DOD PROPOSAL TO ESTABLISH A REVISED RETIREMENT SYSTEM FOR NEW MEMBERS OF THE UNIFORMED SERVICES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89-00066R000700060002-0
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 177
• Document Creation Date: December 27, 2016
• Document Release Date: August 8, 2013
• Sequence Number: 2
• Publication Date: November 18, 1985
• Content Type: MEMO

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18 November 1985
MEMORANDUM FOR THE RECORD
SUBJECT: DOD Proposal to Establish a Revised Retirement System
for New Members of the Uniformed Services
Per discussions with the Director of Personnel on
15 November 1985, Office of Legislative Liaison was advised we
had no recommendation for comments on the attached DOD proposal.
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STAT
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MEMORANDUM FOR:
FROM:
SUBJECT:
0LL85-3423/1
8 November 1985
Director, Office Personnel
Legislation Division
Office of Legislative Liaison
DOD Proposal to Establish a Revised
Retirement System for New Members of the
Uniformed Services
1. The Office of Management and Budget has requested the
views of the Agency on the attached DOD proposed report to
Congress on options to reduce military retirement accrual
funding in fiscal year 1986. The DOD Authorization bill for
FY86 requires the DOD to submit a report to the Congress that
contains draft legislation on at least two options to reduce
military retirement accrual funding by $2.9 billion.
2. The DOD in its report strongly opposes any change in
its retirement system. The DOD contends that reductions in
retirement benefits would harm morale, reduce the rate of
recruitment and retention, and lower combat performance.
Nevertheless, the DOD has complied with the reporting
requirement by proposing two alternative methods for reducing
retirement cost by the specified amount. The first method
would reduce the accrual rate, but compute retirement benefits
based on the employees' 5 highest salary years. The second
method would also reduce the accrual rate, but not as much as
the first method. Under this second method, retirement
benefits would be based on the employees' 3 highest salary
years, and there would be a reduction in the cost of living
adjustment by reducing the consumer price index used to
calculate the COLA by one percentage point. There would also
be a one time restoral of the amount lost due to the reduced
COLA.
3. It is requested that the Office of Personnel review
this proposal and provide this office with your comments by
13 November so that we may incorporate those comments into our
final response to OMB.
Attachment as
stated
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STAT
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1.4
A BILL
To establish a revised retirement system for new members of the uniformed
services, to revise the method of determining cost of living adjustments
under the revised retirement system, and for other purposes.
1 Be it enacted by the Senate and House of Representatives of the United States
2 of America in Congress assembled,
3 SHORT TTTLE
4 Section 1. This Act may be cited as the "Uniformed Services Retirement Cost
5 Reduction Act of 1985".
6 AMEWIMENIS AFTECTIN3 GENERAL 034PU1TICIN CF RETIRED PAY
7 Sec. 2. (a) Section 1331 of title 10 United States Code, relating to age
8 and service requirements for retired pay for non-regular service, is amended in
9 subsection (a) --
10 (1) by striking out "and" at the end of paragraph (3);
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1 (2) by striking out the period at the end of paragraph (4) and inserting
2 in lieu thereof "; and"; and
3 (3) by inserting after paragraph (4) the following new paragraph (5):
4 "(5) in the case of a person who first became a member of a
5 uniformed service (as defined in section 1407(a)(2) of this title) on
6 or after the date of the enactment of the Uniformed Services Retirement
7 Cost Reduction Act of 1985, he is a member of a reserve amponent.".
8 (b) Section 1401 of title 10, United States Code, relating to amputation of
9 retired pay, is amended --
10 (1) in the first sentence --
11 (A) by inserting "(a)" before "The monthly"; and
12 (B) by inserting "who first became a member of a uniformed service
13 (as defined in section 1407(a)(2) of this title) before the date of
14 the enactment of the Uniformed Services Retirement Cost Reduction Act
15 of 1985, or who is retired for disability under chapter 61 of this
16 title" after "subtitle"; and
17 (2) by adding at the end thereof the following new subsection:
18 "(b) The monthly retired pay of a person entitled thereto under this subtitle
19 who first became a member of a uniformed service (as defined in section
20 1407(a)(2) of this title) on or after the date of the enactment of the
21 Uniformed Services Retirement Cost Reduction Act of 1985, and who has been
22 retired other than for disability under chapter 61 of this title, is computed
23 according to the follcwing table. For each case covered by a section of this
24 title named in the column headed "For sections", retired pay is computed by
25 taking, in order, the steps prescribed opposite it in columns 1 and 2. The?
