Military Retirement:
Background and Recent Developments
Updated July 28, 2022
Congressional Research Service
https://crsreports.congress.gov
RL34751

Military Retirement: Background and Recent Developments

Summary
The military retirement system is a government-funded, noncontributory, defined benefit system
that has historically been viewed as a significant incentive in retaining a career military force. The
system currently includes monthly compensation for qualified active and reserve retirees,
disability benefits for those deemed medically unfit to serve, and a survivor annuity program for
the eligible survivors of deceased retirees. The amount of compensation is dependent on time
served, basic pay at retirement, and annual Cost-of-Living-Adjustments (COLAs). Military
retirees are also entitled to nonmonetary benefits including health care benefits, exchange and
commissary privileges, and access to Morale, Welfare and Recreation (MWR) facilities and
programs.
Currently, there are three general categories of military retiree–active component, reserve
component, and disability retiree. Active component personnel are eligible for retirement (i.e.,
vested) after completing 20 years of service (YOS). Reserve personnel are eligible after 20 years
of creditable service based on a points system, but do not typically begin to draw retirement pay
until age 60. Finally, those with a disability retirement do not need to have served 20 years to be
eligible for retired pay; however, they must have been found unqualified for further service due to
a permanent, stable disability.
In FY2020, DOD obligated $61.8 billion for 2.3 million military retirees and survivors. Given the
size of the program, some have viewed military retirement as a place where substantial budgetary
savings could be made. Others have argued that past modifications intended to save money have
negatively affected military recruiting and retention. Military retirees, families, and veterans’
interest groups closely monitor potential changes to the retirement system. When considering
alternatives to the current system, Congress may choose to consider the balance among (1) the
benefits of the military retirement system as a retention incentive, (2) budget constraints, and (3)
the needs and concerns of constituents.

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Contacts
Author Information ........................................................................................................................ 23
Acknowledgments ......................................................................................................................... 24

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Overview
The military retirement system is a government-funded benefit system that has been viewed
historically as a significant incentive in retaining a career military force. The system includes a
defined benefit element for all retirees and a defined contribution element for certain eligible
retirees. The defined benefit includes a monthly annuity for qualified active and reserve retirees
paid out of the Military Retirement Fund. The defined contribution benefit includes government-
matching payments into an individual retirement Thrift Savings Plan (TSP) account. The amount
of the retirement annuity depends on years of service (YOS) and basic pay at retirement. It is
adjusted annually by a Cost-of-Living Adjustment (COLA) to help protect the annuity from the
effects of inflation. Military retirees are also entitled to nonmonetary benefits, which include
health care benefits, exchange and commissary privileges, and access to Morale, Welfare and
Recreation (MWR) facilities and programs.
The military retirement system has evolved since the late 1800s to meet four main goals.
 To keep the military forces of the United States young and vigorous and ensure
promotion opportunities for younger members,
 To enable the Armed Forces to remain competitive with private-sector employers
and the federal Civil Service,
 To provide a reserve pool of experienced military manpower that can be called
upon in time of war or national emergency to augment active forces, and
 To provide economic security for former members of the Armed Forces during
their old age.1
Among active duty personnel, eligibility for a monthly pension is generally based on a service
requirement of at least 20 years of (active) service. For reserve component personnel, the system
is based on a point system, and reservists do not generally begin to receive retired pay until the
age of 60. Both the active and reserve component retirement systems vest at 20 years of
qualifying service.2 However, some members who are retired with a physical disability may
receive a pension with fewer years of service. Disability retirement offers two retirement
compensation options: based either on years of service (longevity) or on the severity of the
disability.
In FY2020, DOD obligated $57.8 billion for approximately 2 million military retirees, and an
additional $4.0 billion for 317,163 survivors.3 As shown in Table 1, the number of military
retirees and the cost of their retirement benefits have increased over the past decade.

1 Department of Defense, Military Compensation Background Papers: Compensation Elements and Related Manpower
Cost Items, Their Purposes and Legislative Backgrounds, Eighth Edition, July 2018, p. 55.
2 Vesting in the military retirement system is commonly referred to as “cliff vesting.” Until the 20-year point, there is
generally no vesting. At 20 years, the servicemember becomes fully vested. However, individuals can receive
retirement benefits with fewer than 20 years of service under the disability retirement system and under Temporary
Early Retirement Authority (Section 4403, P.L. 102-484, October 23, 1992; 10 U.S.C. §1293 note).
3 Department of Defense, Statistical Report on the Military Retirement System; Fiscal Year Ended September 30, 2020,
Office of the Actuary, September 2021, p. 22.
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Military Retirement: Background and Recent Developments

Table 1. DOD Retired Military Personnel, Survivors, and Program Obligations,
FY2007-FY2020
Regular Retirees
Recipients and
from an Active
Survivor
Fiscal
Total Program
Duty Military
Disability
Benefit
Year
Cost
Career
Retirees
Reserve Retirees
Recipients
2,321,120
1,448,021
128,911
427,025
317,163
2020
$61.79 bil ion
$48.63 bil ion
$1.88 bil ion
$7.32 bil ion
$3.97 bil ion
2,315,870
1,459,083
125,915
417,697
313,175
2019
$60.49 bil ion
$47.77 bil ion
$1.80 bil ion
$6.96 bil ion
$3.96 bil ion
2018
2,318,431
1,465,692
123,251
412,400
317,088

$58.69 bil ion
$46.41 bil ion
$1.68 bil ion
$6.66 bil ion
$3.94 bil ion
2017
2,315,806
1,469,751
118,029
408,595
319,431
$57.4 bil ion
$45.51 bil ion
$1.59 bil ion
$6.40 bil ion
$3.95 bil ion
2016
2,312,880
1,472,140
116,141
401,580
323,019
$57.01 bil ion
$45.22 bil ion
$1.56 bil ion
$6.23 bil ion
$3.98 bil ion
2015
2,308,073
1,474,116
112,260
395,808
325,889
$56.49 bil ion
$44.93 bil ion
$1.52 bil ion
$6.08 bil ion
$3.96 bil ion
2014
2,297,889
1,473,315
107,751
389,750
327,073
$55.13 bil ion
$43.92 bil ion
$1.46 bil ion
$5.85 bil ion
$3.91 bil ion
2013
2,284,233
1,470,803
103,160
383,490
326,780
$54.00 bil ion
$43.72 bil ion
$1.43 bil ion
$5.62 bil ion
$3.85 bil ion
2012
2,272,295
1,472,087
95,910
376,052
328,246
$52.61 bil ion
$42.05 bil ion
$1.38 bil ion
$5.36 bil ion
$3.81 bil ion
2011
2,260,112
1,471,219
94,886
366,823
327,184
$50.65 bil ion
$40.53 bil ion
$1.36 bil ion
$5.06 bil ion
$3.70 bil ion
2010
2,211,580
1,467,936
92,704
356,602
299,478
$50.12 bil ion
$40.19 bil ion
$1.38 bil ion
$4.89 bil ion
$3.65 bil ion
2009
2,196,397
1,468,377
91,460
344,393
297,558
$49.16 bil ion
$39.54 bil ion
$1.38 bil ion
$4.65 bil ion
$3.60 bil ion
2008
2,170,803
1,466,705
85,502
328,664
296,580
$45.66 bil ion
$36.90 bil ion
$1.29 bil ion
$4.20 bil ion
$3.27 bil ion
2007
2,146,961
1,461,724
85,306
312,647
293,193
$43.57 bil ion
$35.51 bil ion
$1.29 bil ion
$3.86 bil ion
$2.92 bil ion
Sources Department of Defense, Statistical Report on the Military Retirement System; Fiscal Year Ended September
30, 2020, Office of the Actuary, September 2021, p. 22. Statistical reports available by fiscal year for FY2005-
FY2020, at http://actuary.defense.gov/.
Notes: Total Program Cost is total DOD obligations for that fiscal year in then-year dol ars. Survivors include
the spouse, children, and others with insurable interests that are entitled to survivor benefits from the DOD
Military Retirement Fund. Disability retirees includes permanently and temporarily disabled retirees.
Congress grapples with constituent concerns as well as budgetary constraints in considering
military retirement issues. In the past, some have viewed military retirement as a potential source
of substantial savings, arguing that the military retirement compensation is overly generous
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Military Retirement: Background and Recent Developments

