THE RESERVE RETIREMENT SYSTEM
A DETAILED EXPLANATION
By Ronald Hunter
OVERVIEW
One of the many benefits of serving in the National Guard or Reserve is the opportunity to qualify for a non-regular (or Reserve) retirement. The basic requirements to qualify for a Reserve retirement are: (1) attaining 20 qualifying years of service (a qualifying year of service is credited for each year in which the member has earned at least 50 points during his or her anniversary year), and (2) serving the last eight years in a Reserve Component (during the drawdown period, which currently expires September 30, 2001, the eight year requirement has been reduced to the last six years). Upon reaching age 60, a Reserve retiree has to request for, and may begin receiving retired pay.
Many changes have occurred in the military retirement system since it was first introduced. While much has been written about changes in the active duty retirement system, few articles have been devoted to explaining the Reserve retirement system. The purpose of this article is to explain, in detail, the Reserve retirement system, the choices available upon receiving notice of eligibility to receive retired pay at age 60, and how those choices impact benefits for the individual member.
REGULAR RETIREMENT SYSTEM
To understand the Reserve Retirement system, it is necessary to be familiar with the overall military retirement system. Following is a brief overview of the regular or active duty non-disability retirement system.
There are three systems for computing regular, non-disability retired pay. The system that is used for each servicemember depends on the date the individual first became a member of a uniformed service. This date is referred to as the Date of Initial Entry to Military Service (DIEMS). The three systems are Final Basic Pay, High-Three and the Military Retirement Reform Act (REDUX).
Final Basic Pay System
A member with a DIEMS date prior to September 8, 1980 is under the Final Basic Pay system and receives 50 percent of final basic pay after 20 years of military service plus 2.5 percent for each additional year up to the 75 percent maximum for 30 years of service.
High-Three System
A member with a DIEMS date between September 8, 1980 and July 31, 1986 retires under the High-Three system. Retired pay is computed as 50 percent of the average of the "High-Three years" (36 months) of basic pay for 20 years of service plus 2.5 percent for each additional year up to the 75 percent maximum for 30 years of service. Note that the multiplier is applied against the average basic pay for the highest 36 months of the member's career. This typically, though not always, equals the average basic pay for the final three years of service.
REDUX
For those with a DIEMS date of August 1, 1986 or later, the member must make a choice during their 15th year of service. The choice is to retire under the High-Three system previously discussed, or receive a $30,000 career retention bonus and retire under the Military Retirement Reform Act (REDUX). REDUX retirement is computed as 40 percent of the "High-Three years" (36 months) of basic pay for 20 years of service plus an additional 3.5 percent for each additional year up to the 75 percent maximum for 30 years of service.
Cost of Living Adjustments
In addition, it is important to note that members retiring under the Final Basic Pay or High-Three systems receive full Cost of Living Adjustments (COLAs) annually as determined by the increase in the Consumer Price Index (CPI). Members electing to retire under the REDUX system receive COLAs as determined by the increase in the Consumer Price Index minus one percentage point.
More on REDUX
A feature unique to REDUX is a recomputation of retirement pay at age 62. Two adjustments are made. The first adjusts the multiplier to what it would have been under the High-Three system. For example, a 20 year retiree's new multiplier would increase from 40 to 50 percent, a 24 year retirees multiplier would increase from 54 to 60 percent, but a 30 year retirees multiplier would remain 75 percent. Then, a further adjustment is made.
The retiree's pay, with the readjusted multiplier, is increased to what it would have been with Full Cost of Living Adjustments (COLAs) in each year since retirement. Thus, at age 62, the REDUX and High-Three retired pay amounts are equal. However, REDUX COLAs in later years will again be set at CPI minus one percentage point.
That is a very brief overview of the military retirement system as it pertains to active duty military personnel. Now lets look at the Reserve retirement system.
RESERVE RETIREMENT SYSTEM
Reserve and National Guard officers, warrant officers and enlisted members who complete a minimum of 20 years of qualified service (creditable retirement years) become eligible for retired pay to begin at age 60. Although eligible, the member must submit an application, in accordance with service regulations, before they can receive retired pay.
A retirement year is defined as the 365 or 366-day period starting when the member first joins the military. For example—the member first joins the military on July 17. The retirement year begins July 17 of one year and runs through July 16 the following year. The retirement year does not change unless the member has a break in service.
A creditable retirement year, under the Reserve retirement system, is a year in which the Reservist or member of the National Guard earns at least 50 retirement points during their retirement year. Inactive point credit is earned for inactive duty training, Reserve membership, equivalent instruction, and correspondence courses. By law, members may receive credit for up to 60 inactive points for retirement years that ended before September 23, 1996 and up to 75 inactive points for retirement years ending on or after September 23, 1996. Points from these sources may be added to points earned from active duty and active duty for training for a maximum total of 365 or 366 points per retirement year. Points are credited on the following basis:
1) One point for each day of active service (active duty or active duty for training).
2) 15 points for each year of membership in a Reserve Component.
3) One point for each period of inactive duty training (or drill/unit training assembly).
4) One point for each day in which a member is in a funeral honors duty status.
