FY2016 NDAA: A Comparison of House and Senate Provisions for Military Retirement Reform

FY2016 NDAA: A Comparison of House and Senate Provisions for Military Retirement Reform

CRS Insights
FY2016 NDAA: A Comparison of House and Senate Provisions for Military Retirement Reform
Kristy N. Kamarck, Analyst in Military Manpower (kkamarck@crs.loc.gov, 7-7783)
June 4, 2015 (IN10286)
Overview
The military retirement system is a funded, noncontributory, defined benefit system that provides a monthly
annuity to servicemembers after 20 years of qualifying service (for regular, non-disability retirees). The National
Defense Authorization Act (NDAA) for FY2013 (P.L. 113-66) established a Military Compensation and
Retirement Modernization Commission (MCRMC) to provide specific recommendations to modernize pay and
benefits for the armed services. The commission delivered its final report and recommendations to Congress on
January 29, 2015. The House-passed (H.R. 1735) and Senate committee-reported (S. 1376) versions of the
FY2016 NDAA include many of the commission's proposed changes. See Table 1 for a comparison of the current
system against the House and Senate versions.
A Blended System with Early Vesting
The House and Senate committee versions would change the existing system from a defined-benefit system that is
vested at 20 years of qualifying service (YOS) to a blended system that authorizes government-matching
contributions of up to 5% of basic pay to individual Thrift Savings Plan (TSP) accounts. While S. 1376 would
limit government-matching contributions only to 20 YOS, H.R. 1735 would allow matching contributions for the
duration of service. Under these proposals all servicemembers would be fully vested in their individual accounts
after two years of service. While the 20-year vesting for the defined benefit would remain unchanged, S. 1376
would authorize DOD to make future changes to the YOS requirement for occupational specialties as needed to
shape the force.
A Reduced Multiplier for the Defined Benefit
Currently, most non-disability retirees are eligible to receive a retired annuity equal to 50% of pay base after 20
years of service, based on a multiplier of 2.5% times the number of qualified years of service (with the exception
of servicemembers in the Redux system, where it is calculated differently). Both versions of the FY2016 NDAA
would reduce the multiplier for the defined benefit from 2.5% to 2.0% (a retirement annuity equal to 40% of pay
base at 20 YOS).
Table 1. Military Retirement Reform Provisions Compared
Current System
Senate committee-
House-passed version
reported version (S.
Topic area
(H.R. 1735)
1376)
Defined benefit
2.5 (50% of pay base
2.0 (40% of pay base at 2.0 (40% of pay base at
multiplier
at 20 YOS)
20 YOS)
20 YOS)
Thrift Savings
Servicemembers may
Automatic individual
Automatic individual
Plan (TSP)
elect to enroll with
enrolment at 3% of
enrolment at 3% of
individual
basic pay with
basic pay with
contributions
government
government
contributions of 1% of contributions of 1% of
basic pay
basic pay
Government
None
Up to 5% matching
Up to 5% matching
matching and
from 2 YOS through
from 2 YOS until 20
vesting
the duration of service, years of service vested

vested after 2 YOS
after 2 YOS
Years of service 20 YOS
20 YOS
20 YOS; however,
(YOS)
authorizes DOD to
requirement for
modify YOS
retirement
requirement for
eligibility
occupational
specialties as needed
for force-shaping
Lump sum
Not authorized
No provision
Authorizes the election
payment of
of a lump sum
defined benefit
payment as a
at retirement
percentage of the
defined retirement
benefit that would be
due prior to becoming
eligible for Social
Security
Continuation
$30,000 Career Status
Incentive pay of a
Incentive pay of a
pay
Bonus (CSB)
minimum of 2.5 times
minimum of 2.5 times
authorized for those
monthly base pay for
monthly base pay for
electing Redux system AC and 0.5 times
AC and 0.5 times
at 15 YOS for 5-year
monthly base pay for
monthly base pay for
obligation
RC authorized at 12
RC authorized at 12
YOS for a 4-year
YOS for a 4-year
obligation
obligation
Modified Cost
Effective for
Amends effective date
No provision (effective
of Living
servicemembers
to October 1, 2017
date remains January
Allowance
joining on or after
1, 2016)
(COLA)
January 1, 2016 (P.L.
formula for
113-67 §403 as
retired pay
amended by P.L. 113-
291 §623)
Date of
NA
October 1, 2017
January 1, 2018
implementation
Source: For more background on the current military retirement system, please see CRS Report
RL34751, Military Retirement: Background and Recent Developments, by Kristy N. Kamarck.
Notes: AC is Active Component, RC is Reserve Component.
Continuation Pay as a Retention Incentive
With early vesting and a reduced defined benefit, some are concerned that retention would be affected by these
proposals. Both versions of the bill would authorize a minimum continuation incentive pay of 2.5 times monthly
base pay for the Active Component and 0.5 times monthly base pay for the Reserve Component at 12 YOS in
exchange for a duty obligation of 4 years. Using 2015 pay scales this would be equal to approximately $17, 474
for an active duty officer in the O-4 pay grade (lieutenant commander or major) and $6,128 for an active duty
enlisted E-4 (corporal, petty officer 3rd Class, or airman). Both versions would also allow Service Secretaries to
increase the amount of continuation pay as required (with some limitations) for retention purposes.
When Would the New System be Implemented?
The current legislation would allow DOD time to implement the new system. Existing servicemembers and those

entering the military prior to October 1, 2017 in the House version or January 1, 2018 in the Senate committee
version would be grandfathered into the current system. Existing servicemembers would be given an opportunity
to opt into the new system; however, a provision in S.1376 prohibits retroactive matching contributions for any
pay period prior to opting into the new system.
Implementation of the Modified COLA Formula
The Bipartisan Budget Act of 2013 (P.L. 113-67 §403 as amended by P.L. 113-291 §623) modified how Cost of
Living Allowances (COLAs) are calculated for servicemembers entering on or after January 1, 2016. The Senate
committee version does not include a provision to amend this date. However, under H.R. 1735 the effective date of
the COLA adjustment would be pushed back to apply to servicemembers entering on or after October 1, 2017. For
more information see CRS Report R43393, Reducing Cost-of-Living Adjustments for Military Retirees and the
Bipartisan Budget Act: In Brief, by Amy Belasco and Lawrence Kapp.