Order Code IB85159
CRS Issue Brief for Congress
Received through the CRS Web
Military Retirement:
Major Legislative Issues
Updated September 2, 2003
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 and What Will be the Next COLA?
COLAs for Pre-August 1, 1986 Entrants
COLAs for Personnel Who Entered Service 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
“Special Compensation” For Severely Disabled Retirees
“Combat Related Special Compensation” (CRSC) for Certain Disabled Retirees
Concurrent Receipt Legislation in the 108th Congress
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
tory terms the concurrent receipt ban remains
benefits for retirement after an active or re-
in effect.
The new program, entitled
serve military career, disability retirement, and
“Combat Related Special Compensation,”
survivor benefits for eligible survivors of
(CRSC), became effective May 31, 2003;
deceased retirees.
information and application forms are avail-
able at two DOD websites, listed below.
The proposed change to the system that
has generated the most recent legislative
The FY2004 Congressional Budget
activity involves whether some or all military
Resolution failed to adopt a Senate-passed
retirees should be allowed to receive both
provision that would have funded partial
military retired pay and any VA disability
concurrent receipt. There is no concurrent
compensation to which they are otherwise
receipt related provisions in the House ver-
entitled; this is referred to as “concurrent
sions of the FY2004 National Defense Autho-
receipt.” A longer-term issue is whether some
rization Act; however, the Senate, after much
military personnel should be entitled to mili-
debate and parliamentary maneuvering, did
tary retired pay with less than 20 years of
adopt a floor amendment by Senator Reid
service and whether many more personnel
authorizing full concurrent receipt. A House
should serve well past the 20-year point before
discharge petition is being circulated to bring
retiring.
a concurrent receipt bill to the floor, but it
seems unlikely that it will succeed.
In
Concurrent Receipt. Current law prov-
addition, as was the case in 2002, the Admin-
ides that military retired pay be reduced by the
istration has stated its willingness to veto the
amount of VA disability compensation. Some
defense authorization bill if it contains concur-
maintain this is inequitable and unfair; it has
rent receipt.
been defended on grounds of cost and of the
need to avoid setting a precedent for concur-
Changing the 20-Year Retirement
rent receipts of numerous other benefits.
Paradigm. Some argue that requiring mili-
tary personnel to serve at least 20 years before
The FY2003 National Defense Authori-
retiring is inefficient and expensive. Others
zation Act authorized DOD payments to
have argued that it is essential to maintaining
certain military retirees, either with (1) a
a high-quality career force capable of meeting
Purple Heart indicating a combat wound and
wartime requirements. Some changes along
at least a 10% disability; or (2) at least a 60%
these lines, primarily for general and flag
disability, but not a wound leading to a Purple
officers, are embodied in the DOD legislative
Heart, if the disability resulted from activity
proposal sent to Congress on April 10, 2003,
related to actual military operations (i.e.,
entitled the “Defense Transformation for the
training, exercises, work performed on a
21st Century Act.” Only a few of these changes
military base or in a military environment,
were adopted in either the House or Senate
whether or not during actual hostilities). The
versions of the FY2004 National Defense
result of the new benefit will be that eligible
Authorization Act, however, and report lan-
retirees will receive the financial equivalence
guage implies considerable skepticism about
of concurrent receipt, but in legal and statu-
them in the Congress.
Congressional Research Service
˜ The Library of Congress

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09-02-03
MOST RECENT DEVELOPMENTS
On July 16, 2003, the DOD Comptroller, Dov Zakheim, submitted a letter to Congress
stating the Administration’s objection to including any concurrent receipt provisions in the
FY2004 National Defense Authorization Act and stating that he would recommend a veto
of any such legislation. This reiterated similar objections stated by Secretary of Defense
Rumsfeld, in a similar letter of July 9.
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, and their roughly six to eight million family members, 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 addition, it can be posited that the policy choices posed by recently-enacted increased
benefits for military retirees are an integral part of a larger debate in the United States over
the distribution of pension-type resources among younger workers and older retirees. In the
defense context, it may take the form of conflicts between DOD and current active duty and
reserve military personnel on the one hand, with the responsibility of defending the United
States in the present, and retired military personnel, many of whom feel that they are losing
benefits to which they assumed they would always have access. On the other hand, it can
be argued that, in a defense budget close to $400 billion yearly, benefits that cost the DOD
budget only $7-8 billion yearly are not significant enough to force serious policy choices
between current defense capability on the one hand, and, on the other, pensions for those
who, despite their patriotic service, are not providing any current defense capability.