relative to pension systems in the civilian sector.4 In particular, they note that active duty military
personnel become eligible for retirement at a relatively young age. In FY2020, the average active
duty non-disability enlisted retiree retired at the age of 42-years-old and the average officer
retired at age 46.5
Other observers argue that the military retirement system contributes to military readiness and is
fair given the unique demands of military service.6 In addition, some have argued that past
modifications to the system intended to save money have had a deleterious effect on military
recruiting and retention, particularly in times of strong economic performance.
While congressionally mandated changes to the military retirement system have been infrequent,
any potential changes are closely monitored by current servicemembers, retirees, survivors, and
the organizations that represent them.7
Retirement System Eligibility and Pay Calculations
There are currently three separate but related retirement pathways within the DOD: one for active
duty members, one for reservists, and one for those who become medically disabled and are
unable to complete a 20-year military career. Each of these systems pathways has distinct
eligibility requirements and formulas for calculating the retirement annuity.
Retirement pay calculations are based on the date when the servicemember first entered active
duty and their pay base at the time of retirement.8 The defined benefit portion of the active and
reserve component retirement systems cliff-vests after 20 years of service. This means
servicemembers who leave the service prior to completing 20 years of eligible service typically
will not receive any non-disability retirement benefit.9 Members who become eligible for a
disability retirement are vested on their disability retirement date regardless of years of service.
The average number of years of service for a disability retiree is 11.0 years for enlisted members
and 13.5 years for officers.10

4 See, for example, Andrew G. Biggs, Are Military Pensions too Generous?, AEI, Blog Post, August 23, 2011, at
https://www.aei.org/economics/aging/are-military-pensions-too-generous/.
5 Department of Defense, Statistical Report on the Military Retirement System; Fiscal Year Ended September 30, 2020,
Office of the Actuary, September 2021, p. 50.
6 See for example, Lawrence J. Korb, “The High Cost of Military Pensions; Subsidizing Readiness, not Retirement,”
New York Times, February 17, 1985.
7 See 38 U.S.C. §5902 and 38 C.F.R. §14.628 regarding federal recognition of such organizations.
8 The “pay base” is either the amount of basic pay being received at the time of retirement (for those in the Final Basic
Pay System) or the average of the highest 36 months of basic pay received (for those in the High-3 System). See 10
U.S.C. §§1406-1407. Basic pay is the principal element of Regular Military Compensation (RMC). The other elements
include the Basic Allowance for Housing (BAH) and the Basic Allowance for Subsistence (BAS), which are
nontaxable allowances. Basic pay is between 65% and 75% of RMC. RMC excludes all special pay and bonuses,
reimbursements, educational assistance, and any value associated with nonmonetary benefits such as health care,
commissaries, and post exchanges. For additional discussion of military pay and RMC, see CRS Report RL33446,
Military Pay: Key Questions and Answers, by Lawrence Kapp and Barbara Salazar Torreon.
9 Some individuals may qualify for longevity retirement prior to attaining 20 years of service under Temporary Early
Retirement Authority (TERA).
10 Department of Defense, Statistical Report on the Military Retirement System; Fiscal Year Ended September 30,
2020, Office of the Actuary, September 2021, p. 54.
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Military Retirement: Background and Recent Developments

Active Component Retirement11
For active duty military personnel, there are four methods of calculating retired pay based on
longevity: the Final Basic Pay System, High Three, Redux, and the Blended Retirement System
(BRS) (see Table 4 for a comparison of the benefits under each method). The applicable
retirement calculation is based on the date when the servicemember first entered active duty, their
pay base at the time of retirement, their years of service, and whether they chose the Redux
system or the BRS (if eligible). Figure 1 shows how eligibility for retirement calculation is
determined.
Figure 1. Active Duty, Non-Disability (Longevity) Retirement Eligibility Flowchart

Source: CRS, derived from Title 10, United States Code.
Note: YOS = Years of Service.
Final Basic Pay (prior to September 8, 1980)
For persons who entered military service before September 8, 1980, the pay base is the final
monthly basic pay received by the servicemember at the time of retirement multiplied by 2.5%

11 This is also frequently referred to as regular non-disability retirement.
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for each year of service.12 The minimum amount of retired pay to which a member is entitled
under this formula is therefore 50% of the retired pay computation base (20 years of service times
2.5%). For example, a servicemember who retires at 25 years receives 62.5% of the computation
base (25 years of service times 2.5%).13
High Three
Those who entered service on or after September 8, 1980, and before January 1, 2018, have their
retired pay base calculated by the High Three system. For this system the computation base is the
average of the highest three years (36 months) of basic pay rather than the final basic pay.
Otherwise, calculations are the same as under the Final Basic Pay method.
Redux
The Redux military retirement system was initiated with the Military Retirement Reform Act of
1986 (P.L. 99-348). The Redux formula reduced the amount of retired pay for which military
servicemembers who entered the Armed Forces on or after August 1, 1986, were eligible. This
system was broadly unpopular, and by 1997 Congress began to take note of potential recruiting
and retention problems associated with the change.14 In 1998, the Clinton Administration
announced that it supported Redux repeal.15 The National Defense Authorization Act for Fiscal
Year 2000 (P.L. 106-65, §§641-642) repealed compulsory Redux. It allowed post-August 1, 1986,
entrants to retire under the High Three system or opt for Redux plus an immediate $30,000 cash
payment. The FY2016 NDAA, enacted on November 25, 2015, terminated the Redux option.
Those who entered the service during the time when Redux was an option were required to select
one of the following two options for calculating their retired pay within 180 days of reaching 15
years of service.
Option 1: Pre-Redux
Eligible servicemembers can opt to have their retired pay computed in accordance with the pre-
Redux formula, described above as High Three.
Option 2: Redux
Eligible servicemembers can opt to have their retired pay computed in accordance with the Redux
formula and receive an immediate $30,000 cash bonus called a Career Status Bonus.16 Those who

12 Partial years of service are credited as well, with each month equivalent to one-twelfth of a year. Military Retirement
Reform Act of 1986, Section 1405(b), P.L. 99-348, July 1, 1986.
13 Historically, the maximum, reached at the 30-year mark, was 75% of the computation base (30 years of service times
2.5%). However, the John Warner National Defense Authorization Act for Fiscal Year 2007 (P.L. 99-348, §§601 and
642) extended the previous pay table to 40 years, allowed additional longevity raises, and provided additional
retirement credit for service beyond 30 years at the rate of 2.5% per year. In the FY2015 Carl Levin and Howard P.
“Buck” McKeon National Defense Authorization Act. (P.L. 113-291, §622), Congress reinstated a cap on retired pay of
general and flag officers at the Executive Level II salary ($183,300 for 2015). This change applies only to years served
after December 31, 2014.
14 Department of Defense, Military Compensation Background Papers: Compensation Elements and Related
Manpower Cost Items, Their Purposes and Legislative Backgrounds, Eighth Edition, July 2018, p. 707.
15 U.S. Congress, Senate Special Committee on Aging, Developments in Aging: 1999 and 2000, Volume 1, 107th Cong.,
2nd sess., S.Rept. 107-158 (Washington, DC: GPO, 2001).
16 37 U.S.C. §354. If requested, the bonus can be paid in several annual installments for tax purposes.
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select the Career Status Bonus (CSB) must remain on active duty until they complete 20 years of
service or forfeit a portion of the bonus.
The Redux Formula
Redux is different from the High Three formula in two major ways.

Retirees under age 62: First, for retirees under the age of 62, the retired pay multiplier wil be reduced by 1%
for each year of creditable service less than 30 years. Under this formula, a 20-year retiree wil receive 40%
of his or her retired pay computation base upon retirement (20 years of service multiplied by 2.5% minus
10%), and a 25-year retiree wil receive 57.5% of the computation base (25 years of service multiplied by 2.5%
minus 5%). A 30-year retiree wil receive 75% of the retired pay computation base (30 years of service
multiplied by 2.5% minus 0%, the same as the High Three retiree). The Redux formula, therefore, is “skewed”
in favor of the longer serving military member, theoretically providing an incentive to remain on active duty
longer before retiring.

