Order Code IB85159
Issue Brief for Congress
Received through the CRS Web
Military Retirement:
Major Legislative Issues
Updated October 4, 2002
Robert L. Goldich
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Military Retirement: Key Elements and Issues
Conceptual and Political Setting
Program Summary
“Redux”: Its 1986 Enactment and 1999 Repeal
Entitlement to Retired Pay and Retired Pay Computation Base
Retired Pay Computation Formula
Temporary Early Retirement Authority (TERA), 1992-2001 (FY1993-FY2001)
Military Retired Pay and Social Security
Modifying 20-Year Retirement
Retired Pay and Survivor Benefit COLAs
What Was the Last COLA?
Pre-August 1, 1986 Entrants
Entrants On or After August 1, 1986
Military Retirement Budgeting and Costs
Accounting for Military Retirement in the Federal Budget
Unfunded Liability
Military Retirement Cost Trends
Concurrent Receipt of Military Retired Pay and VA Disability Compensation
Military Retired Pay and VA Disability Compensation: Current Situation
How Ongoing Full Concurrent Receipt Plans Would Work
2nd session, 107th Congress Action on Concurrent Receipt
“Special Compensation” For Severely Disabled Retirees
Costs of Concurrent Receipt
Pros and Cons of Concurrent Receipt

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Military Retirement: Major Legislative Issues
SUMMARY
The military retirement system includes
receipt for (1) all military nondisability
benefits for retirement after an active or re-
retirees; and (2) those military disability
serve military career, disability retirement, and
retirees some or all of whose retired pay they
survivor benefits for eligible survivors of
might have received anyway had they opted
deceased retirees.
for nondisability retirement. The House ver-
sion is consistent with the full House and
The proposed change to the system
Senate Budget Committee versions of the
generating the most current legislative activity
FY2003 congressional budget resolution, each
involves whether some or all military retirees
of which would provide approximately $500
should be allowed to receive both military
million for limited concurrent receipt in
retired pay and any VA disability compensa-
FY2003 and FY2004 respectively. The Senate
tion to which they are otherwise entitled; this
version, however, is accompanied by no
is referred to as “concurrent receipt.” A
funding mechanism or formula; its cost has
longer-term issue beginning to attract some
been estimated at $4.3 billion. The
attention is whether some military personnel
authorization conference began on September
should be entitled to military retired pay with
12, and is still underway. The Administration
less than 20 years of service and whether
has stated its opposition to concurrent receipt
many more personnel should serve well past
and has threatened a veto of the defense
the 20-year point before retiring.
authorization bill if it contains any provisions
authorizing concurrent receipt. The Clinton
Concurrent Receipt. Current law prov-
Administration was also opposed to concur-
ides that military retired pay be reduced by the
rent receipt.
amount of VA disability compensation. Some
maintain this is inequitable and unfair; it has
Changing the 20-Year Retirement
been defended on grounds of cost and of the
Paradigm. For more than 30 years, some
need to avoid setting a precedent for concur-
have argued that requiring military personnel
rent receipts of numerous other benefits.
to serve at least 20 years before being eligible
for retirement but encouraging most to retire
The FY2000-FY2002 National Defense
shortly thereafter is inefficient and expensive.
Authorization Acts authorized military retirees
Others have argued that it is essential to main-
with at least a 60% VA disability rating to
taining a high-quality career force capable of
receive a special payment (tacitly in lieu of
meeting wartime requirements. Some senior
concurrent receipt, although the actual law
defense officials of the current Bush Adminis-
banning concurrent receipt is still in effect).
tration have stated that the 20-year retirement
norm should be considerably modified, but
The House version of the FY2003 Na-
one has cautioned that any such change should
tional Defense Authorization Act would
not affect those personnel currently serving.
implement full concurrent receipt over a 5-
Discussion of such changes has been
year transition period for military retirees who
somewhat muted in the aftermath of the
were 60% or more disabled. The Senate
September 11, 2001 terrorist attacks.
version would implement full concurrent
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
On September 12, 2002, the conference on the FY2003 National Defense Authorization
Act began meeting; one of its most controversial issues is whether to authorize concurrent
receipt of military retired pay and VA disability compensation. The Senate version of the bill
would implement full concurrent receipt for (1) all military nondisability retirees; and (2)
those military disability retirees who, although eligible for nondisability retirement, opted
for disability retirement because it provided a larger payment than the nondisability
formula. It is therefore much more liberal than the House version, which would authorize
concurrent receipt, over a 5-year transition period, for military retirees with at least a 60%
degree of disability. There have been press reports that the conferees have agreed on a
compromise which would phase in concurrent receipt for all retirees over a 10-year period,
but, as the conference is still underway, this still remains an unofficial prediction.
