Paycheck Chronicles

Officer To Lose 1/3 Of Retirement Pay

You've probably heard me talk about Doug Nordman, founder of The Military Guide website and author of The Military Guide to Financial Independence and Retirement.  One of Doug's readers has found himself in a shocking situation, and you should know about it.  You especially need to know about it if you are one of the many military officers who has prior enlisted service.

Doug's reader is an Army Captain who was selected by the reduction in force board to separate from the service early next year.  Because he had 13 years of enlisted service prior to commissioning, he will have 20 years of service and, therefore, be eligible to retire instead of involuntarily separating.

Common sense says this isn't a terrible thing:  retiring as an Army Captain isn't a bad career run, he'll have his pension and health care benefits.

Unfortunately, everything here isn't exactly as it appears.  It seems that a confluence of various laws will mean that this Captain will be retired as a Sergeant First Class, and his retirement pay will be calculated as if he spent the last three years at that rank.  Rough calculations show that this will decrease his retired pay approximately 1/3 over the retirement pay of an O-3E permitted to fulfill the time-in-commission requirements set forth in law.

Say wwhhaatt?

Most currently serving military members, including Doug's reader, fall under a High-Three retirement plan.

Title 10 U.S. Code section 1407 (c) states that  "the total amount of monthly basic pay to which the member was entitled for the 36 months (whether or not consecutive) out of all the months of active service of the member for which the monthly basic pay to which the member was entitled was the highest, divided by [...] 36.”  

Seems pretty clear so far, right?

Yes, except there is an exception for former enlisted.  Officers who have enlisted years are required to fulfill a certain number of years time-in-commission before they are allowed to request retirement as an officer.  The law is usually 10 years, but Congress wrote provisions for the various services to reduce the required years-in-commission to 8 years as they see necessary.  Former enlisted who don't serve the necessary commissioned years don't get retirement pay based upon their actual high-three calculations, they get retirement pay based upon a hypothetical high-three pay chart that would have occurred if they had not accepted a commission and did not promote again.

Again, this is apparently common knowledge amongst the prior enlisted officers currently service.  However, that exception to the high-three law was written to entice freshly commissioned officers to remain in active duty and not retire as soon as they hit 20 years of service.  It was written to prevent voluntary retirement shortly after commissioning, which is a perfectly reasonable thing.  However, this Captain isn't asking to retire, he is being forced to retire.  There is no specific law for involuntary retirements, so the services are taking a law that was written for voluntary retirements and applying it to involuntary retirements.

We've got a guy who has honorably served in the military for 20 years, and stepped up to the plate when the military was looking for people to move to the commissioned ranks.  He's not been passed over for promotion, nor has he been involved in any adverse situation.  The military is downsizing and he's being asked to leave the service to meet the needs of the Army.  Because of this, he is unable to meet the required service requirements to retire at the rank in which he's been serving.

As part of their force-shaping measures, the military service branches are handing out waivers for all sorts of service requirements.  The one I know most clearly is the service requirement after the transfer of Post 9/11 GI Bill benefits, but there are other service requirements that are explicitly being waived in order to be fair to those being involuntarily separated from the service.  Why wouldn't this requirement get a similar waiver?

It also seems that this reader isn't the only affected service member.  Anecdotal evidence suggests that many of those selected by the reduction in force boards have prior enlisted service.  I wonder how many of them will fall into a similar situation?

At the best, this is a freak combination of factors not anticipated in federal law.  At worst, it is a blatant breach of faith specifically intended to deprive service members of the retirement pay they've earned.

What do you think?

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