Retirees 62 and older: Second, when a retiree reaches the age of 62, his or her retired pay wil be
recomputed based on the old formula (2.5% of the retired pay computation base for each year of service).
Thus, beginning at 62, the 20-year retiree receiving 40% of his or her pay base under the Redux formula will
begin receiving 50% of his or her pay base; the 25-year retiree’s annuity wil jump from 57.5% of the pay base
to 62.5%; and the 30-year retiree’s annuity, already at 75% of the pay base under both the old and new
formulas wil not change.17
Blended Retirement System (BRS)
In the FY2016 NDAA (P.L. 114-92), based on recommendations from the Military Compensation
and Retirement Modernization Commission (MCRMC), Congress adopted a new retirement
system, shifting from a purely defined benefit system to a blended defined benefit plus defined
contribution system. Servicemembers with 12 or fewer years of service as of December 31, 2017,
were afforded an opportunity to choose the BRS. The BRS is mandatory for individuals who
entered the service on or after January 1, 2018. For these servicemembers, the computation base
for the defined benefit will be the average of the highest three years (36 months) of basic pay, as
in the High Three System; however, the multiplier is reduced to 2.0 from 2.5. This means that the
pay base is the high three average at the time of retirement multiplied by 2.0% for each year of
service. Therefore, a servicemember retiring at 20 years would receive 40% of his or her pay base
under the new formula and a 30-year retiree would receive 60% of his or her pay base.
The Lump Sum Payment
The Blended Retirement System also allows regular retirees (those with non-disability
retirements) to receive a portion of their retired pay as a discounted lump sum. An individual
entitled to retired pay may, no later than 90 days before the date of retirement, elect to receive
A lump sum payment of the discounted present value at the time of the election of an
amount of the covered retired pay18 that the eligible person is otherwise entitled to receive
for the period beginning on the date of retirement and the date the eligible person attains
the eligible person’s retirement age.19

17 This change is an increase in monthly retired pay, not a lump sum at the age of 62.
18 Covered retired pay is defined as retired pay under title 10, title 14, the National Oceanic and Atmospheric
Administration Commissioned Officer Corps Act of 2002 (33 U.S.C. §301 et seq.), and the Public Health Service Act
(42 U.S.C. §201 et seq.).
19 P.L. 114-92, §633. “Retirement age” has the meaning given to the term in Section 2016(1) of the Social Security Act.
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For those who elect to receive a lump sum payment, after reaching the full retirement age for
Social Security (usually 67), they will again receive 100% of their regular monthly annuity, which
will be adjusted for annual cost of living increases.20 A reservist may elect the discounted lump
sum to be calculated from the date the member first became eligible for retired pay (typically 60
years old) until Social Security retirement age. The law also allows retirees to take their lump
sum payment as a single payment or up to four annual installments. The lump sum is discounted
to the present value based on the annual rate published by DOD in June of each year and which
goes into effect on January 1 of the following year.21 The lump sum discount rate for 2022 is
6.54%.22 Lump sum payments are considered earned income and are taxed accordingly.
Members under the BRS with a disability retirement do not have the option of receiving a portion
of retired pay as a discounted lump sum. Reserve component members may elect the discounted
lump sum option from the date the member first becomes eligible for retired pay (typically 60
years old) until the Social Security full retirement age (typically 67). Based on an external study,
the DOD Board of Actuaries assumes that approximately 5.2% of officers and 22.8% of enlisted
members under the BRS will elect the lump sum option.23
Calculating the Lump Sum Payment
An eligible retiree can elect one of two options for calculating the lump sum.

A lump sum of 50% of the discounted present value of retired pay between the date of retirement and the
date of Social Security eligibility and a monthly annuity of 50% of the monthly retired pay they are otherwise
entitled to. So for example, if a retiree was entitled to $4,000 per month in retired pay, the retiree would
continue to receive a monthly annuity of $2,000 and would receive a lump sum equal to the discounted
present value of the remaining annuity between the time of retirement and the Social Security ful retirement
age.

A lump sum of 25% of the discounted present value of retired pay between the date of retirement and the
date of Social Security eligibility and a monthly annuity of 75% of the monthly retired pay they are otherwise
entitled to. So for example, if a retiree was entitled to $4,000 per month in retired pay, the retiree would
continue to receive a monthly annuity of $3,000 and would receive a lump sum payment equal to the
discounted present value of the remaining annuity between the time of retirement and the Social Security ful
retirement age.
BRS Defined Contributions
Congress’s decision to include a defined contribution element in the BRS was driven by the
finding that under the legacy retirement systems, 83% of enlisted and 51% of officers did not

20 See https://www.ssa.gov/planners/retire/retirechart.html.
21 The discounted present value will be determined in accordance with the rate that is an inflation adjusted, 7-year
average of the Department of the Treasury High-Quality Market (HQM) Corporate Bond Spot Rate Yield Curve at a
23-year maturity plus an adjustment factor of 4.28 percentage points. The inflation-adjustment applied is the
Department of the Treasury “Breakeven Inflation Spot Rate Yield Curve.” Department of Defense, Implementation of
the Blended Retirement System, Memorandum, January 27, 2017, at https://militarypay.defense.gov/Portals/3/
Documents/BlendedRetirementDocuments/FINAL_BRSImplementationGuidance.pdf. Department of Defense,
Blended Retirement System Lump-sum Government Discount Rate for 2018, Memorandum, May 26, 2017, at
http://militarypay.defense.gov/Portals/3/Documents/BlendedRetirementDocuments/BRS%20Lump%20Sum%20Gover
nment%20Discount%20Rate%20Memo%20(2018).pdf.
22 Office of the Secretary of Defense, Blended Retirement System Lump Sum Discount Rate for 2022, Memorandum,
June 1, 2021, at https://militarypay.defense.gov/Portals/3/Documents/Blended%20Retirement/SIGNED%20-
%202022%20LUMP%20SUM%20DISCOUNT%20RATE%20MEMO.pdf.
23 Department of Defense, Office of the Actuary, Valuation of the Military Retirement System as of September 30,
2018, April 2020, p. 103.
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complete the 20 years of service and thus received no retirement compensation for their service.24
This was at odds with retirement benefits in the private sector where firms increasingly offer a
variety of defined contribution packages and are required by law to vest employees within a
significantly shorter time period.25
Under the BRS, individuals entering service after January 1, 2018, are automatically enrolled in
the Thrift Savings Plan at an individual contribution level of 3% from his or her monthly basic
pay or inactive duty pay beginning the first pay period after the member’s 60th day of service. At
that time, the services will also begin automatic monthly contributions of 1% of basic pay to the
servicemember’s TSP account. In addition, DOD will match servicemembers’ contributions up to
4% of the servicemember’s basic pay starting at two years and one day after the member first
enters service and ending at 26 years of service.26 The servicemember is required to make
individual total contributions of 5% in order to receive government matching of 4% (see Table 2
for government matching percentages). The servicemember is fully vested after two complete
years of service and able to take ownership of the 1% contributions as well as any subsequent
matching contributions. Any earnings on government contributions are immediately vested when
they accrue. Servicemembers are immediately fully vested in any personal TSP contributions.
Table 2. Government Automatic and Matching Contributions
Government
Individual
Automatic
Government Matching
Total Rate of TSP
Contribution Rate of
Contribution Rate of
Contribution Rate of
Monthly Contribution
Basic Pay or Inactive
Basic Pay or
Basic Pay or
of Basic Pay or
Duty Pay
Inactive Duty Pay
Inactive Duty Pay
Inactive Duty Pay
0%
1%
0%
1%
1%
1%
1%
3%
2%
1%
2%
5%
3%
1%
3%
7%
4%
1%
3.5%
8.5%
5%
1%
4%
10%
Source: Department of Defense, Guidance for Implementation of the Blended Retirement System for the Uniformed
Services, Memorandum from the Deputy Secretary of Defense, January 27, 2017.
The services also automatically enroll new servicemembers in the TSP program for individual
contributions at a default amount of their basic pay unless the servicemember opts out. If the
servicemember declines to make individual contributions, he or she will automatically be
reenrolled every year at the default amount of 3% individual contribution. This requires the
individual to make a decision every year to not contribute to the TSP.