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1 amount ccuputed, if not a multiple of $1, shall be rounded to the next lower
2 multiple of $1. However, if a person would otherwise be entitled to retired
3 pay ccuputed under more than one pay formula of this table or of any other
4 provision of law, he is entitled to be paid under the applicable formula that
5 is most favorable to him. Section references below are to sections of this
6 title.
FORMULA FOR COLUMN 1 COLUMN 2
ND. SECTICNS TAKE NeLT1PLY BY
1 1331 Monthly retired pay base 2 1/2% of years of service
as ccuputed under credited to him under
section 1407(b). section 1333 multiplied
by the percentage factor
prescribed in section
1407a for years of
service credited to him
under section 1332.
2
564 Mbnthly retired pay base The percentage factor
1263 as computed under prescribed in section
1293 section 1407(b). 1407a for years of
1305 service credited to him
under section 1405.
3
633 Monthly retired pay base The percentage factor
634 as computed under prescribed in section
635 section 1407(b). 1407a for years of
636 service credited to him
1251 under section 1405.".
7 (c) Subsection (a) of section 1402a of title 10, United States Code,
8 relating to recanputation of retired or retainer pay to reflect later active
9 duty, is amended --
10 (1) by inserting "(1)" after "(a)";
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1 (2) by inserting "but before the date of the enactment of the Uniformed
2 Services Retirdient Cost Reduction Act of 1985, after "September 7, 1980,";
3 and
4 (3) by adding after paragraph (1) the following new paragraph (2):
5 "(2) Amenter of an armed force who first became a member of a uniformed
6 service (as defined in section 1407(a)(2) of this title) on or after the date
7 of the enactment of the Uniformed Services Retirement Cost Reduction Act of
8 1985, who has become entitled to retired pay or retainer pay, and who
9 thereafter serves on active duty (other than for training), is entitled to
10 recompute his retired pay or retainer pay upon his release fram that duty -
11 according to the following table. The arnpunt computed, if not a multiple of
12 $1, shall be rounded to the next lover multiple of $1.
=ANN 1
caner 2
MULTIPLY BY
Monthly retired or retainer pay base
under section 1407 of this title
which he would be entitled to use
if --
(1) he were retiring upon
release from that active duty; or
(2) he were transferring to the
Fleet Reserve or Fleet Marine
Corps Reserve upon that release
from active duty.
The percentage factor prescribed
in section 1407a of this
title for the sum of --
(1) the years of service
credited him in computing
retired pay or retainer
pay; and
(2) his years of active
service after becoming
entitled to retired pay
or retainer pay.".
13 (d) Section 1403 of title 10, United States Code, relating to tax treatment
14 of disability retired pay, is amended by inserting "(a)" after "1401".
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1 (e) Section 1405 of title 10, United States Code, relating to ccuputing years
2 of service, is amihded --
3 (1) by inserting "(a)" after "1401";
4 (2) by striking out "3991 (formula A), 3992" and inserting in lieu thereof
5 "1401(b) (formulas 2 and 3), 3991 (a) and (b) (formula A), 3992 (a) and
6 (b)"; and
7 (3) by striking out "8991 (formula A), or 8992" and inserting in lieu
8 thereof "8991 (a) and (b) (formula A), or 8992 (a) and (b)".
9 (f)(1) Section 1407(a)(2) of title 10, United States Code, is amended to read
10 as follows:
11 "(2) In this section:
12 "(A) 'Uniformed service' means --
13 "(i) any of the armed forces;
14 "(ii) the ccumissioned corps of the Public Health Service; or
15 "(iii) the commissioned corps of the National Oceanic and Atmospheric
16 Midnistration.
17 "(B) 'First became a member of a uniformed service' means the initial
18 date a person was enlisted or appointed in a uniformed service as an
19 officer, an enlisted member, or a cadet or midshipman.".