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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.
Program Summary
In FY2004, total federal budget outlays for military retirement will be an estimated
$36.7 billion and DOD budget outlays will be an estimated $12.5 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. These numbers, taken from Table 2, below, also differ
slightly from those in Table 1, immediately below, for purely technical reasons without
policy significance.) Table 1 shows the estimated numbers of retirees, and the costs to the
federal government of the retired pay they receive, for FY2002-FY2004.
Table 1. DOD Retired Military Personnel and Survivors:
Estimated Numbers and Costs, FY2002-FY2004
Retirees from
Survivor
an Active Duty
Disability
Reserve
Benefit
Total
Military Career Retirees
Retirees
Recipients
2,022,000/
1,400,000/
91,000/
254,000/
272,000/
FY2004
$37.14 billion
$30.80 billion
$1.24 billion
$2.91 billion
$2.19 billion
2,008,000/
1,392,000/
93,000/
251,000/
269,000/
FY2003
$36.16 billion
$29.98 billion
$1.26 billion
$2.80 billion
$2.12 billion
1,993,000/
1,384,000/
96,000/
248,000/
265,000/
FY2002
$35.25 billion
$29.22 billion
$1.28 billion
$2.69 billion
$2.06 billion
Sources: Office of the Actuary. Department of Defense. Valuation of the Military Retirement System.
September 30, 2001: K-8, K-10, K-14, K-16, L-2, and L-4. Document available online from the Office of the
DOD Actuary at[ http://dod.mil/actuary/#].
“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
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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 FY2001 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
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).
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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
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 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 worked in specified public service jobs (such as law enforcement,
firefighting, and education) 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.
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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 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 the 20-year mark and too few to
stay 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-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 allegedly shows a need for more officers to serve well past 20 years. In fact, the
mandatory joint duty requirements are the only new factor in this issue, which has been an
object of controversy since the late 1960s. Many analysts, however, feel that the joint duty
requirements have, in connection with other duty required of an officer to attain a sufficient
level of competence in his or her grade, simply made a 20-year career incapable of attainment
— all of the service requirements cannot be “crammed into” 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 arduous peacetime training and deployments as well as war. 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,
unquestionably a major problem in the early stages of both World Wars. Since 20-year
retirement was adopted in the late 1940s, the latter problem has not surfaced when U.S.
forces have been in combat. 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.
Discussion about such “reforms” — that is, cuts — in retired pay entitlements was muted in
the aftermath of the September 11, 2001 attacks.
However, the proposed “Defense
Transformation for the 21st Century Act,” a legislative proposal sent to Congress by DOD
in late April 2003, included, for the first time, provisions to allow the services to lengthen
the maximum years of service of general and flag officers and be more flexible in their
assignments. Specifically, the proposed Act would:
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! extend the age limits for retirement of general/flag officers from the current
62 to 68, waivable to 72 in some cases;
! eliminate mandatory retirement of general and flag officers after the current
30, 35, 38, and 40 years of service for, respectively, brigadier generals/rear
admirals (lower half) (one-star officers; pay grade 0-7); major generals/rear
admirals (two stars; pay grade 0-8); and lieutenant generals/vice admirals
(three stars; pay grade 0-9); and full generals/admirals (four stars; pay grade
0-10);
! allow general and flag officers with more than 30 years of service to receive
retired pay that is more than the current maximum of 75% of their retired
pay computation base;
! eliminate a cap on the retired pay of general/flag officers, which results from
the operation of laws that restrict active duty military basic pay; and
! reduce the number of years an officer in various grades would have to serve
before being allowed to retire in that grade, for both general/flag officers and
officers in grades 0-5 (lieutenant colonel/Navy commander) and 0-6
(colonel/Navy captain).
The net effects of these provisions would be to prevent the mandatory retirement of
skilled high-level officers who might otherwise want to stay on active duty; give DOD and
the military services more flexibility in managing the senior uniformed leadership of the
services; allow generals and admirals to serve longer tours of duty and minimize too-frequent
rotation of assignments; and provide greater compensation incentives related to the greater
lengths of service. However, some opposed to them are concerned about longer terms for
generals and admirals resulting in excessive stultification and stodginess in the senior
uniformed leadership; an excessive slowing of promotions, as more people stay on active
duty in the same grade for longer periods of time; and, combined with other measures in the
proposed bill, a greater alignment of the senior generals and admirals with the senior
appointed political leadership of DOD, and, hence, the Administration and political party in
power.