24 Military Compensation and Retirement Modernization Commission Final Report, January 2015, p. 23.
25 The Employee Retirement Income Security Act (ERISA) requires firms to vest employees in company-provided
defined benefit retirement plans either gradually over a period of seven years or by five years for cliff-vesting. In
addition, a defined contribution plan must cliff vest within three years or up to six years for gradual vesting.
26 This 4% is in addition to the 1% automatic government contribution, therefore the total government contribution
would not exceed 5% of the member’s basic pay.
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Continuation Pay
To provide a mid-career retention incentive under the BRS, Congress authorized continuation pay
for members who are between 8 to 12 years of service, in return for a three-year service
obligation.27 The pay may be distributed in a lump sum, or in a series of not more than four
payments.28 The law allows an active duty (regular component) member or reserve component
member who is performing active Guard or Reserve duty29 to receive a minimum amount of
continuation pay equal to 2.5 times their monthly basic pay. For reserve component members not
on active duty, the minimum continuation pay is equal to at least 0.5 times the monthly basic pay
of an active component member of similar rank and longevity.
The law also authorizes an additional amount of continuation pay, at the discretion of the
Secretary concerned (see Table 3).30 For active component members that would be the amount of
monthly basic pay multiplied by no more than 13.31 This flexibility awarded to military
department Secretaries on the amount of additional continuation pay is intended to aid force-
shaping by allowing the Secretaries to offer higher continuation payments to those in
occupational specialties that are undermanned.
Table 3. Potential Continuation Pay Multipliers
(by Component and Duty Status)
Additional Discretionary
Component and Status
Minimum Continuation Pay
Continuation Pay
Active Component
2.5 times monthly base pay
Up to 13 times monthly base pay
Reserve Component on Active Duty as
2.5 times monthly base pay
Up to 6 times monthly base pay
defined in 10 U.S.C. §101(d)(6)
Reserve Component not on Active
0.5 times monthly base pay
Up to 6 times monthly base pay
Duty as defined in 10 U.S.C. §101(d)(6)
Source: 37 U.S.C. §356.
Note: Monthly base pay for reservists is calculated as the monthly base pay of an active component member of
similar rank and longevity.

27 Congress first required a four-year obligation for continuation pay in the 12th year of service in the FY2016 NDAA
(Section 634). This was amended in the FY2017 NDAA to provide more flexibility in the timing of this pay as “not less
than 8 and not more than 12 years of service” and changed the service obligation to a minimum of 3 additional years of
service following acceptance of continuation pay.
28 37 U.S.C. §356(d).
29 As defined in 10 U.S.C. §101(d)(6).
30 Continuation pay rates for each service as of February 11, 2022, can be found at
https://militarypay.defense.gov/Portals/3/Documents/Reports/Continuation%20Pay%20Rates%202022%20Revised%2
018FEB.pdf.
31 Section 634 of P.L. 114-92 states, “(b) AMOUNT.—The amount of continuation pay payable to a full TSP member
under subsection (a) shall be the amount that is equal to—(1) in the case of a member of a regular component—‘(A) the
monthly basic pay of the member at 12 years of service multiplied by 2.5; plus ‘‘B) at the discretion of the Secretary
concerned, the monthly basic pay of the member at 12 years of service multiplied by such number of months (not to
exceed 13 months) as the Secretary concerned shall specify in the agreement of the member under subsection (a). (2) in
the case of a member of a reserve component—(A) the amount of monthly basic pay to which the member would be
entitled at 12 years of service if the member were a member of a regular component multiplied by 0.5; plus (B) at the
discretion of the Secretary concerned, the amount of monthly basic pay described in subparagraph (A) multiplied by
such number of months (not to exceed 6 months) as the Secretary concerned shall specify in the agreement of the
member under subsection (a).”
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Under the blended system, reserve component members within the window of eligibility receive
the minimum continuation pay as discussed above (2.5 or 0.5 times the monthly basic pay of an
active component member), plus an additional amount at the discretion of the Service Secretary
that would be the amount of monthly basic pay multiplied by no more than six.
Table 4. Retirement System Comparisons
Final
Blended Retirement

Basic Pay
High Three
Redux
System
Applies to
Servicemembers Servicemembers
Servicemembers
Servicemembers entering
entering before
entering from Sept. 8,
entering after July 31,
on or after January 1,
September 8,
1980, through July 31,
1986, and accepting
2018, and those with 12
1980
1986, and persons
15-year Career Status
or fewer YOS on
entering after July 31,
Bonus with additional
December 31, 2017, who
1986, but opting not to
5-year service
choose to opt in.
accept the 15-year CSB obligation
Basis of
Final rate of
Average monthly basic
Average monthly basic
Average monthly basic
Computation monthly basic
pay for the highest 36
pay for the highest 36
pay for the highest 36
pay
months of basic pay
months of basic pay
months of basic pay
Defined
2.5% per YOS
2.5% per YOS
2.5% per YOS, less 1%
2.0% per YOS
Benefit
for each year of service
Multiplier
less than 30 (restored
at age 62)
Defined
Individual
Individual contributions
Individual contributions 1.0% minimum
Contribution contributions to to TSP, no matching
to TSP, no matching
contribution into TSP
TSP, no
from Service with up to
matching
4.0% matching
contributions
Lump Sum
Monthly annuity Monthly annuity only
Monthly annuity only
Option for partial lump
Option
only
sum payment at
retirement with ful
monthly annuity restored
at eligibility age for ful
Social Security payments
Additional
None
None
$30,000 CSB payable at Minimum incentive pay
Continuation
the 15-year anniversary between 8 to12 YOS
Benefit
with 5-year obligation
w/3-year service
to remain on active
obligation
duty
Sources: Adapted by CRS from Military Compensation Background Papers, Department of Defense, Seventh
Edition, November 2011, and FY2016 NDAA.
Notes: YOS = Years of Service; CSB = Career Status Bonus.
Reserve Component Retirement32
There are many similarities between the active and reserve retirement systems. First, reserve
component (RC) members must also complete 20 qualifying years of service to become eligible

32 Also referred to as non-regular retirement. For additional information on reserve pay and benefits, see CRS Report
RL30802, Reserve Component Personnel Issues: Questions and Answers, by Lawrence Kapp and Barbara Salazar
Torreon.
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for a defined retirement benefit.33 Second, the reserve retirement system also accrues at the rate of
2.5% per equivalent year of qualifying service (explained below) at retirement eligibility for
those who entered service prior to January 1, 2018, and 2.0% for those who enter on or after
January 1, 2018. The primary difference between the reserve and the active system is the points
system used to calculate qualifying years and equivalent years of service, as well as the age at
which the retirement annuity begins. Also, Redux is not an option for reservists.
For retirement purposes, a qualifying year of service is a year in which a member of the RC earns
at least 50 retirement points. Points are awarded for a variety of reserve activities
 one point for each day of active service, which includes annual training;34
 fifteen points a year for membership in the Ready Reserve;
 one point for each inactive duty training (IDT) period;35
 one point for each period of funeral honors duty; and
 one point for every three satisfactorily completed credit hours of certain military
correspondence courses.
With multiple opportunities to earn points, a participating member of the selected reserve
normally can accrue the requisite 50 points per year and thus earn a qualifying year for
retirement. The maximum number of points per year, exclusive of active duty, has varied over
time but is currently capped at 130 points.36 When active duty points are added to this total, the
reservist cannot earn more than 365 points a year. The number of points is critical in determining
both the number of years of qualifying service and the number of equivalent years of service for
retired pay calculation purposes.
A reservist may retire after completing 20 years of qualifying service; there is no minimum age.
However, the reservist will usually not become eligible for retired pay until age 60, at which time
he or she also becomes eligible for military medical care.37 Upon retirement, the individual is
normally transferred to the Retired Reserve and is entitled to a number of military benefits to
include commissary and exchange privileges; access to Morale, Welfare and Recreation programs
and facilities; and limited space available travel on military aircraft. Reservists in the Retired
Reserve, but not yet retired pay eligible, are referred to as gray area retirees. Time spent in the
Retired Reserve counts for longevity purposes and ultimately results in higher retired pay. For
example, a lieutenant colonel who transitions to the Retired Reserve at age 45 will have his or her
retired pay at age 60 calculated on the basic pay of a lieutenant colonel with an additional 15
years of longevity.
The date the reservist became a member of the Armed Forces determines whether their retired
pay is calculated based on the Final Basic Pay, High Three, or Blended Retirement System. Those

