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Updated May 22, 2024
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), was authorized as part of
throughout most of the military’s history (see Table 1). The
the Defense Officer Personnel Management Act (DOPMA)
purposes for these authorities has been three-fold: (1) to
of 1980. DOPMA repealed prior legislation authorizing
ease the transition to civilian life for servicemembers with
“severance” or “readjustment” pay for military officers
minor physical disabilities; (2) to compensate
involuntarily separated from service. Among other changes
servicemembers for an unplanned (non-disability) end to
to the officer personnel system, DOPMA standardized what
their military career before they are eligible to retire; and
is often referred to as an “up or out” policy for officers
(3) to aid the Department of Defense (DOD) in managing
across all of the services. Under this provision, an officer
force size.
may be involuntarily discharged for having twice failed in
Disability Severance Pay
selection for promotion. This had the potential to impose an
unplanned career end for that officer and factored into the
The Military Compensation Background Papers (8th
design of the involuntary separation benefit. According to
Edition) describes disability severance pay (DSP) as,
the House Armed Services Committee report to accompany
[A] special lump-sum payment to be made to
the bill,
members of the armed forces separated from active
The separation pay is a contingency payment for an
military service because of minor physical
officer who is career committed but to whom a full
disabilities that, while substantial enough to
military career may be denied. It is designed to
adversely affect their ability to perform the military
encourage him to pursue his service ambition,
duties of their respective offices or grades, are not
knowing that if he is denied a full career under the
so severe as to seriously impair their civilian
competitive system, he can count on an adequate
earning capacity, in order to assist such personnel
readjustment pay to ease his reentry into civilian
in their transitions back to civilian life.
life. (H. Rpt. 96-1462, 1980)
While forms of disability severance for military veterans
In 1990, during a period of force drawdowns, Congress
have existed since the founding of the United States, the
expanded this authority to enlisted servicemembers (P.L.
modern system was adopted in the Career Compensation
101-510). Servicemembers involuntarily discharged under
Act of 1949 (P.L. 81-351, §403). This law standardized the
honorable conditions after six years but before twenty years
benefit across all 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. If the board determines that the disability
discharge or release from active duty.
is permanent, stable, and rated at 30% or greater, then the
member may receive a disability retirement and is eligible
Amount of Involuntary Separation Pay
for retired pay. Those with temporary disabilities may be
10 U.S.C. §1174 authorizes two mechanisms to calculate
placed on the disability retired list and later re-evaluated for
ISP: 1) full payment: 10% of the product of the YOS and 12
fitness to serve. Those with service-connected disabilities
times the servicemember’s monthly pay at the time of
rated less than 30% are not eligible for disability retirement,
separation; or 2) half payment of the prior amount. Full
but may be discharged with DSP.
payment or half payment is at the discretion of the
Secretary of the Military Department concerned. DOD
Amount of Disability Severance Pay
policies prescribe half-payment under circumstances where
The amount of DSP is computed by multiplying the
members are deemed not fully qualified for retention or
member’s years of service (YOS) by two months of the
continuation (e.g., weight control failures, failure to meet
basic pay to which the member is entitled at the time of
standards, or other conditions not constituting a disability).
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) and Voluntary Separation
a one-time, lump-sum payment and is taxable, unless
Incentive (VSI). These separation incentives were designed
related to a combat injury or the member is entitled to
to help the services reduce over-manning in certain active
disability compensation from the Department of Veterans
component pay grades or occupational specialties.
Affairs (VA).
https://crsreports.congress.gov
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
10 U.S.C. §1174
Lump sum: 10% x YOS x 12 months’ basic pay, or half of
N/A
Pay
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
10 U.S.C. §1175
Annual annuity: 2.5% x YOS x 12 months’ basic pay
December 31, 2001
Incentive
Voluntary Separation Pay 10 U.S.C. §1175a
Lump sum, installments over 10 years or a combination
December 31, 2025
and Benefits
thereof: at the Service Secretary’s discretion but limited
to 4 times the amount available under 10 U.S.C. §1174
Source: CRS analysis of statute and policy.
deducted from any compensation to which he might
Servicemembers accepting VSI or SSB were required to
otherwise be entitled for the same disability from
maintain an affiliation with the Ready Reserve, either by
joining drilling units in the Selected Reserve or becoming
the Veterans' Administration. (H.Rpt 81-583, 1949)
part of the Individual Ready Reserve (IRR). VSI recipients
Military Retirement Deductions
were required to maintain this affiliation for the duration of
Under 10 U.S.C. §1174(h)(1), a servicemember who has
their VSI payments (with some exceptions), while SSB
received a separation or severance pay, and who later
recipients were required to serve a minimum of three years.
becomes eligible for military retired or retainer pay, shall
Servicemembers could receive only one of these two
have the total (pre-tax-withholding) amount of that pay
payments and were not eligible to receive these payments
deducted in monthly installments under a schedule
and active or reserve component pay concurrently. The
specified by the Secretary of Defense. The provision
authority to offer incentives expired on December 31, 2001.
indicates that in applying a repayment schedule, the
Congress enacted another voluntary separation pay
Secretary shall take into account, “the financial ability of
authority in 2006 (P.L. 109-163, 10 U.S.C. §1175a), which
the member to pay and avoiding the imposition of undue
expires on December 31, 2025.
financial hardship on the member and member's
dependents.”
Amount of Voluntary Separation Pay
A primary difference between the two voluntary incentives
Veteran Disability Compensation Deductions
was the payout period for the benefit. VSI was paid as an
Under 10 U.S.C. §1174(h)(2), a servicemember who
annual annuity for twice the number of years of service at
receives separation or severance pay for a specific period of
the time of separation from active duty, or until separation
service is eligible to receive VA disability compensation for
or retirement from a reserve component (whichever came
that period of service. The after-tax separation pay amount
first). For example, a servicemember who had 8 years of
is withheld from the VA disability compensation. Such
service at the time of separation could receive 16 years of
withholding does not apply to a disability that is incurred or
annual payments. SSB, on the other hand, was a one-time
aggravated during a later period of active service.
lump sum payment upon separation. VSI was calculated as
2.5% of 12 months’ basic pay at the time of transfer to the
Combat-Related Disability Exception
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
Servicemembers who receive any of these payments and
CRS Products
later become eligible for military retired pay for regular or
CRS Infographic IG10009, The Road to Veterans Benefits
reserve service, or veteran disability compensation, are
CRS Report RL34751, Military Retirement: Background and
subject to recoupment. This requirement has been part of
Recent Developments
statute since the benefits were first enacted, as part of
Department of Defense
historical efforts by Congress to prohibit the receipt of two
DODI 1332.29, Involuntary Separation Pay (Non-Disability)
government benefits for the same period of service or
DODI 1332.18, Disability Evaluation System
qualifying event. When Congress authorized DSP in 1949,
Defense Finance and Accounting Service, Separation Payments
the House Report to accompany the bill stated,
This title also contains a provision which is fully
justified when the amount of money involved is
Kristy N. Kamarck, Specialist in Military Manpower
considered. Any person who receives severance pay
under the provisions of this title shall have it
IF12042
https://crsreports.congress.gov
Defense Primer: Military Separation and Severance Pay
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https://crsreports.congress.gov | IF12042 · VERSION 4 · UPDATED