Committee of Conference), pp. 437-438, and Senate Report No. 99-118 (Committee of Conference), pp. 437-438, accompanying S. 1160, 99th Congress, 1st Session (1985). Also see, e.g., House Report No. 99-81 (Committee on Armed Services), pp. 245-250, accompanying H.R. 1872, 99th Congress, 1st Session (1985).

[25] The "report" submitted by the Secretary of Defense in response to the requirement of Section 667 of the Department of Defense Authorization Act, 1986, Public Law 99-145, §667, 99 Stat. 583, 659-661 (1985), is set out in full in House Report No. 99-513 (Committee on Armed Services), pp. 91-126, accompanying H.R. 4420, and in Senate Report No. 99-292 (Committee on Armed Services), pp. 27-62, accompanying S. 2395, 99th Congress, 2d Session (1986).

[26]Should read "before September 8, 1980." See, e.g., 10 U.S.C. §1406.

[27]House Report No. 99-659 (Committee of Conference), pp. 29-31, accompanying H.R. 4420, 99th Congress, 2d Session (1986). For a discussion of the concerns that led to the above-highlighted amendments to the uniformed services retirement system, see Senate Report No. 99-292 (Committee on Armed Services), pp. 2-5, accompanying S. 2395, 99th Congress, 2d Session (1986). Also see House Report No. 99-513 (Committee on Armed Services), pp. 21-27, accompanying H.R. 4420, 99th Congress, 2d Session (1986).

[28]For the purpose of making the computation in question, the phrase "creditable service" refers to the number of years of service creditable to a member in computing the member's retired or retainer pay.

[29] As is true for members of the uniformed services who first became members before August 1, 1986, the initial retired or retainer pay entitlement of an individual who first became a member of a uniformed service on or after August 1, 1986, is adjusted from time to time to compensate for the effects of increases in the general consumer price level, although the adjustment mechanism that applies to such a member is different from, and lower than, that applicable to an individual who first became a member of a uniformed service before the critical date. See Chapter III.B.4. hereof, below, "Adjustments to Retired and Retainer Pay.

"[30]Subject, of course, to future adjustments under 10 U.S.C. §1401a for changes in the consumer price level. See Chapter III.B.4., "Adjustments to Retired and Retainer Pay," below.

[31]The multipliers in question apply only to a member of a uniformed service who first became a member of such a service on or after August 1, 1986, and who subsequently becomes, or will become, entitled to nondisability retired or retainer pay. The multipliers have no application to a member of a uniformed service who first became a member of such a service on or after August 1, 1986, and who subsequently becomes, or will become, entitled to disability retired pay. See Chapter III.B.3., "Disability Retired Pay," below. The only way in which a member of the uniformed service who first became a member of such a service on or after August 1, 1986, and who subsequently becomes, or will become, entitled either to disability retired pay or to retired pay for non-Regular (Reserve) service is affected is through the process by which disability retired pay and retired pay for non-Regular service is adjusted to compensate for the effects of inflation due to increases in the Consumer Price Index. See Chapter III.B.4., "Adjustments to Retired and Retainer Pay," below. (Multipliers are shown only for integral numbers of years of creditable service. Further adjustments are required to determine multipliers applicable to persons who retire with partial years of creditable service.)

[32] House Report No. 99-513 (Committee on Armed Services), pp. 25-27, accompanying H.R. 4420 (subsequently enacted as the Military Retirement Reform Act of 1986), 99th Congress, 2d Session (1986).

[33]See 10 U.S.C. §1293 note for the full text of the early retirement authority adopted by the National Defense Authorization Act for Fiscal Year 1993, Public Law 102-484, §4403, 106 Stat. 2315, 2702-2704 (1992).

[34] As initially enacted, the early retirement authority did not extend to members of the Coast Guard or to the commissioned officer corps of the National Oceanic and Atmospheric Administration or the Public Health Service. Early retirement authority was, however, subsequently extended to members of the Coast Guard with at least 15 but less than 20 years of service by the National Defense Authorization Act for Fiscal Year 1995, Public Law 103-337, §542(d), 108 Stat. 2663, 2769 (1994), and to members of the commissioned officer corps of the National Oceanic and Atmospheric Administration by the National Defense Authorization Act for Fiscal Year 1996, Public Law 104-106, §566(c), 110 Stat. 186, 328 (1996).

[35] National Defense Authorization Act for Fiscal Year 1993, Public Law 102-484, §4403(i), 106 Stat. 2315, 2704 (1992). See 10 U.S.C. §1293 note.

[36] National Defense Authorization Act for Fiscal Year 1993, Public Law 102-484, §4403(e), 106 Stat. 2315, 2703 (1992). See 10 U.S.C. §1293 note.