33 Reserve Component generally describes the six reserve components of the Department of Defense: the Army
National Guard, the Army Reserve, the Navy Reserve, the Marine Corps Reserve, the Air National Guard and the Air
Force Reserve.
34 Annual training is a two-week period of active service that usually results in 14 or 15 retirement points.
35 A day of inactive duty for training typically includes two Unit Training Assemblies (UTAs). The normal drill
weekend consists of four UTAs and therefore results in four retirement points. A year of weekend drills earns 48
UTAs/retirement points.
36 P.L. 110-181, §648.
37 Section 647 of the FY2008 National Defense Authorization Act (P.L. 110-181) reduced the age for receipt of retired
pay by three months for each aggregate of 90 days of specified duty performed after January 28, 2008 (the date of
enactment of the FY2008 NDAA). This authority was not made retroactive to September 11, 2001. The retired pay
eligibility age cannot be reduced below 50 and eligibility for medical benefits remains at age 60.
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entering before September 8, 1980, are eligible to be retired under the Final Basic Pay system
while those entering after September 8, 1980, but before January 1, 2018, are eligible for the High
Three system. Those who first performed Reserve Component service (with no prior regular or
reserve service) on or after January 1, 2018, will retire under the Blended Retirement System.
Those reservists with prior service who had accumulated less than 12 equivalent years of service
(< 4,320 points) were eligible to elect the BRS.
Calculation of Reserve Retired Pay
The calculation of reserve retired pay parallels the active duty system but requires adjustment to reflect the part-
time nature of reserve duty. For example, consider a reserve component lieutenant colonel with 5,000 points who
joined the military in January 1980 and transferred to the Retired Reserve in 2000 after completing 20 qualifying
years of service. In 2015, after reaching 60 years of age, and becoming eligible to receive retired pay, the process
for calculating her retired pay would be

Step 1: Divide the total points by 360 to convert the points to equivalent years of service (5,000 / 360 =
13.89).

Step 2: Multiply the equivalent years of service by the 2.5% multiplier (13.89 times 0.025 = 0.3472). Using
the Final Basic Pay option, the 2015 pay base for a lieutenant colonel with 35 years of service (20 years of
qualifying service plus 15 years in the Retired Reserve) is $8,762.40 per month.38

Step 3: Multiply the pay base by the retired pay multiplier ($8,762.40 times 0.3472) to produce a monthly
retirement annuity of $3,042 per month.
Disability Retirement39
Servicemembers who, due to a disqualifying medical condition, are no longer able to perform
their military duties, may qualify for disability retirement, commonly referred to as a Chapter 61
retirement. Eligibility is based on having a permanent and stable disability rated at 30% or more
under the standard schedule of rating disabilities in use by the Department of Veterans Affairs at
the time of determination.40 Some disability retirees are retired before becoming eligible for
longevity retirement, while others have completed 20 or more years of service.

38 2015 Military Pay Chart, at http://www.dfas.mil.
39 For additional information on DOD’s disability process, see CRS Report RL33991, Disability Evaluation of Military
Servicemembers, by Christine Scott and Don J. Jansen.
40 10 U.S.C. §1201(b)(3)(B). Prior to the FY2008 NDAA (P.L. 110-181, §1641), disability retirement required at least
eight years of service or a disability that resulted from active duty or was incurred in the line of duty during war or
national emergency. Under current statute, members must be on active duty for more than 30 days and the disability
was either 1) not noted at the time of the member’s entrance on active duty (unless clear and unmistakable evidence
demonstrates that the disability existed before the member’s entrance on active duty and was not aggravated by active
military service); 2) the proximate result of performing active duty; 3) incurred in line of duty in time of war or national
emergency; or 4) incurred in line of duty after September 14, 1978.
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Formulas for Calculating Disability Retired Pay
A servicemember retired for disability may select one of two available options for calculating their monthly retired
pay.41

Longevity Formula. Retired pay is computed by multiplying the years of service times 2.5% or 2.0% (for
those joining on or after January 1, 2018) and then times the pay base (either final pay or high three, as
appropriate).

Disability Formula. Retired pay is computed by multiplying the DOD disability percentage by the pay base.
The maximum retired pay calculation under the disability formula cannot exceed 75% of basic
pay.42 Disability retirees are not authorized to receive a lump sum payment under the Blended
Retirement System.
Retired pay computed under the disability formula is subject to federal income tax, unless one or
more of the following conditions applies: (1) the member’s disability is the result of a combat-
related injury, or (2) the individual was eligible to receive disability retirement payments prior to
September 25, 1975, or (3) the individual was in the Armed Services prior to September 25, 1975,
and later became eligible for disability retired pay.43 Retired pay under the longevity formula (for
those entering after September 24, 1975) is taxable only to the extent that it exceeds what the
individual would receive for a combat related injury under the disability formula.
Extraordinary Heroism Pay
Retired enlisted members of military services with less than 30 years of service may be eligible
for a 10% increase in retired pay when credited with extraordinary heroism in the line of duty as
determined by the Secretary of his or her service.44 This increase is subject to a maximum of 75%
of the member’s retired or retainer pay base. In 2002, Congress extended this benefit to enlisted
members of the reserve component who are eligible for reserve retired pay.45
Military Retired Pay, Social Security, and Federal
Income Tax
Military retirees receive full Social Security benefits in addition to their military retired pay.
Current military personnel do not contribute a portion of their salary as part of the military
retirement pay accrual. However, servicemembers 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.

41 10 U.S.C. §1401.
42 10 U.S.C. §1401.
43 26 U.S.C. §104. The term “combat-related injury” means personal injury or sickness which is incurred (1) as a direct
result of armed conflict, (2) while engaged in extra hazardous service, or (3) under conditions simulating war; or which
is caused by an instrumentality of war.
44 See 10 U.S.C. §3991(a)(2) (Army), §6330(c)(3) (Navy and Marine Corps), and §8991(a)(2) (Air Force); and
Department of Defense, Financial Management Regulation, DOD 7000.14-R Volume 7B, Chapter 1, March 2018.
45 P.L. 107-314.
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Military retired pay is not subject to withholding for Social Security tax. However, all non-
disability retired pay is subject to withholding of federal income tax. A portion of the Social
Security benefit may also be subject to federal income tax for individuals who have other income.
Retired Pay and the Cost-of-Living Adjustment
(COLA)
Military retired pay is adjusted for inflation by statute (10 U.S.C. §1401a). The Military
Retirement Reform Act of 1986, in conjunction with changes contained in the FY2000 National
Defense Authorization Act (P.L. 106-65), provides for COLAs as indicated below. Congress has
not modified the COLA formula since 1995.46 However, policymakers regularly discuss COLA
modifications, typically with the aim of reducing costs. The COLA for most retirees for 2022 is
5.9% and was in effect as of December 1, 2021.47
COLAs for Pre-August 1, 1986, Entrants
For military personnel who first entered military service before August 1, 1986, each December a
COLA equal to the percentage increase in the Consumer Price Index between the third quarters of
successive years will be applied to military retired pay for the annuities paid beginning each
January 1.48 This number is rounded to the nearest one-tenth of 1%.49 The COLA is applied to the
monthly benefit amount and the final payment is rounded down to the nearest $1.00.50
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, their COLAs
will be calculated in accordance with either of two methods, as noted below.
Non-Redux Recipients
Those personnel who opted to have their retired pay computed in accordance with the pre-Redux
(High Three) 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, have their COLAs computed using a different formula. Annual COLAs are held one

