February 11, 2022
Defense Primer: Military Separation and Severance Pay
Congress has authorized separation or severance pay for
Involuntary Separation Pay.
involuntarily and voluntarily discharged servicemembers
Involuntary Separation Pay (ISP, 10 U.S.C. §1174), was
throughout most of the military’s history. The purposes for
authorized as part of the Defense Officer Personnel
these authorities has been three-fold: 1) to ease the
Management Act (DOPMA) of 1980. DOPMA repealed
transition to civilian life for servicemembers with minor
prior legislation authorizing “severance” or “readjustment”
physical disabilities; 2) to compensate servicemembers for
pay for military officers involuntarily separated from
an unplanned (non-disability) end to their military career
service. Among other changes to the officer personnel
before they are eligible to retire; and 3) to aid the
system, DOPMA standardized what is often referred to as
Department of Defense (DOD) in managing force size.
an “up or out” policy for officers across all of the services.
Disability Severance Pay
Under this provision, an officer may be involuntarily
discharged for having twice failed in selection for
The Military Compensation Background Papers (8th
promotion. This had the potential to impose an unplanned
Edition) describes disability severance pay (DSP) as,
career end for that officer and factored into the design of
[A] special lump-sum payment to be made to
the involuntary separation benefit. According to the House
members of the armed forces separated from active
Armed Services Committee report to accompany the bill,
military service because of minor physical
The separation pay is a contingency payment for an
disabilities that, while substantial enough to
officer who is career committed but to whom a full
adversely affect their ability to perform the military
military career may be denied. It is designed to
duties of their respective offices or grades, are not
encourage him to pursue his service ambition,
so severe as to seriously impair their civilian
knowing that if he is denied a full career under the
earning capacity, in order to assist such personnel
competitive system, he can count on an adequate
in their transitions back to civilian life.
readjustment pay to ease his reentry into civilian
While forms of disability severance for military veterans
life. (H. Rpt. 96-1462, 1980)
have existed since the founding of the United States, the
In 1990, during a period of force drawdowns, Congress
modern system (codified under 10 U.S.C. §1212) was
expanded this authority to enlisted servicemembers (P.L.
adopted in the Career Compensation Act of 1949 (P.L. 81-
101-510). Servicemembers involuntarily discharged under
351, §403). This law standardized the benefit across all
honorable conditions after six years but before twenty years
services, components, and pay grades.
of active service may be eligible to receive ISP as a lump
Servicemembers who develop a medical condition affecting
sum. A condition for ISP receipt is an agreement to serve a
their fitness to serve may be referred to a medical
minimum of three years in the Ready Reserve following
evaluation board (DOD Instruction 1332.18). If the board
discharge or release from active duty.
determines that the disability is permanent, stable, and rated
at 30% or greater, then the member may receive a disability
Amount of Involuntary Separation Pay
retirement and is eligible for retired pay. Those with
10 U.S.C. §1174 authorizes two mechanisms to calculate
temporary disabilities may be placed on the disability
ISP: 1) full payment: 10% of the product of the YOS and 12
retired list and later re-evaluated for fitness to serve. Those
times the servicemember’s monthly pay at the time of
with service-connected disabilities rated less than 30%, are
separation; or 2) half payment of the prior amount. Full
not eligible for disability retirement, but may be discharged
payment or half payment is at the discretion of the
with DSP.
Secretary of the Military Department concerned. DOD
policies prescribe half-payment under circumstances where
Amount of Disability Severance Pay
members are deemed not fully qualified for retention or
The amount of DSP is computed by multiplying the
continuation (e.g., weight control failures, failure to meet
member’s years of service (YOS) by two months of the
standards, or other conditions not constituting a disability).
basic pay to which the member is entitled at the time of
(DODI 1332.29)
separation or placement on the temporary disability retired
list. The member is credited with a minimum of three YOS
Voluntary Separation Pay
for this calculation. If the disability is combat-related the
During the force drawdown in the 1990s, Congress
member is credited with a minimum of six YOS. The
authorized two types of voluntary separation incentives, the
maximum creditable YOS is nineteen. DSP is distributed as
Special Separation Bonus (SSB, 10 U.S.C. §1174a) and
a one-time, lump-sum payment and is taxable, unless
Voluntary Separation Incentive (VSI, 10 U.S.C. §1175).
related to a combat injury or the member is entitled to
These separation incentives were designed to help the
disability compensation from the Department of Veterans
services reduce over-manning in certain active component
Affairs (VA).
pay grades or occupational specialties.