BACKGROUND AND ANALYSIS
Military Retirement: Key Elements and Issues
Conceptual and Political Setting
Congress confronts both constituent concerns and budgetary constraints in considering
military retirement issues. The approximately 2.0 million military retirees and survivor
benefit recipients have been, and continue to be, an articulate and well-educated constituent
group familiar with the legislative process and represented by associations staffed with
military retirees with long experience in working with Congress. In recent years, the long-
standing efforts by military retirees and their associations to secure more benefits for their
members have been buttressed by (1) the outpouring of nation-wide nostalgia and support
for the past heroism and current old-age needs of the “greatest generation” of World War II-
era veterans, whether retirees or not; (2) concern over problems the military services were
having in recruiting and retaining sufficient numbers of qualified personnel, which began in
the mid-1990s, and the extent to which actual or perceived inadequacies in retirement
benefits may have been contributing to these problems; (3) the impression by many current
or former military personnel that the Clinton Administration was not favorably disposed
toward the military as an institution, leading to efforts to portray increased retirement
benefits as a palliative, and (4) in a reversal of the attitudes toward the Clinton
Administration, efforts to obtain more benefits from the Bush Administration because it is
perceived as being pro-military. And, since September 11, 2001, there has been a predictably
dramatic increase in public and congressional support for the Armed Forces.
In general, in recent years Congress has been more aggressive than the executive branch
in responding to the stated concerns of retirees about their benefits. The Department of
Defense (DOD) and other executive branch agencies have, over time, tended to regard
military retirement benefits as a place where substantial budgetary savings could be made.
For instance, as noted below, Congress took the initiative in 1999 to repeal the “Redux” cuts
in future military retired pay that was originally enacted in 1986.
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Program Summary
In FY2003, total federal budget outlays for military retirement will be an estimated
$38.8 billion and DOD budget outlays will be an estimated $11.9 billion. (The differing
figures for total federal and DOD outlays result from the use of the accrual method in
accounting for the costs of military retirement. See the section below on Cost Data for a
discussion of accrual accounting.) Table 1 shows the estimated numbers of retirees, and the
costs to the federal government of the retired pay they receive, for FY2001-FY2003.
Table 1. DOD Retired Military Personnel and Survivors:
Estimated Numbers and Costs, FY2001-FY2003
Retirees from
Survivor
an Active Duty
Disability
Reserve
Benefit
Total
Military Career Retirees
Retirees
Recipients
2,007,000/
1,376,000/
96,000/
248,000/
287,000/
FY2003
$38.77 billion
$32.47 billion
$1.32 billion
$2.77 billion
$2.21 billion
1,991,000/
1,373,000/
98,000/
244,000/
276,000/
FY2002
$37.71 billion
$31.64 billion
$1.32 billion
$2.66 billion
$2.09 billion
1,975,000/
1,370,000/
100,000/
240,000/
265,000/
FY2001
$36.60 billion
$30.74 billion
$1.32 billion
$2.59 billion
$1.97 billion
Sources: Office of the Actuary. Department of Defense. Valuation of the Military Retirement System.
September 30, 2000: K-8, K-10, K-14, K-16, L-2, and L-4; and data furnished by Office of the Actuary via fax,
June 10, 2002.
“Redux”: Its 1986 Enactment and 1999 Repeal
Cuts in retired pay for future retirees were enacted in the Military Retirement Reform
Act of 1986 (P.L. 99-348, July 1, 1986; the “1986 Act,” now referred to frequently as the
“Redux” military retirement system). Although enactment of Redux in 1986 represented a
success for those who argued that the pre-Redux system was too generous, the repeal of
compulsory Redux in late 1999 by the FY2000 National Defense Authorization Act indicated
that, at least in Congress, those who defend the pre-Redux system are again ascendant.
Congress began taking notice publicly of potential problems related to Redux in 1997,
well before the executive branch addressed the issue. During the fall of 1998, the
Administration announced that it supported Redux repeal. Eventually, the FY2000 National
Defense Authorization Act contained provisions for repealing compulsory Redux; it allows
post-August 1, 1986 entrants to retire under the pre-Redux system or opt for Redux plus an
immediate $30,000 cash payment(see below).
Entitlement to Retired Pay and Retired Pay Computation Base
A service member becomes entitled to retired pay upon completion of 20 years of
service, regardless of age. (The average nondisabled enlisted member retiring from an active
duty military career in FY2000 was 42 years old and had 22 years of service; the average
officer was 47 years old and had 24 years of service.) A member who retires from active
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duty is paid an immediate monthly annuity based on a percentage of his or her retired pay
computation base. For persons who entered military service before September 8, 1980, the
retired pay computation base is final monthly basic pay being received at the time of
retirement. For those who entered service on or after September 8, 1980, the computation
base is the average of the highest 3 years (36 months) of basic pay. (Basic pay is one
component of total Regular Military Compensation, or RMC, which consists of basic pay,
housing and subsistence allowances, and the federal tax advantage that accrues because the
allowances are not taxable. Basic pay comprises approximately 70% of the total for all
retirement eligibles–75% for 30-year retirees and 66% for 20-year retirees. Thus, the 20-year
retiree may get 50% of retired pay computation base upon retirement, but only 33% of RMC.
The 30-year retiree will receive 75% of the computation base, but only 56% of RMC. Nor
do any of these calculations include any of the many special pays, bonuses or other cash
compensation to which many military members are entitled.)
Retired Pay Computation Formula
Military Personnel Who First Entered the Service before August 1, 1986.
All military personnel who first entered military service before August 1, 1986, have their
retired pay computed at the rate of 2.5% of the retired pay computation base for each year
of service. The minimum amount of retired pay to which a member entitled to compute his
or her retired pay under this formula is therefore 50% of the retired pay computation base
(20 years of service X 2.5%). A 25-year retiree receives 62.5% of the computation base (25
years of service X 2.5%). The maximum, reached at the 30-year mark, is 75% of the
computation base (30 years of service X 2.5%).