46 The actual index used to adjust COLA is the CPI-W; the index for urban wage earners and clerical workers. It
represents the buying habits of approximately 32% of the non-institutional population of the United States, Military
Compensation Background Papers, Seventh Edition, November 2011, p. 637.
47 Defense Finance and Accounting Service, 2022 Cost of Living Adjustment and Pay Schedule, at
https://www.dfas.mil/RetiredMilitary/newsevents/newsletter/December-2021-Retiree-Newsletter-2022-Cost-of-Living-
Adjustment-COLA/.
48 The CPI is calculated and published by the Bureau of Labor Statistics.
49 10 U.S.C. §1401a.
50 10 U.S.C. §1412.
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percentage point below the actual inflation rate. So for example, the December 2017 COLA
increase was 2.0% and Redux retirees saw a COLA increase of 1.0%. When a retiree reaches the
age of 62, there is a one-time recomputation of his or her annuity to make up for the lost
purchasing power caused by holding of annual COLA adjustments to the inflation rate minus one
percentage point.51 This recomputation of COLA, in combination with the recomputation of the
retired pay multiplier (discussed earlier), is a one-time increase in the member’s monthly retired
pay to parity with that of a similarly retired member who did not take the Redux option. After the
recomputation at age 62, however, future COLA increases continue to be computed annually on
the basis of the inflation rate minus one percentage point.
Military Retirement Budgeting and Costs
Military retirement costs, which include all payments to current retirees and survivors, have risen
modestly each year, due to a gradual increase in the number of retirees and survivors coupled
with cost-of-living adjustments. DOD budgets through FY1984 reflected the costs of retired pay
actually being paid out to personnel who had already retired. That is, Congress appropriated the
amount of money required to pay existing retirees as part of each annual defense appropriations
bill. In September 1983, as part of the Department of Defense Authorization Act, 1984, Congress
modified the retired pay accounting methodology and established a Military Retirement Fund
(MRF).52
Since FY1985, the accrual accounting concept has been used to budget for the costs of military
retired pay. The unfunded liability resulting from the change in accounting practices is discussed
in the next section. Under the accrual accounting system, the DOD budget for each fiscal year
includes a contribution to the MRF sufficient to finance future retirement payouts to current
uniformed personnel when they retire, not the amount of retired pay actually paid to current
retirees. 53 Therefore, changes to military end-strength, increases or decreases in basic pay tables,
or changes to retirement pay formulas, in any given year will result in same-year DOD budget
obligations for military retired pay. Once military personnel retire, payments to them are
disbursed from the MRF, not from the annual DOD budget.
Common Misperceptions about the MRF
The MRF does not represent a repository of past accumulated tax receipts, as some might assume, but rather
“future tax receipts that wil be allocated to pay principal and interest on government bonds being held by the
MRF.” According to the DOD Board of Actuaries, the MRF can be conceived of as an internal cost accounting
system.54 The Board states, “[w]hile the nation has not actually set aside money to pay the benefits of those who
have served in uniform, the MRF can be viewed as earmarking future tax receipts for the benefit of military
retirees. As such, the existence of the MRF promotes a measure of ‘psychological security’ for military members.”

51 10 U.S.C. §1410.
52 P.L. 98-94, §925, 97 Stat. 644; 10 U.S.C. §1461 et. seq.
53 The Military Retirement Fund is located in the Income Security Function of the federal budget. Individual retirees
receive their retired pay from the Defense Finance and Accounting Service (DFAS). Technically, however, because this
money paid to individuals comes not from the DOD budget, but from the fund, it is paid out of 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, not from DOD.
54 Department of Defense, Office of the Actuary, FY2020 Valuation of the Military Retirement System, September 30,
2020, February 2022, p. 36.
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The MRF itself is a non-revolving trust fund inside the unified budget of the federal
government.55 The sources of income for the MRF are:
 Normal cost payments (NCPs) from the military services in annual
appropriations to account for future retirees;
 U.S. Treasury payments to amortize the pre-1985 unfunded liability and for the
normal cost of concurrent receipt benefits (since FY2005, see Figure 2); and
 Investment (interest) income from government securities.56
The amount that DOD and the Treasury must contribute to the MRF each year to cover future
retirement costs is determined by a, presidentially appointed, Department of Defense Board of
Actuaries.57 The DOD Board of Actuaries estimates future retirement costs using a model that
incorporates past rates at which active duty military personnel stayed in the service until
retirement and assumptions regarding the overall U.S. economy, including interest rates, inflation
rates, and military pay levels. The model helps determine the level percentage of basic pay
(normal cost percentage) for each active servicemember that DOD must contribute annually to
cover future retirement costs—approximately 30 cents on every dollar of basic pay for full-time
members.58 DOD’s NCPs are shown in Table 5.
Table 5. DOD’s Normal Cost Percentages (NCPs) for FY2017 and FY2021
Full-time (active component)
Part-time (reserve component)
Benefit
Formula
FY2017
FY2021
FY2017
FY2021
Final Pay
35.4%
NA
24.8%
28.4%
High-3
32.3%
38.9%
23.5%
27.2%
CSB/Redux
31.7%
38.2%
NA
NA
BRS
23.7%
28.4%
18.3%
21.4%
Source: DOD, Office of the Actuary, Valuation of the Military Retirement System reports.
Note: Ful -time and part-time NCPs are calculated for each of the separate benefit formulas. Only ful -time
personnel are under the CSB/Redux benefit formula; thus an analogous part-time NCP is not applicable. There
are no longer active duty retirees who are retiring under the Final Pay system. Because the multiplier for those
retiring under the Blended Retirement System is reduced from 2.5 to 2.0, the NCP for those retiring under the
new system is lower than the NCPs under legacy systems. Estimates of the magnitude of cost savings vary under
the new system; however, all estimates suggest increased annual savings for DOD as the BRS is implemented.

55 GAO defines the unified budget in part as “a comprehensive budget in which receipts and outlays from federal and
trust funds are consolidated.” See GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP,
September 2005, p. 99, at https://www.gao.gov/assets/gao-05-734sp.pdf.
56 The FY2004 NDAA (P.L. 108-136, §641), which authorized concurrent receipt of military retired pay and veterans
disability benefits, also required the U.S. Department of the Treasury to pay into the MRF at the beginning of each year
the normal cost arising from increased concurrent receipt benefits. See CRS Report R40589, Concurrent Receipt of
Military Retired Pay and Veteran Disability: Background and Issues for Congress, by Kristy N. Kamarck and Mainon
A. Schwartz.For more information on concurrent receipt, see CRS Report R40589, Concurrent Receipt of Military
Retired Pay and Veteran Disability: Background and Issues for Congress, by Kristy N. Kamarck and Mainon A.
Schwartz.
57 The DOD Board of Actuaries consists of three members appointed by the Secretary of Defense to staggered 15-year
terms, and is authorized by 10 U.S.C. §183.
58 According to the DOD actuary, “mathematically, a NCP is calculated by devising the present value of future benefits
for the entire cohort by the present value of future basic pay, evaluated at the assumed interest rate.” See Valuation of
the Military Retirement System, September 30, 2016, June 2018, p. 19.
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Should NCPs Vary by Service?
The DOD Actuary calculates separate NCPs for the active and reserve components; however, by law the Actuary
applies a single NCP across all of the military services.59 The conference report (H.Rept. 115-404) accompanying
the FY2018 NDAA (P.L. 115-91) contained a provision directing the GAO to evaluate whether this method to
calculate DOD retirement contributions accurately reflects estimated service retirement costs, and what effects, if
any, may result from calculating a separate NCP for each of the services. The GAO's December 2018 report
found that, due to differing continuation rates among the services, "the mandated single, aggregate contribution
rate does not reflect service specific retirement costs."60 In particular, the analysis found that the probability of
reaching 20 years of service was more than three times higher for the Air Force than the Marine Corps.
Section 631 of the Senate version of the FY2020 NDAA would have changed how military retirement
contributions are calculated, by requiring separate NCPs for each of the services and components.61 Some analysts
who have studied the issue have argued that this change would improve resource allocation efficiency, manpower
decision-making, and accuracy in budget estimates at the service level.62 On the other hand, the GAO report
notes that military service officials stated that their "workforce decision making processes would not change."63
Section 655 of the enacted bil did not change the funding process, but required the Secretary of Defense to
deliver an implementation plan to the House and Senate armed services committees by April 1, 2020.
The DOD Actuary’s 2020 Quadrennial Review recommended against this proposal to require service-specific
NCPs. In a September 2019 letter to the Chairman of the Senate Armed Services Committee, the Board stated,
“Our concern is that the development of service-specific NCPs wil greatly increase the complexity, and therefore
the cost to taxpayers, of the annual valuations prepared by [the Office of the Actuary], while leaving the aggregate
contribution to the MRF substantially unchanged.”64
Treasury Payments for the Unfunded Liability
Current debates over military retirement have included some discussion of the unfunded liability,
which consists of future retired pay costs incurred before the creation of the Military Retirement
Fund in FY1985 (the initial unfunded liability) and liabilities incurred due to 1) modifications to
military benefits, 2) changes in actuarial assumptions, and 3) deviations in actual from expected
gains and losses.65 The initial unfunded liability as of September 30, 1984, was $528.7 billion.66
Obligations for the initial unfunded liability are being liquidated by the payment to the fund each
year of an amount from the General Fund of the Treasury and are currently expected to be fully

