Understanding Military Retirement Pay

Military retirement comes in several “flavors” depending upon when the member first entered the military, and the various elections that the member makes. Other than a medical retirement, one factor all defined benefit military retirements have in common is that a service member must have at least 20 years of service to retire.

High-3 Military Retirement

This is currently the most common retirement, although over time the Blended Retirement discussed below will become more predominant.

Retirement Multiplier 2.5%. Under High Three, each year of service is worth 2.5% of the member’s highest 36 months of pay (generally will be the final three years, unless the member was reduced in grade administratively or at a court-martial). 10 U.S.C. § 1409(b).

So a member with 20 years of service has a retirement multiplier of 87.5%. Note that the retirement multiplier used to be capped at 75% (i.e. 30 years of service x 2.5%), however that cap was removed in the 2007 National Defense Authorization Act. 10 U.S.C. § 1409(b)(3)(B).

Annual COLAs are based upon the consumer price index, per 10 U.S. Code §1401a. Retirement COLAs tend to increase slower than active duty COLAs - see the history of COLAs from 1998 to present straight from the source - the Department of Defense.

Applicability. Members who entered the military between 9/8/1980 and 12/31/2017, and did not opt for the Career Status Bonus at 15 years of service, or the Blended Retirement Plan.

Contrast to Final Pay. Members who entered the military prior to 9/8/1980 are under the Final Pay system, which is very similar to the High-3, with the same multiplier, COLA, etc. The only difference is that the multiplier is applied against the member’s final pay at the time of retirement, and not the highest 36 months. Except for a member who was reduced in grade, the Final Pay system results in a more generous retirement than the High-3, which averages in two prior (and lower-earning) years.

Reduction In Grade. Military members may be reduced in rank for misconduct in a variety of ways, including (for enlisted) a court-martial conviction or Article 15 non-judicial punishment, or (for enlisted or officers) administratively at a grade determination review board. Under a “pure” High-3, there would be no change in retirement for a member who is reduced immediately before retirement, or after retirement, because the last 36 months will almost entirely be at the higher pay grade.

To prevent that, federal law provides that a member who is reduced in grade receives pay based upon the Final Pay system at the last grade the member served "satisfactorily". 10  U.S. Code § 1407(f). This means that a brigadier general who is administratively reduced to lieutenant colonel will receive retired pay at the lieutenant colonel rate.

What is Blended Retirement?

New for 2018, the military has taken a baby step away from a defined benefit plan, which will help those 81% of military members who currently leave with no retirement benefits as they do not serve the requisite 20 years. Called "Modernized Retirement System" in the U.S. Code, it is commonly known as the "Blended Retirement System."

Blended Retirement combines the traditional defined benefit High 3 military retirement with an enhanced Thrift Savings Plan (TSP) that includes a match. The chief characteristics are:

• Contribution Limit: up to $18,500/yr into Roth or Traditional TSP.
• Government TSP Match. The government contributes 1% into the TSP after 60 days for all military personnel, regardless of whether the member herself is actually contributing. This payment vests at 2 years of service. After 2 years of service, members who contribute into the TSP receive up to another 4% match, so there is a maximum government contribution of 5% available.
• Continuation Pay at 12 years of service, The amount could vary from 2.5-13x monthly base pay (0.5-6.5x for reserves), depending upon the member’s duty position, however per this chart, it looks like the branches are all capping it at the minimum 2.5 multiplier. Opting for continuation pay results in an additional 4 years of military obligation.
• Retirement Multiplier Reduced for the High-3 retirement from 2.5% per year of service to 2%. 10 U.S.C. § 1409(b)(4).
• Lump Sum Election. Per 10 U.S. Code § 1415, at retirement, the member can elect lump sum of 25% or 50% of present value of retirement at 20 yrs, in return for reduced monthly payments until age 67, when the full annuity is restored..

Finally, no spousal consent is required for a member with the option of changing from High-3 retirement to a blended retirement. However, as the value of the defined benefit retirement is reduced by 20%, or even slashed up to 50% in return for payments only to the member, it remains to be seen whether the continuation pay or lump sum election will be divisible.

Blended Retirement System Applicability

Whether a member falls under the legacy retirement, blended retirement, or has a choice, depends upon when the member entered active duty, or how many reserve points the member has.

Active Duty Applicability:

• Mandatory for members who first joined military on 1/1/2018 or later (those with prior service who rejoin on 1/1/2018 or later may elect the legacy retirement within 30 days).
• Optional for members who first joined the military between 1/1/2006 - 12/31/2017. who had to make their election during 2018 for “legacy” military retirement or blended retirement.
• Not available for members who joined military prior to 1/1/2006. They must remain under the legacy retirement plan (typically High 3).

Reserve Component Applicability:

• Optional for members with fewer than 4320 points as of 1/1/2018. They had to choose between the legacy retirement and blended retirement in 2018.
• Not available for members with over 4320 points as of 1/1/2018. They must remain under the legacy retirement plan (typically High 3).