Military Personnel Who First Entered the Service on or after August 1,
1986. Personnel who first enter service on or after August 1, 1986, in accordance with the
provisions of the FY2000 National Defense Authorization Act, are required to select one of
two options in calculating their retired pay within 180 days of reaching 15 years of service:
Option 1: Pre-Redux. They can opt to have their retired pay computed in
accordance with the pre-Redux formula, described above, but with a slightly modified COLA
formula, which is less generous than that of the pre-Redux formula (see below, under
COLAs).
Option 2: Redux. They can opt to have their retired pay computed in accordance
with the Redux formula and receive an immediate $30,000 cash bonus (which can actually
be paid in several annual installments if the recipient so wishes, for tax purposes).
The Redux Formula: Under Age 62 Retirees. Redux is different from the previous
formula in two major ways. First, for retirees under age 62, retired pay will be computed at
the rate of 2.0% of the retired pay computation base for each year of service through 20, and
3.5% for each year of service from 21-30. Under this new formula, therefore, a 20-year
retiree will receive 40% of his or her retired pay computation base upon retirement (20 years
of service X 2.0%), and a 25-year retiree will receive 57.5% of the computation base [(20
years of service X 2.0%) + (5 years of service X 3.5%)]. A 30-year retiree, however, will
continue to receive 75% of the retired pay computation base [(20 years of service X 2.0%)
+ (10 years of service X 3.5%)]. The changed formula, therefore, is “skewed” much more
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sharply in favor of the longer-serving military careerist, theoretically providing an incentive
to remain on active duty longer before retiring.
The Redux Formula: Retirees 62 and Older. Second, when a retiree reaches age
62, his or her retired pay will be recomputed based on the old formula — a straight 2.5% of
the retired pay computation base for each year of service. Thus, beginning at 62, the 20-year
retiree receiving 40% of the computation base for retired pay, according to the new formula,
will begin receiving 50% of his or her original computation base; the 25-year retiree’s
annuity will jump from 57.5% of the original computation base to 62.5%; and the 30-year
retiree’s annuity, already at 75% of the original computation base under both the old and new
formulas, will not change. (Note: this change is an increase in monthly retired pay, not a
lump sum at age 62.)
Temporary Early Retirement Authority (TERA), 1992-2001
(FY1993-FY2001)
The FY1993 National Defense Authorization Act (Sec. 4403, P.L. 102-484) granted
temporary authority (which, after several extensions, finally expired on September 30, 2001)
for the services to offer early retirements to personnel with more than 15 but less than 20
years of service. TERA retired pay was calculated in the usual ways except that there is an
additional reduction of one percent for every year of service below 20. Part or all of this
latter reduction could be restored if the retiree works in specified public service jobs (law
enforcement, firefighting, education, and the like) during the period immediately following
retirement, until the point at which the retiree would have reached the 20-year mark if he or
she had remained in the service.
Military Retired Pay and Social Security
Military personnel do not contribute a percentage of their salary to help pay for
retirement benefits. They have paid taxes into the social security trust fund since January 1,
1957, and are entitled to full social security benefits based on their military service. Military
retired pay and social security are not offset against each other; military retirees receive full
social security benefits in addition to their military retired pay.
Modifying 20-Year Retirement
For more than 30 years, the military retirement system, in particular, its central feature
of allowing career personnel to retire at any age with an immediate annuity upon completing
20 years of service, has been the object of intense criticism and equally intense support
among military personnel, politicians, and defense manpower analysts. Critics of the system
have periodically alleged, since its basic tenets were established by legislation enacted in the
late 1940s, that it costs too much, has lavish benefits, and contributes to inefficient military
personnel management by inducing too many personnel to stay until reaching the 20-year
mark and too few to stay substantially beyond the 20-year mark. At present, they say, too
few people are willing to make the commitment to stay the full 20 years, causing DOD to
lose too many talented people in the 8-12 year range. In addition, the requirement for
officers to perform a certain amount of joint (interservice) duty, plus acquiring a well-
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rounded competence in their own services’ capabilities, has created a situation in which 20
years is simply not enough time for an officer to serve in enough jobs to learn all that is
needed to prepare for higher command and staff duties. This suggests the need for more
officers to serve well past 20 years.
Others have strongly defended the existing system as essential to recruiting and
maintaining sufficient high-quality career military personnel who could withstand the rigors
of wartime service if necessary. They tend to agree with the statement that “20-year
retirement makes up with power what it lacks in subtlety,” by providing a 20-year “pot of
gold at the end of the rainbow.” Without the latter, it is argued, too few personnel would be
willing to put up with the great stresses of a military career. At the same time, the incentive
to depart soon after reaching the 20-year mark supposedly prevents the armed forces from
being saddled with over-age and unfit officers and NCOs, a major problem in the early stages
of both World Wars, before 20-year retirement was adopted after World War II (1941-1945).
It is also suggested that DOD already has the tools to cope with the problems of insufficient
retention of middle-grade personnel and with overloaded officer career patterns: the former
by using special pays and bonuses and adequate overall military compensation and the latter
by exercising existing discretionary authority in statute to keep more personnel on active duty
well past the 20-year mark.
