Military Retirement System Research Paper

Pages: 15 (4748 words)  ·  Bibliography Sources: 5  ·  File: .docx  ·  Level: Doctorate  ·  Topic: Careers

Military Active Duty Retirement

The military retirement system is controversial. For many retired military members, it seems like a great retirement system, but others, mainly Congressional representatives, believe that the system is unduly expensive. Both positions have their merits. On the one hand, the military retirement system is far superior to the retirement compensation packages in most jobs. On the other hand, the retirement system does cost taxpayers a significant amount of money. Perhaps that is why people have begun discussing overhauling the retirement system. If they did, it would not be the first major overhaul of the retirement system. In fact, when looking at the military retirement system it is critical to recognize that there is not a single military retirement system. Instead, there are three distinct retirement systems, and which one applies to a particular service member is determined by when that person served in the military. As such, the military retirement system can seem unduly cumbersome and difficult to understand to outsiders attempting to understand it. This paper will describe each of the three military retirement systems, the Final Pay retirement system, the High Three retirement system, and the Career Status Bonus ReDux system, explain the eligibility requirements for each system, how they operate, and compare their pros and cons.

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The biggest perk of the military retirement system is that it is not dependent on a particular retirement age, which is the case in many civilian retirement systems. "The military retirement system is arguably the best retirement deal around. Unlike most retirement plans, the Armed Forces offer a pension, with benefits, that starts the day you retire, no matter how old you are. That means you could start collecting a regular retirement pension as early as 37 years old. What's more, that pension check will grow with a cost of living adjustment each year" (Military.com, 2012). Therefore, military members can, and oftentimes do, retire from the military while working in a second career, thus augmenting their living wage during that period of time.

Research Paper on Military Retirement System Assignment

However, there are downfalls to military retirement pay, as well. "First and foremost, there is no "vesting" in the military retirement system. There is no special retirement accounts, no matching funds provision, no interest" (Powers, 2012). In other words, a service member either qualifies for retirement pay or does not qualify for retirement pay. In order to qualify, a person must honorably serve in the military for over 20 years, with the exception of a few early retirement programs that have been implemented at various points in time to reduce the size of the armed forces (Powers, 2012). Furthermore, it is critical to look at the difference between enlisted and commissioned service members. A person who is a commissioned officer or an enlisted member with prior commissioned service, that service member must have at least 10 years of commissioned service to retire at his or her commissioned rank (Powers, 2012). Commissioned officers with less than 10 years of commissioned service who voluntary retire do so at their enlisted ranks, and only the highest 36 months of active duty enlisted base pay counts for retirement computation (Powers, 2012). Therefore, while a service member can retire at 20 years and receive retirement benefits, the decision when to retire can be based on multiple factors.

An additional difference between civilian retirees and military retirees is that military retirees can be recalled into service. Under the Department of Defense Directive, 1352.1, these 20 plus year retirees can be called to active duty, without their consent, if it is deemed necessary for national security. "In all honesty, however, the chances that a military retiree would be recalled to active duty after age 60, or who have been retired for more than five years, are slim. DOD categorizes retirees into three categories, with category I as the most likely to be recalled to active duty, and category III as the least likely. Individuals over the age of 60 are in category III, which is the same category as individuals with disabilities. Recall of category III retires is extremely unlikely" (Powers, 2012). However, while most military retirees are unlikely to be called back into active duty, it is a possibility, which is directly attached to the receipt of retirement benefits; those who quit the military before reaching 20 years in service are not subject to the same recall conditions.

It is also important to understand the exact specifications for computing time of service for the purposes of determining pension payments. "For all plans, years of service includes credit for each full month of service as one-twelfth of a year. 'Years of service' for officers includes all active service, periods of inactive reserve service prior to June 1, 1958, ROTC active duty time prior to October 13, 1964, constructive service credit for Medical and Dental Corps, and drills performed while in the inactive reserve after May 31, 1958. "Years of service" for Fleet Reservists and all other enlisted retirements include all active service, active duty for training performed after August 9, 1956, any constructive service earned for a minority or short-term enlistment completed prior to December 31,1977, and includes drills performed while in the Active Reserves" (Powers, 2012).

While the members may choose to retire at any age under all three systems, as long as they have served 20 years, there are important differences between the three systems. The most important distinction may be that each system is applicable to a select group of military retirees. What is important to understand is that individual service members do not have a choice between the three different retirement systems. Instead, eligibility for each system is determined by the date that the person entered the service. If a person entered the service prior to 1980, then that person is eligible for the Final Pay retirement system (Military.com, 2012). If a person entered the service between September 9, 1980 and August 1986, that person is eligible for the High 36 system (Military.com, 2012). If a person entered the service after August 1986, that person is eligible under the REDUX system, which means they have the option to choose either the High 36 retirement system or the Career Status Bonus / REDUX (CSB) retirement system, with the High 36 retirement system being the default for people who fail to elect between the two systems (Miltary.com, 2012).

There are similarities between the three retirement systems. For example, under all three retirement systems, if a person stays in the armed forces for 20 or more years, that person is eligible for a pension based on a percentage of basic pay (Military.com, 2012). Likewise, under all three systems, if a person stays in the military for 40 or more years, that person is eligible for a pension based on 100% of basic pay (Military.com, 2012). Therefore, all military retirees get pensions that are figured as a factor of basic pay.

However, basic pay is calculated differently under each of the three systems. There are four major differences between the three retirement systems, which are particularly crucial for those people who joined the military after August 1986 because they have to make elections under their retirement plan benefits. These four major differences are: (1) the basis for determining the individual's highest earnings; (2) the multiplier; (3) the Cost of Living Adjustment; and (4) the Career Status Bonus (Military.com, 2012).

The first important consideration is the determination of base pay. The individual service member has no choice in how his or her basic pay is calculated. Under the Final Pay system, the pension amount is based on a member's last month of pay (Military.com, 2012). In contrast, under the High 36 and CSB/REDUX systems, a member's pension is based on the average of the highest 36 months base pay (Military.com, 2012). Presuming regular raises and promotions during one's military career, which is the norm, and then the Final Pay system will have a higher base pay for the purposes of calculating the pension. All three systems have a bonus for staying in the service past 20 years, which is known as the multiplier (Military.com, 2012).

The second major factor is the multiplier. The multiplier is the percentage of a member's base pay that is received for every year of service. For the Final Pay and High 36 systems, a member earns 2.5% per year of service, with 50% at 20 years and 100% at 40 years of service (Military.com, 2012). In contrast, the multiplier for the CSB/REDUX system changes. It is 2% for the first 20 years, then goes up to 3.5% for the next 20 years (Military.com, 2012). The result is that a service member retiring at 20 years under the CSB/REDUX system will only have earned a 40% pension at 20 years, in contrast to at 50% pension under the other two systems, though they will also be eligible for 100% at 40 years (Military.com, 2012). Moreover, under all three systems, people who choose not to retire at 40 years… [END OF PREVIEW] . . . READ MORE

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