5) Satisfactory completion of accredited correspondence courses at one point for each three credit hours earned.
There are currently two Reserve retirement systems that parallel the systems for active duty: the Final Basic Pay system and the High-Three system. To determine which retirement system a Reserve Component member is under, we must look at the same criteria that determines the retirement system for the active forcethe Date of Initial Entry to Military Service (DIEMS). Again, that is the date an individual first became a member of a uniformed service. There is one Reserve retirement system for members with a DIEMS date before September 8, 1980 and one Reserve retirement system for those individuals with a DIEMS date of September 8, 1980 and later.
A member who retires under either system receives longevity credit for those years while a member of the Retired Reserve awaiting pay at age 60. However, this does not apply to a former member who is entitled to retired pay under either the Final Basic Pay System or the High-Three System. A former member is defined as an individual who elected discharge rather than transfer to the Retired Reserve anytime after receiving notification of eligibility to receive Reserve retired pay at age 60. In the case of a former member, regardless of the system under which the individual will receive Reserve retired pay, longevity credit ceases on the date the former member was discharged.
Final Basic Pay System
The first system, the Final Basic Pay system, is used for members with a DIEMS date before September 8, 1980. Reserve retired pay is computed using the following method:
1. Dividing all points credited in all years by 360 to convert the points into years of service, including fractions;
2. Using the pay table in effect on the date that the member or former member reaches 60 years of age, taking the monthly basic pay rate for the member's highest grade satisfactorily held and length of service at the time the member reaches age 60; or in the case of a former member, the length of service as determined when the former member was discharged;
3. multiplying that rate by 2.5 percent of the years of service (up to a maximum of 30 years of service) computed in (1) above.
High-Three System
The second system, the High-Three retirement system, is used for members with a DIEMS date of September 8, 1980 or later. Within this second system, there are two ways to determine Reserve retired pay. The first computation is for members who, at any point after receiving notification of eligibility to receive retired pay at age 60, transfer to the Retired Reserve while waiting age 60 (Retired Reserve Computation). The second computation is for members who choose to separate from the Reserve Components after receiving notification of eligibility to receive retired pay at age 60 (Former Member Computation).
· RETIRED RESERVE COMPUTATION
The retired pay for a member who elects transfer to the Retired Reserve is computed using the average monthly basic pay rate to which the member would have been entitled at the highest grade satisfactorily held, had the member been on active duty during the entire period of the member's high 36 months. In most cases, this would be the average basic pay rate in effect for the member at ages 57, 58, and 59. The formula to compute the retired pay is as follows:
1. Divide all points credited in all years by 360 to convert the points into years of service, including fractions;
2. take the average of the last 36 months of monthly basic pay for the member's grade and length of service at the time the member becomes entitled to receive retired pay - age 60 (remember to include longevity increases while a member of the Retired Reserve);
3. multiply that rate by 2.5 percent of the years of service (up to a maximum of 30 years of service) computed in (1) above.
· FORMER MEMBER COMPUTATION
An individual with a DIEMS date of September 8, 1980, or later, who elected discharge rather than transfer to the Retired Reserve, will have retired pay computed under the High-Three system using the average of the monthly basic pay in effect for his or her 36 months of service immediately preceding the date of discharge, or the highest 36 months of basic pay to which entitled based on a higher grade satisfactorily held while a member of the uniformed services. The formula to compute the retired pay is as follows:
1. Divide all points credited in all years by 360 to convert the points into years of service, including fractions;
2. take the average of the monthly basic pay in effect for the 36 months immediately preceding the date of discharge, or the highest 36 months of basic pay to which entitled while a member of the uniformed services.
3. multiply that rate by 2.5 percent of the years of service (up to a maximum of 30 years of service) computed in (1) above.
IF YOU ONLY READ ONE THING IN THIS ARTICLE: READ THIS
The choice to elect discharge from the Reserve Components is irrevocable. That choice could cost several thousands of dollars in lost retired pay. Therefore, members with a DIEMS date prior to September 8, 1980 must consider the loss of longevity increases by electing discharge (if applicable). In addition, members with a DIEMS date of September 8, 1980 or later must be certain to elect the choice of discharge only after carefully considering the loss of both longevity increases and the increased multiplier (due to increases in active duty basic pay while waiting age 60) used in determining Reserve retired pay for members who elect transfer to the Retired Reserve.
COST OF LIVING ADJUSTMENTS
Members receiving Reserve retired pay, regardless of the system under which retired pay is received, are entitled to annual Cost of Living Adjustments as determined by the increase in the Consumer Price Index. This is the same system that is used for retirees from the active forces under the Final Basic Pay and High-Three systems.
THE IMPORTANCE OF DIEMS
When looking at which retirement system applies to a specific individual it is important to remember that a DIEMS date will NEVER change. Even a break in service will not affect a DIEMS date. The date an individual first became a member of a uniformed service is the sole determining factor in determining which retirement system is used when computing retired pay.
Ronald Hunter is president of Uniformed Services Almanac, Inc., which publishes almanacs for military personnel dealing with military pay and benefits. His specific interests focus on compensation for members of the armed forces. He is also a major in the United States Army Reserve. |