Secretary of Defense Rumsfeld and other senior defense officials have suggested on
several occasions that the existing 20-year retirement paradigm should be modified. In
general, though, they have cautioned, however, that they do not want to cause undue alarm,
or negate individual career decisions already made, by introducing such changes too abruptly.
In addition, discussion about such “reforms”–i.e., cuts–in retired pay entitlements has been
progressively more muted in the aftermath of the September 11, 2001 attacks.
Retired Pay and Survivor Benefit COLAs
Military retired pay is protected against inflation by statute (10 USC 1401a). The
Military Retirement Reform Act of 1986, in conjunction with recent changes in the FY2000
National Defense Authorization Act, provides for cost of living adjustments (COLAs) as
indicated below. Congress has not modified the COLA formula since FY1996 (1995),
although virtually every year since 1982 some COLA modifications–always with the aim of
reducing costs, and hence the payments to retirees–have been at least discussed. Therefore,
it is probably inadvisable to assume at any time that COLAs will be totally off the table in
future Congresses. For further information on COLAs, see CRS Report 98-223, COLAs for
Military Retirees: Summary of Congressional and Executive Branch Action, 1982-2001
(FY1983-FY2002).
What Was the Last COLA?
The most recent military retirement COLA was 2.6%, first applied to the retired pay
disbursed on January 1, 2002. The most recent previous COLA was that of January 1,
2001, of 3.5%. The percentage of the COLA which will become effective on January 1,
2003, will not be known until the Bureau of Labor Statistics has calculated the Consumer
Price Index (CPI) increase for the month of September 2002. However, preliminary
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estimates indicate that the January 1, 2003 COLA will probably be between 1.2% and
1.5%–either the smallest or second smallest percentage increase since COLAs were first
authorized in 1963 (the lowest increases were 1.3% in FY1998 and FY1986). For a
discussion of proposed and actual COLA changes over the past 20 years, see CRS Report 98-
223, COLAs for Military Retirees: Summary of Congressional and Executive Branch Action,
1982-2001 (FY1983-FY2002).
Pre-August 1, 1986 Entrants
For military personnel who first entered military service before August 1, 1986, each
December a cost-of-living-adjustment (COLA) equal to the percentage increase in the
Consumer Price Index (CPI) between the third quarters of successive years will be applied
to military retired pay for the annuities paid beginning each January 1. For example, assume
that the Consumer Price Index rises from 400.0 in September 2005 to 412.0 in September
2006, an increase of 12.0 points or 3.0% of 400.0. The monthly retired pay that accrues
during December 2006, and will actually be paid to retirees on January 1, 2007, would be
increased by 3.0% above that amount paid the previous month.
Entrants On or After August 1, 1986
For those personnel who first entered military service on or after August 1, 1986, the
FY2000 National Defense Authorization Act provides that their COLAs will be calculated
in accordance with either of two methods, as noted below.
Non-Redux Recipients. Those personnel who opt to have their retired pay
computed in accordance with the pre-Redux formula will have their COLAs computed as
described above for pre-August 1, 1986 entrants.
Redux/$30,000 Cash Bonus Recipients. Those personnel who opt to have their
retired pay computed in accordance with the Redux formula, and receive the $30,000 cash
bonus, will have their COLAs computed as follows. Annual COLAs will be held to one
percentage point below the actual inflation rate for retirees under age 62. Retirees covered
by this new COLA formula would thus receive a 2.0% increase (rather than 3.0%) in their
military retired pay under the hypothetical example described in the above paragraph. When
a retiree reaches age 62, there will be a one-time recomputation of his or her annuity to make
up for the lost purchasing power caused by the holding of COLAs to the inflation rate minus
one percentage point. This recomputation will be applied to the old, generally more liberal
retired pay computation formula on which retirees 62 or older will have their annuities
computed (see the above subsection entitled Retired Pay Computation Formula),
compounding, for most retirees, the size of this one-time annuity increase. After the
recomputation at 62, however, future COLAs will continue to be computed on the basis of
the inflation rate minus one percentage point.
Costs and Benefits of the Two Retirement Alternatives. An analysis of the
economic effects for hypothetical retirees indicates that in almost all cases opting for the pre-
Redux formula will pay the individual much more over time. A report of the Center for
Naval Analyses states that the more liberal retired pay computation formula and COLA
formula of pre-Redux far outweighs the short-term benefits of a $30,000 pre-tax cash bonus.
The report did say that it might be possible for an individual investor to “beat” these negative
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aspects of the bonus by wise investment decisions but that it would be difficult. Naturally,
no study can know what an individual’s financial situation is. Preliminary results of the first
few months of the Redux option has shown that a very small percentage – less than 5% – of
retiring personnel have opted for the $30,000 lump sum.
The FY2002 National Defense Authorization Act (Sec. 620, P.L. 107-107, December
28, 2001) contained a provision that would allow the $30,000 bonus to be received in
installments rather than a lump sum, thus potentially lowering the “tax bite” of the total
amount.