Only one of the categories of military personnel management changes noted above that
were contained in this “Defense Transformation” legislative proposal was adopted in either
the House or Senate versions of the FY2004 National Defense Authorization Act —
specifically, the reduction in years in grade before an officer is allowed to retire in that grade.
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,
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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, 1982-2002
(FY1983-FY2003).
What Was the Last COLA and What Will be the Next 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 COLA which will become effective on January 1, 2003, will be 1.4%,
the second smallest since COLAs began in 1963 (the smallest 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, 1982-2002 (FY1983-FY2003).
COLAs for 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.
COLAs for Personnel Who Entered Service 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),
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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
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. At first, only a fairly small
percentage of personnel opted for the $30,000 lump sum. However, the proportion has been
rising, despite the fact that in virtually all cases it provides less money in the long run.
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 from investment in special, non-marketable U.S. government
securities similar in some ways to Treasury bills and bonds. This interest funds 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
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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.
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 FY2033. The unfunded liability at the end
of FY2001 was $539.6 billion; the estimated liability for FY2002 was $555.2 billion; for
FY2003, $570.1 billion; and for FY2004, $586.7 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. Table 2 indicates 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).
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Table 2. Military Retirement Outlays
(billions of current dollars)
Total Federal
Accrual Outlays from
Budget Outlays
DOD Budget
Estimated FY2004*
$36.7
$12.5
Estimated FY2003*
35.9
12.1
Actual FY2002*
35.1
12.9
Actual FY2001**
34.1
11.4
Actual FY2000**
32.9
11.6
*FY2004 Budget of the United States Government. Appendix: 859.
**FY2003 Budget of the United States Government. Appendix: 903.
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,
frequently having co-sponsors well above half of both the House and the Senate. This issue
is frequently referred to as “concurrent receipt,” because it would involve the simultaneous
receipt of two types of benefits. In 1999, legislation was enacted to provide “special
compensation” to certain severely disabled military retirees who would be eligible for
concurrent receipt if concurrent receipt were ever enacted; in 2002, further legislation, known
as “combat-related special compensation,” or CSRC, was enacted that provides, for certain
seriously disabled retirees, a cash benefit financially identical to what concurrent receipt
would provide them.
Neither type of “special compensation” removed the statutory
prohibition on actual concurrent receipt.
The George W. Bush Administration (and the Clinton Administration before it) has
been consistently opposed to concurrent receipt. Secretary of Defense Rumsfeld has stated
that he would recommend that the President veto the FY2004 National Defense
Authorization Act if it contained a concurrent receipt provision; a similar threat was made
in 2002 regarding the FY2003 National Defense Authorization Act.
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
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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
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.
“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 FY2003, monthly payments of $50 are authorized
for retirees, both disability and nondisability, with 60% VA disability; $100 for 70% disabled
retirees; $125 for 80%; $225 for 90%; and $325 for 100% VA disabled retirees, if the
disability rating was received from the VA within 4 years of retiring from military service.
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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 October 1, 2004, the dollar amounts will rise further to $125 for 70%, $150 for
80%, $250 for 90%, and $350 for 100%. (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 FY2002 Act, although it will be no more than 23,000 (the
current number of 60% disabled retirees).
The “quasi-concurrent receipt” provisions
contained in the FY2003 defense authorization act, discussed in detail below, do not effect
this special compensation, except that retirees will not be allowed to receive both types of
special compensation; they will be allowed to pick whichever one they find most financially
advantageous.
“Combat Related Special Compensation” (CRSC) for Certain
Disabled Retirees
On December 2, 2002, the President signed the FY2003 National Defense Authorization
Act (P.L. 107-314; 116 Stat. 2458). This followed the House and Senate approval, on
November 12, 2002, of the conference report (H.Rept. 107-436) on this Act. Section 636
of the conference bill contains concurrent-receipt-generated provisions. Section 636 provides
for a new category of DOD “special compensation” for certain military retirees. This
benefit, entitled “Combat Related Special Compensation,” or CRSC, by DOD, is available
to military retirees who have at least 20 years of service and who have either:
! A disability that is “attributable to an injury for which the member was
awarded the Purple Heart,” and is not rated as less than a 10% disability by
DOD or the VA; or
! At least a 60% disability rating from either DOD or the VA, incurred due to
involvement in “armed conflict,” “hazardous service,” “duty simulating
war,” and “through an instrumentality of war.” This appears, in lay terms,
to encompass combat with any kind of hostile force; hazardous duty such as
diving, parachuting, using dangerous materials such as explosives, and the
like; individual training and unit training and exercises and maneuvers in the
field; and “instrumentalities of war” such as accidents in combat vehicles
or, if due to training-related activities, aboard naval vessels or military
aircraft, and accidental injuries due to occurrences such as munitions
explosions, injuries from gases or vapors related to training for combat, and
the like.