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1 (2) Section 1407(b)(3) of title 10, United States Code, relating to the
2 retired pay base, is amended --
3 (A) by inserting "(A)" after "(3)"; and
4 (B) by striking out "In" and inserting in lieu thereof "accept as provided
5 in subparagraph (B), in"; and
6 (C) by adding after subparagraph (A) the following new subparagraph (B):
7 "(B) The monthly retired pay base of a member who is retired under section
8 1331 of this title who first became a matter of a uniformed service on or after
9 the date of the enactment of the Uniformed Services Retirement Cost Reduction
10 Act of 1985, shall be computed under subparagraph (A), except that in:_
11 determining the months which may be included in the 36 months referred to in
12 subparagraph (A) there shall be excluded any month after the date he is first
13 transferred to the inactive status list or to the Retired Reserve if such month
14 follows the date such.member was notified under section 1331(d) of this title.
15 The monthly retired pay base computed under the preceding sentence shall be
16 increased by the percentage by which the Consumer Price Index (all items,
17 United States city average) published by the Bureau of Labor Statistics has
18 increased from the last of such 36 months to the month preceding the date the
19 member is entitled to retired pay.".
20 (g)(1) Chapter 71 of title 10, United States Code, relating to computation of
21 retired pay, is amended by inserting after section 1407 the following new
22 section:
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"?. 1407a. Retired pay multiplier for members who first became members on or
after the date of the enactment of the Uniformed Services
Retirement Cost Reduction Act of 1985
1 "(a) EXcept as prwided in subsection (b), in =imputing the retired pay or
2 retainer pay of a person who first became a "member of a uniformed service (as
3 defined in section 1407(a)(2) of this title) on or after the date of the
4 enactment of the Uniformed Services Retirement Cost Reduction Act of 1985, and
5 who has been retired other than for disability under chapter 61 of this title
6 or transferred to the Fleet Reserve or the Fleet Marine Corps Reserve, the
7 percentage factor shall be the one listed in column 2 of the following table
8 which corresponds to the applicable years of service in column 1.
COLUMN 1 COLUMN 2
YEARS OF SERVICE1 PERcEmpaE FAcroR2
20 44.0%
21 47.1%
22 50.2%
23 53.3%
24 56.4%
25 59.5%
26 62.6%
27 65.7%
28 68.8%
29 71.9%
30 and over 75.0%
1 Before applying percentage factor in the case of a
member with 20 but less than 30 years of service, add to
the number of full years of service creditable to the
member one-twelfth of a year for each full month of
service that is in addition to such full years and
disregard any remaining fractional part of a month.
2 In the case of a amber who has had one-twelfth of a
year added to his years of service under footnote 1 for
each full month of service that is in addition to his
full years of service, the percentage factor to be
applied is determined by mathematical interpolation
between the respective percentage factors.
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1 "(h) In computing the retired pay of a person retired under section 1331 of
2 this title who first became a member of a uniformed service (as defined in
3 section 1407(a)(2) of this title) on or after the date of the enactment of the
4 Uniformed Services Retirement Cost Reduction Act of 1985, the percentage factor
5 shall be the one listed in column 2 of the following table which corresponds to
6 the applicable years of service in column 1.
COLLMN 1
YERRS OF SERVICE
in SECTION 1332 OF
THIS TITLE
COLOHN 2
PFRCENIIAGE FACIOR
20
88.00%
21
89.71%
22
91.27%
23
92.70%
24
94.00%
25
95.20%
26
96.31%
27
97.33%
28
98.29%
29
99.17%
30 and over
100.00%.".
7 (2) The table of sections at the beginning of such chapter is amended by
8 inserting after the item relating to section 1407 the following new item:
"Sec. 1407a. Retired pay multiplier for members who first became members on
or after the date of enactment of the Uniformed Services
Retirement Cost Reduction Act of 1985.".