Military Retirement Budgeting and Costs
Accounting for Military Retirement in the Federal Budget
All DOD budgets through FY1984 reflected the costs of retired pay actually being paid
out to personnel who had already retired. Congress simply appropriated the amount of
money required to pay current retirees each year. Since FY1985, the “accrual accounting”
concept has been used to budget for the costs of military retired pay. Under this system, the
DOD budget for each fiscal year reflects the estimated amount of money that must be set
aside and accrued at interest – actually, invested in special, non-marketable U.S. government
securities similar in some ways to Treasury bills and bonds – to fund the retired pay to which
persons currently in the Armed Forces during that fiscal year, and who ultimately retire, will
be entitled in the future. These estimated future retirement costs are arrived at by making
projections based on the past rates at which active duty military personnel stayed in the
service until retirement, and on assumptions regarding the overall U.S. economy, such as
interest rates, inflation rates, and military pay levels. These DOD budget outlays for
retirement are computed as a percentage of a fiscal year’s total military pay costs for each
military service. Approximately 35-40% of military basic pay costs must be added to the
DOD personnel budget each fiscal year to cover the future retirement costs of those
personnel who ultimately retire from the military.
DOD budget outlays in each fiscal year that pay for the estimated cost of future retirees
are transferred in a paper transaction to a Military Retirement Fund, located in the Income
Security Function of the federal budget. The Military Retirement Fund also receives [paper]
transfers from the General Fund of the Treasury to fund the initial unfunded liability of the
military retirement system. This is the total future cost of military retired pay that will result
from military service performed prior to the implementation of accrual accounting in
FY1985. Money is disbursed from this Military Retirement Fund to current retirees.
Individual retirees continue to receive their retired pay from DOD finance centers.
Technically, however, because this money paid to individuals comes not from the DOD
budget, but from the Fund, it is paid out by the Income Security function of the federal
budget. Actual payments to current retirees thus show up in the federal budget as outlays
from the federal budget as a whole, but not from DOD. Under accrual accounting, therefore,
total federal outlays for each fiscal year continue to reflect only costs of payments to military
members who have already retired, as was the case before accrual accounting began. Accrual
accounting only changes the manner in which the federal government accounts for military
retired pay; it does not affect actual payments to individuals in any way.
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Unfunded Liability
Current debates over both federal civilian and military retirement have included some
discussion of the “unfunded liability” of both. As noted above, the military retirement
system’s unfunded liability consists of future retired pay costs incurred before the creation
of the Military Retirement Fund in FY1985. These obligations are being liquidated by the
payment to the Fund each year of an amount from the General Fund of the Treasury, and will
be fully paid, based on current calculations, by FY2043. The unfunded liability at the end
of FY2000 was $516.2 billion; the estimated liability for FY2001 was $531.4 billion; and
the FY2002 estimate was $546.9 billion.
Some concerns have been voiced about the amount of unfunded liability. However,
(1) the hundreds of billions of dollars of unfunded liability is a cumulative amount to be paid
to retirees over the next 50 years, not all at once; (2) by the time some persons first become
eligible for retired pay under the pre-accrual accounting system, many others will have died;
and (3) unlike the private sector, there is no way for employees to claim immediate payment
of their future benefits. An analogy would be that most homeowners cannot afford to pay
cash for a house, so they get a mortgage. If the mortgage had to be paid in full, almost no
homeowners could afford to do so. However, spread out over 30 years, the payments are
affordable. Similarly, the unfunded liability of federal retirement programs is affordable
when federal retirement outlays are spread over many decades.
Military Retirement Cost Trends
Because military retirement is an entitlement, rather than a discretionary program, its
costs to the total federal budget (payments to current retirees and survivors) always rise
modestly each year, due to a predictable slow rise in the number of retirees and survivors.
The cost to DOD (estimated future retirement costs of current personnel) declined after
FY1989 (the beginning of the post-Cold War drawdown), as the size of the force, and
therefore the number of people who will retire from it in the future, declined. However, as
the drawdown stabilized, so did the DOD budget costs of retirement. Tables 2 and 3
indicate the costs of military retired pay in federal budget outlays (payments to current
retirees) and Department of Defense accrual outlays (money set aside to fund future retirees).
Table 2. Military Retirement:
Total Federal Budget Outlays
(billions of current dollars)
Estimated FY2003*
$36.4
Estimated FY2002*
35.3
Actual FY2001*
34.1
Actual FY2000**
32.9
Actual FY1999**
31.9
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Table 3. Military Retirement:
Accrual Outlays from DOD Budget
(billions of current dollars)
Estimated FY2003*
$11.9
Estimated FY2002*
12.5
Actual FY2001*
11.4
Actual FY2000**
11.6
Actual FY1999**
10.4
*FY2003 Budget of the United States Government. Appendix: 903.
**FY2002 Budget of the United States Government. Appendix: 935.
Concurrent Receipt of Military Retired Pay and
VA Disability Compensation
Military Retired Pay and VA Disability Compensation: Current
Situation
Most people familiar with military retirement would probably agree that the most
controversial military retirement issue that is currently the object of intense congressional
interest is that involving concurrent receipt of military retired pay and Department of
Veterans’ Affairs (VA) disability compensation. Current law requires that military retired
pay be reduced by the amount of any VA disability compensation received. For several years
some military retirees have sought a change in law to permit receipt of all or some of both,
and legislation to allow this has been introduced during the past several Congresses. This
issue is frequently referred to as “concurrent receipt,” because it would involve the
simultaneous receipt of two types of benefits.