The payments will be equal to the amount of VA disability compensation to which the retiree
is entitled, but the new legislation does not end the requirement that the retiree’s military
retired pay be reduced by whatever VA compensation to which the retiree is entitled.
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Under the new law, therefore, the eligible retirees will receive the financial equivalence
of concurrent receipt, but in legal and statutory terms it will not constitute concurrent receipt,
and the statute also states that it explicitly is not retired pay per se. In addition, the law
provides that any retiree eligible for this new special compensation will not be entitled to the
existing special compensation first established in 2000 for potentially concurrent-receipt
eligible retirees.
Military nondisability retirees (those who do not retire from DOD based on any
disability) may be eligible for this combat-disability special compensation, if they receive a
VA disability rating [see subsection 1413a (e)(1)(B)(ii) of title 10, as enacted in the new
law].
As noted above, the VA and the DOD disability determination processes are
independent of each other. Military disability retirees will be entitled to this new combat-
disability special compensation under specific circumstances. If they were retired for
disability but were also entitled to have their retired pay computed on the basis of the
nondisability formula (i.e., had at least 20 years of service in most cases), they will be
entitled to any amount of the new special compensation to which the VA disability
determination would entitle them, with one important exception. This latter exception would
apply to retirees whose disability was so severe that having their retired pay computed in
accordance with the percentage of disability would actually give them more money than if
it were computed on the basis of their 20 years or more of service. For these retirees, their
special compensation would be reduced by the difference between the two formulas. This
is done on the assumption that to give them the extra due to disability, together with the VA
disability compensation, would in fact be doing what the opponents of concurrent receipt
have argued: giving a person two types of compensation for the same disability. The
determination as to whether a retiree’s disability is “combat-related” in accordance with the
new statute will be made by DOD.
According to news reports, DOD has decided on a preliminary basis that the CSRC
payments should not be subject to federal income tax.
This new entitlement became effective May 31, 2003, just meeting the deadline of 180
days after enactment contained in the FY2003 Act; i.e., June 2, 2003. DOD had to wrestle
with the complex issues involved in defining exactly what kind of disabilities meet the
criterion of combat-related other than those that can be directly attributed to receipt of a
Purple Heart. According to DOD, “Payments for qualified retirees will accrue beginning
June 1 [2003] with first payments possible on July 1 [2003].”
Retirees will be
“grandfathered” regarding the legislation; individuals who are already retired will be allowed
to apply for the new benefit. Applications and information are available on two DOD web
sites: [https://www.dmdc.osd.mil/crsc] or [http://www.dior.whs.mil/forms/DD2860.PDF].
Retirees may also phone the retirement services offices of their service for the necessary
information.
Certain aspects of the CRSC may receive legislative attention in the 108th Congress.
First, DOD has interpreted the new law as requiring the payment of the special compensation
based on the disability compensation received by a veteran without regard to the veteran’s
dependents. The rate for a disabled veteran with a spouse, dependent child, and/or dependent
parents is higher. Hence, the continued prohibition on actual concurrent receipt will require
the “with dependents” rate to be deducted from the military retiree’s DOD retired pay, but
the CSRC will replace this loss with only the lesser rate for a veteran without dependents.
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Second, DOD has interpreted the law as requiring reserve retirees to have at least 7,200
reserve retirement “points” to be eligible for CRSC. A reservist receives a certain number
of retirement points for varying levels of participation in the reserves, or active duty military
service. This is an extraordinarily high point level — in fact, it could only be attained by a
reservist who had at least 20 years of active duty military service. However, the CRSC
statute authorizes CRSC to be paid only to retirees with at least 20 years of service; hence,
DOD feels it has no choice to require the equivalent of 20 years from reservists. The reserve
and National Guard community may well seek to have this aspect of CSRC modified.
Concurrent Receipt Legislation in the 108th Congress
FY2004 Congressional Budget Resolution. The conference report on the
FY2004 congressional budget resolution, reported on April 11, 2003, did not include a
Senate provision allotting money for partial concurrent receipt in FY2004. The lack of
provision in the budget resolution for any kind of concurrent receipt was a first indication,
based on congressional action, of the probable lack of significant movement toward
congressional action on concurrent receipt during 2003.
