RL34751.pdf

Military Retirement: Background and Recent Developments from the Congressional Research Service. It is always good to know what Congress is thinking about us.

Currently, active component personnel are eligible for retirement or “vested” after completing 20
years of service (YOS) and have a choice between two options (High-Three or Career Status
Bonus/Redux) based on career expectations and the individual’s financial situation. Reserve
personnel are eligible for retirement after 20 years of creditable service based on a points system,
but do not typically begin to draw retirement pay until age 60. A third category of retirement is
disability retirement.
In FY2015, $56 billion was paid to approximately 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. However, others have argued that past modifications intended
to save money have had a deleterious effect on military recruiting and retention. Military retirees,
families, and veterans’ service organizations closely monitor potential future changes to the
retirement system. When considering alternatives to the current system, Congress may choose to
consider the balance between budget constraints and the needs and concerns of this constituent
group.
The National Defense Authorization Act (NDAA) for FY2013 established a Military
Compensation and Retirement Modernization Commission (MCRMC) to provide the President
and Congress with specific recommendations to modernize pay and benefits for the armed
services. The commission recommended changing the current retirement system from a purely
defined benefit system to a blended system of defined benefits and government contributions.
Many of the MCRMC recommendations were adopted by Congress in the National Defense
Authorization Act for FY2016 (P.L. 114-92) and amended by the FY2017 NDAA.
The blended system will allow more servicemembers to accrue retirement savings earlier in their
careers through contributions into the Thrift Savings Plan (TSP) coupled with government
matching and early vesting. It will also reduce the defined benefit multiplier for calculating the
retirement annuity from 2.5% to 2.0%. The new multiplier will provide servicemembers retiring
at 20 years of service with 40% of their base pay at retirement rather than 50% under the current
system. The changes will go into effect on January 1, 2018. At that time all entering
servicemembers will be enrolled in the blended system, existing servicemembers and retirees will
be able to remain in the old system, and those with less than 12 years of service prior to January
1, 2018, would be able to opt into the blended system.