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Defense Primer: Military Separation and Severance Pay
Table 1. Comparison of Military Separation Benefits
Separation Benefit
Authority
Payment
Termination
Disability Severance Pay
10 U.S.C. §1212
Lump-sum: YOS x 2 months’ basic pay
N/A
Involuntary Separation Pay
10 U.S.C. §1174
Lump sum: 10% x YOS x 12 months’ basic pay, or
N/A
half of this amount
Special Separation Bonus
10 U.S.C. §1174a
Lump sum: 15% x YOS x 12 months’ basic pay
December 31, 2001
Voluntary Separation Incentive
10 U.S.C. §1175
Annual annuity: 2.5% x YOS x 12 months’ basic
December 31, 2001
pay
Source: CRS analysis of statute and policy.
As a condition of VSI or SSB receipt, servicemembers were
Military Retirement Deductions
required to maintain an affiliation with the Ready Reserve,
Under 10 U.S.C. §1174(h)(1), a servicemember who has
either by joining drilling units in the Selected Reserve or
received a separation or severance pay, and who later
becoming part of the manpower pool known as the
becomes eligible for military retired or retainer pay, shall
Individual Ready Reserve (IRR). VSI recipients were
have the total (pre-tax-withholding) amount of that pay
required to maintain this affiliation for the duration of their
deducted in monthly installments under a schedule
VSI payments (with some exceptions), while SSB
specified by the Secretary of Defense. The provision
recipients were required to serve a minimum of three years.
indicates that in applying a repayment schedule, the
Servicemembers could receive only one of these two
Secretary shall take into account, “the financial ability of
payments and were not eligible to receive these payments
the member to pay and avoiding the imposition of undue
and active or reserve component pay concurrently. The
financial hardship on the member and member's
authority to offer incentives expired on December 31, 2001.
dependents.”
Amount of Voluntary Separation Pay
Veteran Disability Compensation Deductions
A primary difference between the two voluntary incentives
Under 10 U.S.C. §1174(h)(2), a servicemember who
was the payout period for the benefit. VSI was paid as an
receives separation or severance pay for a specific period of
annual annuity for twice the number of years of service at
service is eligible to receive VA disability compensation for
the time of separation from active duty, or until separation
that period of service; however, the after-tax separation pay
or retirement from a reserve component (whichever came
amount is withheld from the VA disability compensation.
first). For example, a servicemember who had 8 years of
Withholding does not apply to a disability that is incurred
service at the time of separation could receive 16 years of
or aggravated during a later period of active service.
annual payments. SSB, on the other hand, was a one-time
lump sum payment upon separation. VSI was calculated as
Exception to VA Disability Deductions for Combat-
2.5% of 12 months’ basic pay at the time of transfer to the
Related Disabilities
reserve component multiplied by YOS. SSB was calculated
Under 10 U.S.C. §1212(2) individuals who receive DSP
as 15% of the product of the member’s YOS and 12
“for a disability incurred in line of duty in a combat zone or
months’ basic pay. Federal income tax was automatically
incurred during performance of duty in combat-related
withheld from the separation pay received under the
operation” are not subject to recoupment from their VA
VSI/SSB programs.
disability compensation.
Mandatory Recoupment
CRS Products
Servicemembers who receive any of these payments and
later become eligible for military retired pay for regular or
CRS Report RL34751, Military Retirement: Background and
reserve service, or veteran disability compensation, are
Recent Developments, by Kristy N. Kamarck.
subject to recoupment provisions. These provisions have
CRS Report R44837, Benefits for Service-Disabled Veterans,
been part of statute since the benefits were first enacted, as
coordinated by Heather M. Salazar.
part of historical efforts by Congress to prohibit the receipt
CRS Infographic IG10009, The Road to Veterans Benefits, by
of two government benefits for the same period of service
Kristy N. Kamarck and Sidath Viranga Panangala.
or qualifying event. When Congress authorized DSP in
Department of Defense
1949, the House Report to accompany the bill stated,
DODI 1332.29, Involuntary Separation Pay (Non-Disability)
This title also contains a provision which is fully
DODI 1332.18, Disability Evaluation System
justified when the amount of money involved is
considered. Any person who receives severance pay
Defense Finance and Accounting Service, Separation Payments,
under the provisions of this title shall have it
at https://www.dfas.mil/retiredmilitary/plan/separation-
deducted from any compensation to which he might
payments/
otherwise be entitled for the same disability from

the Veterans' Administration. (H.Rpt 81-583, May
1949)
Kristy N. Kamarck, Specialist in Military Manpower
IF12042
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Defense Primer: Military Separation and Severance Pay


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https://crsreports.congress.gov | IF12042 · VERSION 1 · NEW

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