VA Disability Compensation. To qualify for VA disability compensation, a
determination must be made by the VA that the veteran sustained a particular injury or
disease, or had a preexisting condition aggravated, while serving in the Armed Forces. Some
exceptions exist for certain conditions that may not have been apparent during military
service but which are presumed to have been service-connected. The VA has a scale of 10
ratings, from 10% to 100%, although there is no special arithmetic relationship between the
amount of money paid for each step. Each percentage rating entitles the veteran to a specific
level of disability compensation. In a major difference from the DOD disability retirement
system, a veteran receiving VA disability compensation can ask for a medical reexamination
at any time (or a veteran who does not receive disability compensation upon separation from
service can be reexamined later). All VA disability compensation is tax-free, which makes
receipt of VA compensation desirable, even with the operation of the offset.
Interaction of DOD and VA Disability Benefits. Military disability retirees, as
well as retirees not determined disabled by DOD, can also apply to the VA for disability
compensation. This can be advantageous to retirees who have a DOD disability rating. For
instance, a retiree whose retired pay is offset by the retiree’s VA compensation nonetheless
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receives some advantage because the VA compensation is totally tax-free. Also, a retiree
may (1) apply for VA compensation any time after leaving the service and (2) have his or her
degree of disability changed by the VA as the result of a later medical reevaluation, as noted
above. Many retirees seek benefits from the VA years after retirement for a condition that
may have been incurred during military service but that does not manifest itself until many
years later.
Military Disability Retirement. To qualify for military disability retirement, a
military member must be certified as permanently disabled by a DOD medical examination.
The individual must have (1) at least 20 years of service, or (2) a disability of at least 30%
and have a disability incurred on active duty. That is, personnel with a disability rated at
30% or more by DOD, but who have less than 20 years of service, can be retired on disability
(there is no minimum limit). Similarly, personnel with disability of less than 30% can be
retired on disability as long as their disabling condition was incurred while on active duty.
Disability retired pay is computed on the basis of one of two formulae, whichever is more
advantageous to the individual: (1) the non-disability formula described above, or (2) the
retired pay computation base multiplied by the percentage of disability. DOD makes a
determination of eligibility for disability retirement only once, at the time the individual is
separating from the service. Although DOD uses the VA schedule of types of disabilities to
determine the percentage of disability, DOD measures disability, or lack thereof, against the
extent to which the individual can or cannot perform military duties, rather than his or her
ability to perform post-service civilian work. A military retiree, regardless of his or her DOD
disability status immediately upon retirement, can apply for VA disability compensation at
any time after leaving active military duty. Military disability retired pay is usually taxable,
unless related to a combat disability. For further discussion of these and other relevant
issues, see CRS Report 95-469, Military Retirement and Veterans’ Compensation:
Concurrent Receipt Issues.
How Ongoing Full Concurrent Receipt Plans Would Work
Those concurrent receipt proposals, bills (principally H.R. 303 and S. 170), and floor
amendments debated or acted on in 2002 all contain the same broad elements. Those that
would not authorize full concurrent receipt for all retirees (principally the concurrent receipt
provision of the House version of the FY2003 defense authorization) would limit it to
retirees with 60% VA disability or greater. The others (the Senate authorization, H.R. 303,
and S. 170) have no such limitation based on percentage of disability, nor any other such
criterion. Their principal elements are as follows:
! Full concurrent receipt for military nondisability retirees. (This includes
reserve retirees as well, although because retired reservists do not begin
collecting their retired pay until age 60, there are now, and would not be,
any practical consequences of concurrent receipt’s applicability to them until
then.)
! Full concurrent receipt for military disability retirees in regard to any retired
pay they are entitled to receive if their retired pay were computed in
accordance with the nondisability formula. However, any retired pay over
and above the latter amount that accrues to them because they are disabled
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would be subject to full offset — i.e., would be decreased by the amount of
any VA compensation to which they were entitled.
2nd session, 107th Congress Action on Concurrent Receipt
Executive Branch Position. The George W. Bush Administration (and the Clinton
Administration before it) has been consistently opposed to concurrent receipt and has
threatened to veto the FY2003 National Defense Authorization Act if the Act includes a
concurrent receipt provision. Although there has been skepticism that the Administration
would veto the entire authorization bill on this issue, most knowledgeable individuals think
that the threat of a veto is credible. Secretary of Defense Rumsfeld has explicitly stated that
he would “strongly recommend” a veto if concurrent receipt is enacted. Those who believe
a veto is likely cite the ability of DOD to “get along” without an authorization bill for a
substantial period of time; a supposed desire on the part of some Administration officials to
see a veto take place to indicate the President’s resolve on various issues; and concern that
authorizing concurrent receipt would open the budget to attempts to remove similar offset
provisions in both defense and non-defense related federal payments to individuals.
FY2003 Congressional Budget Resolution.
House Action. The full House, on March 20, 2002, passed the House Budget
Committee version of the FY2003 budget resolution, which had been approved by the
committee on March 15. This would allocate $516 million in FY2003 and $5.8 billion over
the 5-year period FY2003-FY2007 in mandatory – entitlement – spending for concurrent
receipt. The committee plan assumes progressive implementation, to be completed by
FY2007, of full concurrent receipt for those military retirees who currently have a 60% or
greater disability. The committee plan is identical to that contained in H.R. 303/S. 170, 107th
Congress, as described above; it only differs in that it applies to only 60% and above disabled
retirees rather than all disabled retirees. too conservative).