[37] A member's normal, or unadjusted, "retired or retainer pay multiplier" is determined under 10 U.S.C. §1409 in one of two ways, depending on when the member first became a member of the armed forces. If the member first became a member before August 1, 1986, the "retired or retainer pay multiplier" is determined by multiplying the member's years and months of creditable service (with each full month of creditable service in excess of a full year counted as 1/12th of a year) by 2.5, with that result being stated as a percentage figure, whereas if the member first became a member after July 31, 1986, the "retired or retainer pay multiplier" is computed as above but one percentage point is subtracted for each full year that the member's years of creditable service are less than 30 (plus 1/12th of a percentage point for each month that the member's months of service in addition to his years of service are less than 12). See text accompanying footnotes 28-31 hereof, above. Since the "active force drawdown period", as extended by the National Defense Authorization Act for Fiscal Year 1994, Public Law 103-160, §561(a), 107 Stat. 1547, 1667 (1993), ends on October 1, 1999, all members seeking to take advantage of the early voluntary nondisability retirement authority provisions of the National Defense Authorization Act for Fiscal Year 1993, Public Law 102-484, §4403, 106 Stat. 2315, 2702-2704 (1992), see 10 U.S.C. §1293 note, are necessarily members who first came on active duty before August 1, 1986, and would accordingly have their "retired or retainer pay multipliers" determined as set out above. For a member retiring with exactly 15 years of creditable service, for example, the member's retired or retainer pay entitlement would then be five percent less than what it otherwise would have been but for the adjustment required by National Defense Authorization Act for Fiscal Year 1993, Public Law 102-484, §4403(e), 106 Stat. 2315, 2703 (1992). See 10 U.S.C. §1293 note.

[38] See 10 U.S.C. §1293 note.

[39] Senate Report No. 102-352 (Committee on Armed Services), accompanying S. 3114, 102d Congress, 2d Session (1992).

[40] Senate Report No. 102-352 (Committee on Armed Services), pp. 201-202, accompanying S. 3114, 102d Congress, 2d Session (1992).

[41] House Report No. 102-966 (Committee of Conference), p. 886, accompanying H.R. 5006, 102d Congress, 2d Session (1992).

[42] House Report No. 103-357 (Committee of Conference), p. 678, accompanying H.R. 2401, 103d Congress, 1st Session (1993). (In support of its original proposal to extend the temporary retirement authority through 1998, the Senate Armed Services Committee had noted:

The committee believes that these authorities [including the temporary retirement authority adopted in the National Defense Authorization Act for Fiscal Year 1993, Public Law 102-484, §4403, 106 Stat. 2315, 2702-2704 (1992), see 10 U.S.C. §1293 note], which have been used effectively by the military services to make reductions in personnel strength on a prudent, humane basis since they were enacted, will continue to be required as further personnel strength reductions are made over the next several years.

Senate Report No. 103-112 (Committee on Armed Services), p. 145, accompanying S. 1298, 103d Congress, 1st Session (1993).)

[43]For a discussion of "satisfactory federal service" and how it differs from active duty service, see the immediately following paragraph as well as Chapter III.B.2., "Retired Pay for Non-Regular Service," below.

[44]A member's attendance at drills, periods of instruction or appropriate duty, or participation in other prescribed periods of equivalent training is commonly referred to as "inactive-duty training." See 10 U.S.C. §101(d)(7). Cf. 37 U.S.C. §206(a).

[45] I.e., September 8, 1980;see footnote 16 to this chapter, above.

[46]The background and legislative history of retired pay for non-Regular (Reserve) service are set out in greater detail in Chapter III.B.2., "Retired Pay for Non-Regular Service," below.

[47]See footnote 19 to this chapter, above.

[48]See, e.g., Senate Report No. 96-375 (Committee on Armed Services), p. 26, and House Report No. 96-1462 (Committee on Armed Services), pp. 80-81, accompanying S. 1918, 96th Congress, 2d Session (1980).

[49] See, e.g., Senate Report No. 96-375 (Committee on Armed Services), p. 26, and House Report No. 96-1462 (Committee on Armed Services), pp. 80-81, accompanying S. 1918, 96th Congress, 2d Session (1980).

[50]This is significant primarily because of the preferential income tax treatment accorded receipt of pension or disability compensation from the Department of Veterans Affairs. See footnote 16 to Chapter III.B.3. hereof, below, "Disability Retired Pay", as well as the text of the paragraph to which it is appended.

[51]Under special provisions of Title 10, United States Code, the retired or retainer pay of an enlisted member of an armed force credited with extraordinary heroism in the line of duty by the Secretary of his or her military department may be increased an additional 10 percent over what it would otherwise have been, subject to a maximum of 75 percent of the member's retired or retainer pay base. 10 U.S.C. §3991(a)(2) (Army), §6330(c)(3) (Navy and Marine Corps), and §8991(a)(2) (Air Force). An enlisted member of the Coast Guard who has been cited for extraordinary heroism in the line of duty is similarly entitled to an increase of 10 percent in retired pay. 14 U.S.C. §357(i).

[52]Although not a retirement provision per se, 38 U.S.C. §§1560-1562 provide that members or former members of the armed forces whose names are enrolled on the "Army, Navy, Air Force, and Coast Guard Medal of Honor Roll" as a result of having "served on active duty in the armed forces of the United States and ... [having] been awarded a medal of honor for distinguishing such person conspicuously by gallantry and intrepidity at the risk of such person's life above and beyond the call of duty while so serving" is entitled to a "special pension" administered by the Department of Veterans Affairs in the amount of $400 per month "in addition to all other payments [to which the person may be entitled] under laws of the United States". See in particular 38 U.S.C. §1562(a) and (b).