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4 Nov 85 - To: HILDA SCHREIBER From: W.Windus DOD 1 pg
1 AWNWINITS AFFECTING JUS TS OF RETIRED AND RETAINER PAY TO REFLECT CHANGES
2 IN THE CONSUMER PRICE MEX
3 Sec. 3. (a) Subsection (a) of section 1401a of title 10, United States Code,
4 relating to adjustments in retired and retainer pay to reflect changes in the
5 Consumer Price Index, is amended by striking out the second sentence and
6 inserting in lieu thereof "In this section, 'price index' means the Consumer
7 Price Index (all items, United States city average) published by the Bureau
8 of Labor Statistics; 'base quarter' means the calendar quarter ending on
9 September 30 of each year; and 'price index for the base quarter' means the
10 arithmetical mean of the price index for the three months comprising the base
11 quarter.".
12 (b) Subsection (b) of such section is amended to read as follews:
13 "(b)(1) In accordance with regulations prescribed by the Secretary of
14 Defense, effective December 1 of each year the Secretary shall increase the
15 retired and retainer pay of members or former members of the armed forces --
16 "(A) who first became ambers of a uniformed service (as defined in
17 section 1407(a)(2) of this title) before the date of the enactment of
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1 the Uniformed Services Retirement Cost Reduction Act of 1985, or who
2 are retired for disability under chapter 61 of this title, by the
3 percent (adjusted to the nearest one-tenth of 1 percent) that the price
4 index for the base quarter of such year exceeds the price index for the
5 base quarter of the preceding year in which an adjustment under this
6 subsection was made; or
7 "(B) who first became members of a uniformed service (as defined in
8 section 1407(a)(2) of this title) on or after the date of the enactment
9 of the Uniformed Services Retirement Cost Reduction Act of 1985, other
10 than a member retired for disability under chapter 61 of this title,
11 by the same percentage (adjusted to the nearest one-tenth of 1 percent)
12 by which retired and retainer pay is increased for members or former
13 members under paragraph (1)(A), but reduced by one percent (but not
14 resulting in a decrease in such pay if such percentage increase is less
15 than one percent).
16 "(2) In any case in which an increase in the retired or retainer pay of a
17 marker of an aimed force (other than a member retired for non-regular service
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1 under chapter 67 of this title) has been made but reduced under paragraph
2 (1)(B) prior to the date such member completes 40 years as a member of a
3 uniformed service, then at the time the first increase in such pay is required
4 to be made on or after the date such member completes 40 years as a member of a
5 uniformed service the retired or retainer pay of such member shall be
6 recomputed by increasing the retired or retainer pay to which he was entitled
7 on the date of his retirement by the percent (adjusted to the nearest one-tenth
8 of 1 percent) that the price index for the base quarter immediately preceding
9 the date he completes 40 years as a member of a uniformed service exceeds the
10 price index for the base quarter immediately preceding the date of his
11 retirement. Percentage increases thereafter made under paragraph (1)(B) shall
12 be applied to such reccmputed pay.
13 "(3) For purposes of this subsection, 'years as a member of a uniformed
14 service' includes (A) all periods of service creditable in computing a member's
15 basic pay under section 205 of title 37 at the time he became entitled to
16 retired or retainer pay, and (B) all periods on a retired list while entitled
17 to retired or retainer pay. However, a period of time may not be counted more
18 than once.".