Senate Action. The Senate Budget Committee version of the FY2003 budget
resolution, reported by the committee on March 21, is identical to the full House version,
except its long-range budgeting extends out to FY2012 and thus allocates $17.8 billion for
partial concurrent receipt for 10 years, rather than the House version of $5.8 billion for 5
years. The full Senate has not yet acted on the budget resolution, and it is widely believed
that it will not do so in the remainder of FY2002. This would not, however, prevent the
enactment of concurrent receipt legislation, because the budget committees do not enact
substantive authorizing legislation; the only binding aspects of the budget resolution are the
dollar amounts. If Senate floor action does take place, according to press reports, Senator
Harry Reid plans to offer a floor amendment (as he did in 2001 for the FY2002 budget
resolution) that would fund full concurrent receipt as provided for in the Senate version of
the FY2003 National Defense Authorization Act.
FY2003 National Defense Authorization Act.
House Action. On May 9, 2002, the House passed its version of the FY2003 National
Defense Authorization Act. It had been reported out of the House Armed Services
Committee on May 3, 2002. The bill would implement full concurrent receipt over a 5-year
transition period for military retirees with at least a 60% degree of disability (Sec. 641, pp.
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320-321, H.Rept. 107-436). It is consistent with the House version of the FY2003
congressional budget resolution, described above. In FY2003, eligible retirees would receive
the following amounts of VA disability compensation which would not be offset by
reductions in their military retired pay: 100% disabled retirees, $750/month; 90%, $500;
80%, $250; 70%, $250; and 60%, $125. After FY2003, “The transition program during fiscal
years 2004, 2005, and 2006 would reduce for each retiree the difference between the amount
of retired pay received the previous year and full concurrent receipt by 23 percent, 30
percent, and 64 percent respectively. During fiscal year 2007 [and thereafter], all retirees
with disability rating of 60% and above would receive their entire retired pay and VA
disability compensation.” [H.Rept. 107-436, p. 321) The House bill would take effect
October 1, 2002.
Senate Action. On June 27, 2002, the Senate passed its version of the FY2003
National Defense Authorization Act, which would implement full concurrent receipt,
effective no later than October 1, 2002, for (1) all military nondisability retirees; and (2)
those military disability retirees who, although eligible for nondisability retirement, opted
for disability retirement because it provided a larger payment than the nondisability formula.
It is thus more liberal than the House version, which would authorize concurrent receipt, over
a 5-year transition period, for military retirees with at least a 60% degree of disability.
Conference Action. There have been press reports (see, for example, Rick Maze.
“House, Senate panels strike deal on concurrent receipt,” Army Times, October 7, 2002: 24)
that the conferees have agreed on a 10-year phase-in of full concurrent receipt. Under this
plan, in the first year of its operation, 100% disabled retirees would be authorized concurrent
receipt; the second year, 90% disabled; the third year, 80% disabled, and so on until all
retirees are covered after ten years.
“Special Compensation” For Severely Disabled Retirees
The FY2000, FY2001, and FY2002 National Defense Authorization Acts authorized
what was, in effect, de facto concurrent receipt for severely disabled military retirees, known
in statute as “special compensation.” In FY2002, monthly payments of $50 are authorized
for retirees, both disability and nondisability, with 60% VA disability; $100 are authorized
for military retirees, both disability and nondisability, with 70% or 80% VA disability; $200
for 90% VA disabled retirees; and $300 for 100% VA disabled retirees, if the disability
rating was received from the VA within 4 years of retiring from military service. This
compensation is limited by its statute to retired personnel with at least 20 years of service.
It therefore is not available to retirees who retired with less than 20 years of service in
accordance with the Temporary Early Retirement Authority (TERA) in effect during 1992-
2001 (FY1993-FY2001) or with any disability retiree with less than 20 years of active duty.
[10 USC 1413(c)(1)].
On January 1, 2003, the amounts will rise to $125 for 80%, $225 for 90%, and $325
for 100%. On October 1, 2004, the dollar amounts will rise further to $125 for 70%, $150
for 80%, $250 for 90%, and $350 for 100%. (Sec. 658 of the FY2000 Act, Sec. 657 of the
FY2001 Act, and Sec. 641 of the FY2002 Act). Eligible personnel need not apply for the
pay; their eligibility is identified by DOD and VA computers automatically. About 20,000
retirees qualified for these special payments as defined in the FY2000 and FY2001 laws; it
is not yet clear how many additional individuals will be added to the roll of eligibles by the
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FY2002 Act, although it will be no more than 23,000 (the current number of 60% disabled
retirees). All concurrent receipt legislative proposals provide that if concurrent receipt is
enacted, then this special compensation would be repealed, as a duplication of benefits.
However, it is not yet known if the 10-year phase-in plan supposedly agreed to by the
authorization conferees (see above) would also repeal special compensation–the conferees
might decide that due to the lengthy period required for concurrent receipt to become
effective for all retirees, that some or all of the special compensation entitlement should be
at least temporarily retained.