REDUX Retirement

Redux is the least favorable retirement plan available, and used to apply to all members who entered the military after 8/1/1986. Congress later changed that, so now it only applies to members entering after that date if they selected the Career Status Bonus (a $30,000 lump sum payment at 15 years of service). Under REDUX:

• The first 20 years of service have a retirement multiplier of 2% each, instead of 2.5%. So a member retiring at 20 years receives only 40% (2% x 20 yrs) instead of 50%.
• Each year between 20-30 years has a retirement multiplier of 3.5%, so at 30 years the multiplier has caught up with the High 3.
• The COLA is 1% below the Consumer Price Index, with a recalculation at age 62

Thrift Savings Plan (TSP)

A TSP is a defined contribution retirement plan, analogous to a military IRA or, a military version of a 401(k) offered by civilian employers, whereby members contribute part of their salary into a retirement account which they keep, even if they leave the military without retiring.

Servicemembers may contribute up to 7% of their base pay to the TSP, and if the member is in the blended retirement plan, the government will contribute up to 5%.

As long as the court has personal jurisdiction over the service member, the judge can divide the TSP incident to a divorce without the special jurisdictional requirements necessary to divide the defined benefit military retirement.

Alternatives to Military Retirement

The military has a variety of methods to separate members from active duty before retirement which may result in separation pay or other benefits in lieu of retirement. One such example are VSI or SSB benefits, a financial tool used heavily during drawdowns. In Colorado, those benefits are divisible - In re: Marriage of Heupel, 936 P.2d 561 (Colo. 1997).

Sometimes, a veteran working for the federal government may choose to merge the military pension into FERS, the federal retirement plan. In that event, the Court will need to retain jurisdiction to protect the spouse's right to receive the expected benefits.

Service members who entered active duty after 9/1/1986 are authorized the Career Status Bonus. They can elect to receive a $30,000 lump sum payment at 15 years of service, and then opt for the less favorable REDUX retirement system. This election obviously has consequences for the former spouse, who will see a reduced retirement available for division, and the extent to which a Colorado court may order an offset is uncertain.

There is no hard & fast rule as to whether a member’s separation pay will be divisible, but when considering Heupel and the cases on TDRL & PDRL benefits, there appears to be a common thread developing: if the member voluntarily applied for a benefit in lieu of retirement, it may be divided, but if the military pays benefits as part of an involuntary separation, it is not divisible.

There is one large exception - disability payments from the Veterans Administration. Though a member applies voluntarily, if he receives a non-combat related disability rating of 40% or less, he must waive retirement to receive disability. But VA disability payments are not divisible, so perhaps an addendum to the notion that voluntary benefits received in lieu of retirement may be divisible would be “except where Congress has explicitly prohibited division.”

We can expect more litigation over the divisibility of non-retirement payments as the Blended Retirement System matures and becomes more common in dissolution cases. So over time, clarity will emerge.

Military Retired Pay vs Military Retirement Pay vs Military Pension, etc

Though this article generally uses the term "military retirement", different sources will use different terms. The Uniform Services Former Spouses Protection Act (USFPA) at 10 U.S. Code § 1408 uses the term "Retired or Retainer Pay", but other parts of the same code chapter use the term "monthly retired pay." In fact, there are a host of terms used which all mean "military retirement". So when you see any of the following terms, you know they mean the same thing:

• U.S. Military Retirement Pay
• Military Retirement Benefits
• Military Retirement Plan
• Military Pension Plan
• Military Retired Pay
• Retired Military Pay
• Active Duty Military Retirement
• Active Duty Retirement

And the list goes on (but not in this article). No matter what it's called, the retirement is the same, and so is the rule on dividing it in a divorce.

Air Force Retirement vs Army Retired Pay vs Navy Retirement

Does the military retirement depend upon which branch of service a member is in? No - the rules for retirement, and for the division of a military retirement in a divorce, are the same regardless of branch. So while someone in the Air Force may refer to as U.S. Air Force Retirement Pay or U.S. Air Force Pension Plan  (OK. very few probably put the U.S. in front of retirement), it's the same U.S. military retirement pay that someone in the Army calls U.S. Army Retirement Pay or a U.S. Army Pension Plan, or someone in the Navy may refer to as a U.S. Navy Retirement Pay or a U.S. Navy Pension Plan.

They are all military pensions, no matter which branch of service the member was in, and all are centrally administered by the Department of Defense's Defense Finance and Accounting Service (DFAS). While a military member's path to retirement is unique for each branch of service, once retired, the retirement is "purple" (the military term for joint). 

More Information

Blended Retirement System, a comprehensive site from DOD with everything you need to know about blended retirement, calculators, etc.

TSP Web Site, courtesy of the federal government.