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1 [1] (January 4, 2017)

handle is hein.crs/crsmthmbbyr0001 and id is 1 raw text is: , ,'Congressional Research Service Informing the legislative debate since 1914 Defense Primer: Military Retirement January 4, 2017 The military retirement system is a government-funded, noncontributory, defined-benefit system that has historically been viewed as a significant retention incentive for military personnel. The system currently includes monthly compensation for qualified active and reserve retirees, disability benefits for those deemed medically unfit to serve, and a survivor annuity program for the eligible survivors of deceased retirees. The amount of compensation depends on years of service (YOS), basic pay at retirement, and annual Cost-of-Living-Adjustments (COLAs). What is the Purpose of the Military Retirement System? The non-disability military retirement system for active duty members has evolved since the late 1800s to meet four main goals. * To keep the military forces of the United States young and vigorous and ensure promotion opportunities for younger members. * To enable the armed forces to remain competitive with private-sector employers and the federal Civil Service. * To provide a reserve pool of experienced military manpower as a retired reserve that can be recalled to active duty in time of war or national emergency. * To provide economic security for former members of the armed forces during their old age. How is it Funded? Congress appropriates the funds required to pay future retirees in the annual defense appropriations bill. This money is transferred to the Military Retirement Fund (MRF), from which current retirees are paid. This accounting system is commonly referred to as pay-as-you- go or PAYGO. In practical terms, this means that legislation that affects future retirees has present-day budget implications. The DOD actuary determines the amount of appropriations required based on economic and demographic projections. Currently, for every dollar of basic pay provided to active duty military personnel, approximately an additional 32 cents is paid into the MRF for future retirees. Who is Eligible for Retired Pay? Eligibility for non-disability retired pay depends on years of service (YOS). In order to be vested in the defined benefit, a member must complete 20 years of qualifying service. For active component members this is one calendar year, and for reserve component members, it is a year in which the member earns at least 50 retirement points. Service members determined to be unfit for continued service and who have a permanent and stable disqualifying physical condition may qualify for disability retirement, commonly referred to as a Chapter 61 retirement. Eligibility is based on having a permanent and stable disability of 30% or more that was not noted at the time of entrance on active duty. As a result, these members might retire without having reached the 20-year mark. How is Regular Retired Pay Calculated? Retirement pay calculations for active duty personnel are based on the date when the service member first entered on active duty, the pay base at the time of retirement, and a multiplier as defined by statute. Changes in law have created four distinct systems for calculating retired pay: (1) Final Basic Pay, (2) High-Three, (3) Redux, and (4) Blended Retirement System. Currently the pay base is either the final pay at retirement or average of the highest 3 years (36 months) of basic pay. With the exception of those opting into the Redux system, the multiplier for current retirees is 2.5%. For those entering service on January 1, 2018 the multiplier will be 2.0%. The basic formula for calculating retired pay is: YOS x multiplier x retired pay base For a member who retires in 2017 with 20 YOS, retired pay will be 50% of the average of the individual's highest 36 months of pay. If another member with 30 YOS retired in 2017, retired pay will be 75% of the high-three average. A service member who enters service in 2018 and retires in 2038 with 20 years will receive 40% of the high-three average and one who retires with 30 years in 2048 will receive 60% of the high-three average. Figure I. Retirement System Eligibility Servicemember eligibility Retirement systems Ent rdse Wic. ftpV Ye % Dec t, 77) Source: CRS Report RL3475 I, Military Retirement: Background and Recent Developments, by Kristy N. Kamarck www.crs.gov 1 7-5700

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