Costs of Concurrent Receipt
Overall cost estimates for concurrent receipt in general have varied, depending on the
extent of concurrent receipt allowed, from an annual level of about $50 million (allowing
concurrent receipt for people who are rated by the VA as 100% combat-disabled) to over
almost $6 billion (allowing concurrent receipt for all individuals eligible for military retired
pay and VA disability compensation, with no qualifications–which is far more extensive than
the legislation currently being debated).
According to CBO estimates, the House version of concurrent receipt would cost $1.1
billion in FY2003 and $25 billion over the period FY2003-FY2012; the Senate version, $4.3
billion and $61 billion respectively. The House version would cover 110,000 retirees and
the Senate, 700,000. Those retirees covered by the House version would receive an annual
benefit increase of about $18,000 under the House provision, when fully implemented, and
those covered by the Senate, $6,400–the House figure being larger because it applies to only
60% or more disabled retirees who therefore, on average, receive a higher VA compensation.
See CRS Report RS21327, Concurrent Receipt of Military Retirement and VA
Disability Benefits: Budgetary Issues, for a detailed analysis of concurrent receipt costs.
“Special Compensation” Costs. The “special compensation” enacted in the
FY2000-2001 defense authorizations have annual estimated costs of $83 million-$125
million. No cost estimates have been issued yet about the expansion of these costs in the
FY2002 defense authorization. The issue will probably be academic by late 2002, due to the
likely passage of at least partial concurrent receipt.
The Alleged “Surplus” in the Military Retirement Fund and Concurrent
Receipt. Assertions that there is a “windfall” or “surplus” in the Military Retirement Fund,
which could be used to help pay for allowing some military retirees to receive their military
non-disability retired pay and VA disability compensation concurrently, are incorrect.
Complicated calculations are used to compute the amount of money that has to be transferred
to the Military Retirement Fund from the DOD budget (see the section below on “Military
Retirement Budgeting and Costs”) to pay for future retirement costs. These calculations do,
in fact, include projections, based on past experience, on how many military retirees will
probably be eligible for VA disability compensation as well as military retired pay – and,
therefore, how much less retired pay the Fund will have to pay out to retirees because they
are getting VA compensation instead. The idea of the “windfall” assumed that the
calculations did not take the VA compensation offset into account.
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Financing Concurrent Receipt through Increased Amortization Payments
to the Military Retirement Fund. Some have suggested a so-called no cost method of
financing the costs of concurrent receipt through technical aspects of the accrual accounting
system for military retirement costs and budgeting. The arguments in favor of it appear to
assume that the Military Retirement Fund established by accrual accounting is essentially a
“pot of money” that could be dipped into to cover the increased costs generated by
concurrent receipt. However, regardless of accrual accounting’s undeniably complex
financing mechanism, actual payments made by the federal government to individual retirees
are “real money.” Implementation of concurrent receipt would involve incurring additional
real outlays by the federal government that could not be avoided, no matter what complex
paths or transfers, however circuitous they might be, that the money followed before it was
ultimately paid to individual retirees. To use a variation on the old saying, the concurrent
receipt “lunch” might appear to be free within the operation of accounting mechanisms, but
once it is paid to entities outside the government it is real food and hence cannot be free.
Pros and Cons of Concurrent Receipt
These are only the most frequently cited positions on the issue. See CRS Report 95-
469, Military Retirement and Veterans’ Compensation: Concurrent Receipt Issues, for more
arguments pro and con concurrent receipt.

Major Arguments IN FAVOR of Concurrent Receipt.
(1) Military retired pay, it is argued, was earned for length of service; the VA disability
compensation, for disability. They were therefore for two different things and did not
constitute a duplication of benefits.
(2) If cost was an issue, partial concurrent receipt should be allowed for those most
severely disabled, with combat disability, or whose benefits or total income are the least.
(3) VA disability compensation beneficiaries are entitled to other federal benefits; why
not military retired pay?
(4) People receiving VA disability compensation can receive pensions from a wide
variety of other sources without any offset; why target military retirees?
Major Arguments AGAINST Concurrent Receipt.
(1) The cost of full, or nearly full, concurrent receipt would be enormous — some
estimates say almost $5 billion yearly. (See CRS Report RS21327, Concurrent Receipt of
Military Retirement and VA Disability Benefits: Budgetary Issues.)
(2) Eliminating or reducing this offset would “be sticking the camel’s nose into the
tent,” setting a precedent for the reduction or elimination of all kinds of similar offsets of one
or more federal payments, possibly costing billions of dollars (a CRS study identified at least
25 such offsets; see pp. 43-47 of CRS Report 95-469, Military Retirement and Veterans’
Compensation: Concurrent Receipt Issues).
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(3) Concurrent receipt could result in some individuals getting a new VA medical
evaluation, resulting in a higher disability rating and hence eligibility for concurrent receipt
benefits, or getting a VA evaluation when they had hitherto not done so. Both results would
lead to more people getting VA compensation for the first time or higher amounts of it.
(4) Although some federal programs do not have an offset against VA disability
compensation, there are no such offsets involving disability and retirement from the same
job and agency where the disability occurred.
(5) VA disability compensation is supposedly authorized much more liberally than
military disability retired pay, and a VA disability can be certified many years after a person
leaves active military service. Concurrent receipt could lead to a windfall for people whose
VA disability might have had a tenuous connection with their military service.
(6) Concurrent receipt was never promised to those asking for it.
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