59 10 U.S.C. §1465.
60 GAO, Military Retirement: Service Contributions Do Not Reflect Service Specific Estimated, GAO-19-195R, 2018,
p. 6, at https://www.gao.gov/assets/700/695789.pdf.
61 A similar provision was included in the Senate-passed version of the FY2018 NDAA (S. 1519, §1002); however, the
provision was not adopted.
62 According to GAO reporting, DOD's Office of Cost Assessment and Program Evaluation (CAPE) led an assessment
of the current retirement contribution method as part of a larger effort. See also, James Hosek, Beth J. Asch, and
Michael Mattock, Toward Efficient Military Retirement Accrual Charges, RAND Corporation, Santa Monica, CA,
2017.
63 GAO, Military Retirement: Service Contributions Do Not Reflect Service Specific Estimated, GAO-19-195R, 2018,
at https://www.gao.gov/assets/700/695789.pdf.
64 DOD Board of Actuaries, 2020 Report to the President and Congress, December 2020, Appendix D, at
https://actuary.defense.gov/Portals/15/Quadrennial%20Report%202020%20BOARD%20FINAL.pdf.
65 Department of Defense Office of the Actuary, FY2016 Valuation of the Military Retirement System, September 30,
2016, June 2018, p. 21.
66 Ibid.
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amortized by FY2026.67 According to the DOD Actuary, the initial unfunded liability is amortized
over time to,
avoid imposing a crippling cash contribution (or expense for financial reporting purposes)
requirement on the plan sponsor in the first year of the plan. However, because this plan is
included in the federal budget and is only “funded” with U.S. government securities (i.e.,
a promised allocation of future tax revenues), the Board is aware that the MRF could
theoretically be fully funded (i.e., immediately recognizing its entire liability in the national
debt).68
Congressional action to change basic pay, retired pay, or associated benefits (e.g., concurrent
retirement disability pay,69 or survivor benefit program) may affect the unfunded liability (see
Figure 2). For example, the implementation of the Blended Retirement System reduced the
unfunded liability by $800 million.70 In the FY2018 NDAA, Congress made a benefit called the
Special Survivor Indemnity Allowance (SSIA) permanent, which led to an actuarial loss of
approximately $8.1 billion from the fund.71 Subsequently, in 2019, Congress initiated the 3-year
phase-out of a requirement that DOD survivor benefits be offset by a benefit called Dependency
and Indemnity Compensation (DIC) from the Department of Veterans Affairs.72 The removal of
this offset, allowing beneficiaries to eventually receive the full amount of both benefits increased
unfunded liability by $13.5 billion.73
Since FY2005, following Congress’s authorization of concurrent receipt benefits, the Treasury
has had to contribute to the normal costs of policy changes to military benefits. DOD’s Board of
Actuaries has been vocal about their opposition to this change, stating
The Board is deeply concerned about any legislative efforts to make Treasury, not DOD,
pay for additional benefits to military retirees. [...]
While the Board understands that current budget demands on DOD are burdensome,
removing DOD’s responsibility to recognize, disclose, and include in manpower decisions
the full cost of military personnel is short-sighted. Burying such information as an
obligation of the general Treasury is misleading and leaves the door open to unrestricted
enhancements because DOD has no incentive to hold down retirement benefit costs.
The Board recommends that all future legislation require DOD to pay the full normal costs
of all the benefits it promises and pay any past service costs associated with benefit
increases.74

67 DOD Board of Actuaries, 2020 Report to the President and Congress, December 2020, p. 11, at
https://actuary.defense.gov/Portals/15/Quadrennial%20Report%202020%20BOARD%20FINAL.pdf.
68 Ibid., p. 11.
69 See CRS Report R40589, Concurrent Receipt of Military Retired Pay and Veteran Disability: Background and
Issues for Congress, by Kristy N. Kamarck and Mainon A. Schwartz.
70 Department of Defense Office of the Actuary, FY2016 Valuation of the Military Retirement System, September 30,
2018, April 2020, Table 7, p. 26.
71 Department of Defense Office of the Actuary, FY2017 Valuation of the Military Retirement System, September 30,
2018, April 2020, p. 8.
72 For more background on the SBP-DIC offset, see CRS Report R45325, Military Survivor Benefit Plan: Background
and Issues for Congress, by Kristy N. Kamarck and Barbara Salazar Torreon.
73 Department of Defense Office of the Actuary, FY2019 Valuation of the Military Retirement System, September 30,
2018, April 2020. p. 7.
74 DOD Board of Actuaries, 2020 Report to the President and Congress, December 2020, p. 16, at
https://actuary.defense.gov/Portals/15/Quadrennial%20Report%202020%20BOARD%20FINAL.pdf.
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Figure 2. Normal Cost Contributions to the MRF, FY1985-FY2020
Impact of Selected Legislative Actions

Source: CRS figure derived from DOD Board of Actuaries, 2020 Report to the President and Congress, December
2020, Table 1, p. 6; P.L. 108-136, §641; P.L. 114-92, §631; and P.L. 115-91, §621.
Notes: SSIA is the Special Survivor Indemnity Allowance, a cash benefit for survivors of military servicemembers
impacted by the offset of Survivor Benefit Plan (SBP) payments and Dependency and Indemnity Compensation
(DIC). The FY2020 NDAA (P.L. 116-92, §622) repeals the SBP-DIC offset and the SSIA by January 1, 2023.
Concerns about Implementation of the BRS
Some advocacy groups and servicemembers have expressed concerns about the implementation
of the Blended Retirement System, in particular the reduced multiplier for the defined benefit
(monthly annuity) and the lump sum payment option. These groups note potential impacts of the
BRS on recruitment and retention, as well as on the financial well-being of military personnel.
Since the average military retiree upon retirement is in his or her 40s, many choose to pursue a
second civilian career and may also accrue retirement savings and benefits from his or her new
employer. Estimates of retirement funds available are contingent on the amount a member
contributes to the TSP and the return on investment for TSP accounts.
Retention Effects
There is uncertainty as to whether the reduced multiplier for the defined benefit offers an
adequate retention incentive for mid-career personnel. A 2016 study for the Marine Corps that
modeled potential retention outcomes found relatively small effects on force profiles, with
predicted officer retention being somewhat more sensitive to changes in the retirement system
than enlisted retention.75 The study also noted that retention may vary by occupational
specialty—supporting the notion that flexibility may be needed for the services to vary the

75 James Grefer et al., The Military Compensation and Retirement Modernization Commission’s Blended Retirement
Plan: Implications for Marine Corps Force Management Objectives, CNA, October 2016.
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continuation pay, to offer other retention bonuses, or to lengthen minimum service requirements
for high-demand fields. DOD officials also expressed concerns that the lump sum option might
entice a larger number of individuals to retire at the 20-year mark, resulting in manpower
deficits.76
Effects on Financial Well-Being
Concerns with respect to financial well-being under the BRS include the effects of
servicemember decisions about individual contributions to the TSP and election of the lump sum
option. The Marine Corps study cited above found that, in general, those who retire after a 20-
year career and contribute to the TSP throughout their career, will have lower take-home pay
from retirement to age 60 than those in the legacy retirement system, but will be better off after
the age of 60 when eligible to start drawing from the TSP without penalty.77 The total lifetime
benefit was estimated to be slightly higher under the legacy retirement system than under the
BRS.78 Lifetime benefits depend on the amount the member contributes to the TSP, including
taking full-advantage of government matching by making contributions at the 5% level.
The 13th Quadrennial Review of Military Compensation (QRMC) in 2020 included a review of
TSP contribution patterns for active component members under the BRS. The review revealed
that older and higher income servicemembers saved at higher levels. The report authors noted
that, “service members from all four services frequently failed to maximize the amount of
matching funds that they were eligible to receive.”79 The QRMC recommended,
 Monitoring automatically enrolled participants as they near two years of service,
and send targeted communications to those not contributing the full 5%,
 Educating members on the merits of spreading TSP contributions over the entire
year, and
 Allowing dollar-amount TSP elections in additions to percentage-amount
elections.80
Lump Sum Option
Advocacy groups have also expressed concerns about the lump sum option and DOD’s discount
rate, which is higher than discount rates for similar pension programs in the private sector.81 This
could lead to a substantially lower lifetime benefit for those military retirees who elect the lump
sum. In addition, experts have warned that those most likely to take the lump sum are those with
the greatest financial need, and lower levels of financial literacy.82 Proponents of the lump sum