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1 AMEKTMENTS.AFFECIME COMPUTATICV OF RErnammy CF ARMY PEPSCNNEL
2 Sec. 4. (a) Section 3991 of title 10, United States Code, relating to
3 computation of retired pay, is amended --
4 (1) in the first sentence --
5 (A) by inserting "(a)" before "The monthly"; and
6 (B) by inserting "who first became a member of a uniformed service
7 (as defined in section 1407(a)(2) of this title) before the date of the
8 enactment of the Uniformed Services Retirement Cost Reduction Act of
9 1985," after "subtitle";
10 (2) in the fourth sentence by inserting "(a)" after "1401"; and
11 (3) by adding at the end thereof the following new subsection:
12 "(b) The nxmlthly retired pay of a person entitled thereto under this
13 subtitle who first became a member of a uniformed service (as defined in
14 section 1407(a)(2) of this title) on or after the date of the enactment of the
15 Uniformed Services Retirement Cost Reduction Act of 1985, is computed according
16 to the following table. For each case covered by a section of this title named
17 in the column headed "For sections", retired pay is computed by taking, in
18 order, the steps prescribed opposite it in columns 1, 2, and 3, as modified by
19 the footnote. The amount computed, if not a multiple of $1, shall be rounded
20 to the next lower multiple of $1. However, if a person would otherwise be
21 entitled to retired pay computed under more than one pay formula of this table
22 or the tables in section 1401 of this title, he is entitled to be paid under
23 the applicable formula that is most favorable to him. Section references below
24 are to sections of this title.
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Fat CCIELDIN 1
Farecuk sEcrictis TAKE
COLUMN 2
YIULTIPLY BY
MUM 3
AM
A 3911 The monthly retired
3918 pay base as computed
3920 under section
3924 1407(c).
The percentage factor
prescribed in section
1407a for the years of
service credited to
him under section
1405.
3914 The monthly retired
pay base as computed
under section
1407(c).
The percentage factor
prescribed in section
1407a for the years
of service credited
to him under section
3925.
10% of product
of columns 1
and 2 for
extraordinary
heroism in
line of duty,
but in no case
shall his
retired pay be
more than 75
percent of his
monthly retired
pay base as
computed under
section
1407(c).1
3917 The monthly retired
pay base as camputed
under section
1407(c).
The percentage factor
prescribed in section
1407a for the years
service credited to
him under section
3925.
1 The Secretary of the Army's determination as to extraordinary heroism is
conclusive for all purposes.".
1 (b) Section 3992 of title 10, United States Code, relating to recomputation
2 of retired pay, is amended --
3 (1) by striking out the first sentence and inserting in lieu thereof:
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1 "(a) An enlisted member of the Army who first became a member of a uniformed
2 service (as defined in section 1407(a)(2) of this title) before the date of the
3 enactment of the Uniformed Services Retirement Cost Reduction Act of 1985, who
4 is advanced on the retired list under section 3964 of this title is entitled to
5 recompute his retired pay under formula A of the following table, and a warrant
6 officer of the Army who first became a member of a uniformed service before the
7 date of the enactment of the Uniformed Services Retirement Cost Reduction Act
8 of 1985, who is 90 advanced is entitled to recompute his retired pay under
9 formula B of that table."; and
10 (2) by adding at the end thereof the following new subsection:
11 "(b) An enlisted member of the Army who first became a member of a uniformed
12 service (as defined in sectiOn 1407(a)(2) of this title) on or after the date
13 of the enactnent of the Uniformed Services Retirement Cost Reduction Act of
14 1985, who is advanced on the retired list under section 3964 of this title is
15 entitled to reccrnpute his retired pay under formula A of the following table,
16 and a warrant officer of the Army who first became a member of a uniformed
17 service on or after the date of the enactment of the Uniformed Services
18 Retirement Cost Reduction Act of 1985, who is so advanced is entitled to
19 recompute his retired pay under formula B of that table. The amount
20 recomputed, if not a multiple of $1, shall be rounded to the next lower
21 multiple of $1.
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-*COLUMN 1 COLUMN 2
TAKE MULTIPLY BY
The monthly retired pay base The percentage factor prescribed
as computed under section in section 1407a of this title
1407(c) of this title. for the number of years credited
to him under section 3925 of
this title.
The monthly retired pay base The percentage factor prescribed
as computed under section in section 1407a of this title
1407(c) of this title, for the number of years credited
to him under section 1405 of
this title.".