Previously, on March 25, the Senate had approved a floor amendment to its version of
the FY2004 budget resolution offered by Senator Harry Reid, which would fund partial
concurrent receipt for the period FY2004-FY2013. The “partial” nature of the concurrent
receipt assumed in the amendment was twofold: it would have been limited to military
retirees with at least a 60% service-connected disability; and it would have been phased in
over the three-year period calendar year 2004 through calendar year 2006. In 2004, only 40%
of the retired pay to which the beneficiaries would otherwise be entitled would have been
paid out; in 2005, 60%; in 2006, 80%, and 100% only in calendar year 2007. Another
amendment by Senator Reid that would have funded full concurrent receipt was submitted
for printing on March 20, 2003 (S.Amdt. 342), but never actually proposed.
FY2004 National Defense Authorization Act. On May 9 and May 14, 2003, the
Senate and House Armed Services Committees, respectively, released their versions of the
FY2004 National Defense Authorization Act. Neither bill, in a significant departure from
recent previous years, contained any provisions related to concurrent receipt. On May 22,
2003, both houses passed their versions of the Act, with no change in the authorizing
committees’ lack of concurrent receipt provisions. However, the Senate reopened the
authorization bill for amendments on June 4, and on that date, Senator Reid’s floor
amendment to authorize full concurrent receipt, identical to similar amendments offered
earlier and in past years, was passed by voice vote.
In addition, a discharge petition is being circulated in the House to bring to the House
floor H.R. 303, which would authorize full concurrent receipt on a basis identical to that of
Senator Reid’s floor amendment. As of June 21, 2003, 191 House members had signed the
discharge petition to force H.R. 303 to the floor. Bypassing the Armed Services Committee
so a floor vote can be taken requires 218 signatures.
On July 8, 2003, in letters to the Chairmen of the House and Senate Armed Services
Committees, Secretary of Defense Rumsfeld stated that if the FY2004 defense authorization
bill sent to the President included a concurrent receipt provision, “I would join other senior
advisors to the President in recommending that he veto the bill.” The letter asserted that
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concurrent receipt (and a proposed expansion of the TRICARE military health care system)
“would drain resources away from important programs benefitting our military, such as
continued improvements in pay, quality of life, readiness, and other pressing requirements.”
Virtually identical language, including the recommendation of a veto, was contained in a
letter to Congress from DOD Comptroller Dov Zakheim, dated July 16, 2003. Both 2003
documents were in turn almost identical to veto threats made in 2002 during consideration
of the FY2003 National Defense Authorization Act. As noted above, last year’s threat was
successful, forcing Congress to abandon attempts to approve actual concurrent receipt in
and, instead, create the CRSC. There are some indications in the military retiree community
that, as was the case in 2002, dropping concurrent receipt in the authorization bill conference
may well be accompanied by an expansion of CRSC — possibly a lessening of the stringent
retirement point requirements for reserve retirees to be eligible for CRSC (see above).
Costs of Concurrent Receipt
According to the most recent Congressional Budget Office (CBO) estimates, full
concurrent receipt would cost approximately $3 billion in FY2004, rising to $5 billion by
FY2013, and totaling $41 billion over the ten-year period FY2004-FY2013. Almost 700,000
retirees will be eligible in FY2004.
Costs of “Special Compensation” for Severely Disabled Retirees Enacted
in 1999-2001 (FY2000-FY2002). CBO estimates that the “special compensation” enacted
in the FY2000-2002 defense authorization acts would cost approximately $710 million over
the period FY2003-FY2012. About 36,000 retirees are currently eligible.
Costs of the New “Combat Related Special Compensation (CRSC)”
Enacted in 2002 (FY2003). Cost estimates for the CRSC vary widely, because estimates
of the number of eligible beneficiaries and variables that will have to be settled by DOD’s
implementing regulations also vary. The most recent estimates of the cost during its first full
year of operation, FY2004, vary considerably.
CBO estimates $265 million (18,000
eligibles); the Office of Management and Budget (OMB), $269 million (no eligibles
estimate); and DOD, $326 million (33,300 eligibles). Long-term cost estimates over the
period FY2003-FY2012 vary as well. CBO projects about $6.0 billion; DOD, $3.7 billion;
and OMB, $2.7 billion.
See CRS Report RS21327, Concurrent Receipt of Military Retirement and VA
Disability Benefits: Budgetary Issues, by Amy Belasco, for a detailed analysis of concurrent
receipt costs.
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.
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Major Arguments IN FAVOR of Concurrent Receipt.
(1) Military retired pay, 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).
(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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