76 U.S. Government Accountability Office, Military Pensions: Servicemembers Need Better Information to Support
Retirement Savings Decisions, GAO-19-631, September 2019, p. 29, at https://www.gao.gov/assets/710/701524.pdf.
77 Ibid., p. v.
78 Ibid., p. 70.
79 Report of the Thirteenth Quadrennial Review of Military Compensation, Volume 1: Main Report, December 2020, p.
29.
80 Ibid., p. 99.
81 Higher discount rates generally mean a lower benefit for the recipient and higher savings for the employer. MOAA,
Beware the Lump Sum: An Update on the New Blended Retirement, June 14, 2018, at
https://www.moaa.org/content/publications-and-media/news-articles/2018-military-update/beware-the-lump-sum-an-
update-on-the-new-blended-retirement/.
82 U.S. Government Accountability Office, Military Pensions: Servicemembers Need Better Information to Support
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option have argued that the feature will allow servicemembers more flexibility to use their
retirement benefits to, for example, start a business, purchase a home, or make other investments
to help transition into civilian life or a second career.83
In its 2020 Quadrennial Report to the President and Congress, the DOD Board of Actuaries
recommended that Congress modify the lump-sum provision, stating,
We have already provided our general concerns about the use of a personal discount rate
and we continue to have significant concerns about the DOD [lump sum] policy as it is
being implemented. As this new feature is better understood, some may conclude that the
use of such a high discount rate is taking advantage of service members. [...] we strongly
recommend that Congress anticipate the ramifications that may arise from the use of these
high discount rates and replace the personal discount rate with a more market-based rate
similar to those used in the private sector.84
Effectiveness of Financial Literacy Training
One of the ways that Congress addressed these concerns was to require financial literacy training
for servicemembers with the authorization for the new retirement system in the FY2016 NDAA.85
At Congress’s behest, the Government Accountability Office (GAO) conducted a review of
DOD’s financial literacy training programs and, in particular, how this program was helping
members to make decisions about retirement savings.86 GAO found that the BRS training was
delivered in accordance with effective practices. However, the training programs lacked adequate
pre- and post-assessment mechanisms to determine whether the training had an impact in
individual mastery of the topics. The report authors noted that online/computer-based training, or
large group sessions may not be as effective in delivering content, particularly for very junior
members with limited life experience and low baseline financial literacy. The GAO’s
recommendations were
1. The Secretary of Defense should evaluate the results of its financial literacy training
assessments to determine where gaps in servicemembers’ financial knowledge exist and
revise future trainings to address these gaps.
2. The Secretary of Defense should provide servicemembers disclosures that explain key
pieces of information about the lump sum payment, including some measure of its
relative value, the potential positive and negative financial ramifications of choosing the
lump sum payment option, and a description of how it was calculated.
3. The Executive Director of the Federal Retirement Thrift Investment Board should work
with the Secretary of Defense to explore alternative options (including online resources)
for servicemembers to receive their initial Thrift Savings Plan password so that
servicemembers can access and manage their online accounts without added delays.
DOD has indicated that it has taken some steps to address these recommendations.87

Retirement Savings Decisions, GAO-19-631, September 2019, p. 30, at https://www.gao.gov/assets/710/701524.pdf.
83 Ibid.
84 DOD Board of Actuaries, 2020 Report to the President and Congress , December 2020, p. 16, at
https://actuary.defense.gov/Portals/15/Quadrennial%20Report%202020%20BOARD%20FINAL.pdf.
85 P.L. 114-92, §661. For more on servicemember financial literacy, see, CRS Report R46983, Military Families and
Financial Readiness, by Kristy N. Kamarck.
86 U.S. Government Accountability Office, Military Pensions: Servicemembers Need Better Information to Support
Retirement Savings Decisions, GAO-19-631, September 2019, at https://www.gao.gov/assets/710/701524.pdf.
87 As of June 7, 2022, GAO still listed these recommendations as open, at https://www.gao.gov/products/GAO-19-631.
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Appendix. Retirement Reform Recommendations in
Selected Prior Reviews
Every four years, the President is required by law to direct a comprehensive review of the
military compensation system and to forward the review, along with his recommendations, to
Congress.88 This review is known as the Quadrennial Review of Military Compensation
(QRMC). The Military Compensation and Retirement Modernization Commission (MCRMC)
served as the 12th QRMC.89 The sections below summarize the recommendations of these
commissions.
10th QRMC Recommendations
In the 10th Quadrennial Review of Military Compensation (QRMC), one of the directed areas of
assessment was “the implications of changing expectations of present and potential members of
the uniformed services relating to retirement.”90 To accomplish this, the QRMC suggested a
major revision of both the active and reserve retirement systems. Selected options were
1. A defined benefit plan similar to the current High Three system that would vest
personnel at 10 years of service, with benefits to begin either at age 60 (for
personnel who have served less than 20 years of service) or age 57 (for those that
served more than 20 years of service). Retirees could opt to receive the
retirement annuity immediately upon retirement but the annuity would be
reduced by 5% for each year under age 57.
2. Combined with the above defined benefit plan would be a defined contribution
plan that would require the services to contribute up to 5% of annual base pay
into a retirement account for each servicemember. The contribution would start at
2% for those with two years of service and increase incrementally until it reached
5% for those with five or more years of service. This plan would also vest at 10
years of service but withdrawals could not begin until age 60.
3. A system of gate pays would be established at specified career points to retain
selected personnel in specified skill areas.
4. Separation pay would be used to encourage personnel in over-manned skills to
separate prior to vesting at the 10-year point or becoming eligible for an
immediate annuity at 20 years.
11th QRMC Recommendations
DOD submitted the 11th QRMC final report in 2012. While this QRMC did not have the same
focus on the entire retirement system as the previous QRMC, DOD recommended more closely
aligning active and reserve retirement systems with the goal of eventually transitioning to a total
force single-system approach for both the active and reserve components. The report
recommended the following modification to the reserve retirement system:91

88 37 U.S.C. §1008(b).
89 Presidential memorandum, Subject: Twelfth Quadrennial Review of Military Compensation, January 9, 2015.
90 Presidential memorandum, Subject: Tenth Quadrennial Review of Military Compensation, August 2, 2005.
91 Report of the 11th Quadrennial Review of Military Compensation, June 2012.
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Reserve component members who have attained 20 qualifying years for retirement benefits
could begin receiving retired pay on the 30th anniversary of their service start date or at age
60, whichever comes first. Reserve members would receive one retirement point for each
day of service, and the points needed for a qualifying year would be reduced from the
current 50-point requirement to 35.
12th QRMC: Military Compensation and Retirement Modernization
Commission (MCRMC)
The National Defense Authorization Act (NDAA) for FY2013 (P.L. 112-239) established a
Military Compensation and Retirement Modernization Commission (MCRMC) to provide the
President and Congress with specific recommendations to modernize pay and benefits for the
armed services. In terms of retirement, the commission was mandated to provide
recommendations to “Modernize and achieve fiscal sustainability for the compensation and
retirement systems for the Armed Forces and the other Uniformed Services for the 21st century.”92
Notably, Section 674 of P.L. 112-239 mandated that the commission comply with conditions that
would grandfather existing servicemembers and retirees into the existing retirement system,
stating:
(i) For members of the uniformed services as of such date, who became members before
the enactment of such an Act, the monthly amount of their retired pay may not be less than
they would have received under the current military compensation and retirement system,
nor may the date at which they are eligible to receive their military retired pay be adjusted
to the financial detriment of the member.
(ii) For members of the uniformed services retired as of such date, the eligibility for and
receipt of their retired pay may not be adjusted pursuant to any change made by the
enactment of such an Act.
The commission delivered its final report and recommendations to Congress on January 29, 2015.
Congress adopted many of the MCRMC’s recommendations in the FY2016 NDAA. Several of
the most prominent changes include, reduction of the retired pay multiplier, government matching
contributions, and the lump sum option.
The MCRMC did not make any recommendations changing the 20-year eligibility for retirement;
however, it recommended that the Secretary of Defense be given authority to modify the years-of-
service requirement to shape the force profile as long as it does not impose involuntary changes
on existing servicemembers. DOD expressed opposition to this proposal and Congress did not
adopt a provision based on this MCRMC recommendation. The 20-year eligibility remains in
current law.

Author Information

Kristy N. Kamarck

Analyst in Military Manpower

92 National Defense Authorization Act for FY2013, P.L. 112-239, subtitle H, 126 Stat. 1632, 1787 (2013).
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Acknowledgments
This report expands on previous CRS research and reports authored by David F. Burrelli. Elena Spielmann
contributed data analysis for this report.

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
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under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
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