1 AMENDMENTS AFFECTIM CCMPuntriaN CF MIRED PAY OP NAVY AND 14.RINE CCIRPS PCNL
2 Sec. 5. (a) Section 6151 of title 10, United States Code, relating to
3 determination of higher retired grade and pay, is amended --
4 (1) in subsection (b) --
5 (A) by striking out "on or after September 8, 1980," in clause (B) of
6 paragraph (1) and inserting in lieu thereof "after September 7, 1980,
7 but before the date of the enactment of the Uniformed Services
8 Retirement Cost Reduction Act of '1985,19;
9 (E) by redesignating paragraph (2) as paragraph (3); and
9 (C) by inserting after paragraph (1) the following new paragraph (2):
10 "(2) Each member, other than a former member of the Fleet Reserve or the
11 Fleet Marine Corps Reserve, who first became a member of a uniformed service
12 (as defined in section 1407(a)(2) of this title) on or after the date of the
13 enactment of the Uniformed Services Retirement Cost Reduction Act of 1985, who
14 is advanced on the retired list under this section is, unless otherwise
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1 entitled to higher retired pay, entitled to retired pay at the rate determined
2 by taking the monthly retired pay base computed under section 1407(d) of this
3 title and multiplying that amount by the percentage factor prescribed under
4 section 1407a of this title for the years of service that may be credited to
5 him under section 1405 of this title."; and
6 (2) in subsection (c) --
7 (A) by striking out "on or after September 8, 1980," in paragraph (2)
8 and inserting in lieu thereof "after September 7, 1980, but before the
9 date of the enactment of the Uniformed Services Retirement Cost
10 Reduction Act of 1985,"; and
11 (B) by inserting after paragraph (2) the following new paragraph (3):
12 "(3) Each former member of the Fleet Reserve or the Fleet Marine Corps
13 Reserve who first became a member of a uniformed service (as defined in section
14 1407(a)(2) of this title) on or after the date of the enactment of the
15 Uniformed Services Retirement Cost Reduction Act of 1985, who is advanced on
16 the retired list under this section is entitled to retired pay at the rate
17 determined by taking the monthly retired pay base computed under section
18 1407(d) of this title and multiplying that amount by the percentage factor
19 prescribed under section 1407a of this title for the years of service
20 creditable for his retainer pay at the time of retirement.".
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1 (b) Subsection -(e) of section 6323 of title 10, United States Code, relating
2 to the retirementApf an officer of the Navy or Marine Corps after completing
3 more than 20 years of active service, is amended --
4 (1) by inserting "(1)" after "(e)";
5 (2) by redesignating paragraphs (1) and (2) as clauses (A) and (B)
6 respectively, and in such clause (B) (as so redesignated) by striking out
7 "on or after September 8, 1980," and inserting in lieu thereof "after
8 September 7, 1980, but before the date of the enactment of the Uniformed
9 Services Retirement Cost Reduction Act of 1985,"; and
10 (3) by inserting after paragraph (1) the following new paragraph (2):
11 "(2) Unless otherwise entitled to higher pay, an officer who first became a
12 member of a uniformed service (as defined in section 1407(a)(2) of this title)
13 on or after the date of the enactment of the Uniformed Services Retirement Cost
14 Reduction Act of 1985, who is retired under this section is entitled to retired
15 pay at the rate determined by taking the monthly retired pay base computed
16 under section 1407(d) of this title and multiplying that amount by the
17 percentage factor prescribed under section 1407a of this title for the years of
18 service that may be credited to him under section 1405 of this title.".
19 (c)(1) Subsection (a)(2) of section 6325 of title 10, United States Code,
20 relating to the retired grade and pay of certain officers of the Navy and
21 Marine Corps, is amended --
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1 (A) by striking out "; or" at the end of clause (A) and inserting in lieu
2 thereof "multiplied by the number of years of service that may be credited
3 to him under section 1405 of this title, but the retired pay so computed may
4 not be more than 75 percent of the basic pay upon which the computation of
5 retired pay is based;";
6 (B) by striking out "on or after September 8, 1980," in clause (B) and
7 inserting in lieu thereof "after September 7, 1980, but before the date of
8 the enactment of the Uniformed Services Retirement Cost Reduction Act of
9 1985,";
10 (C) by striking out the seudcolon at the end of clause (B) and inserting_
11 in lieu thereof "multiplied by the number of years of service that may be
12 credited to him under section 1405 of this title, but the retired pay so
13 computed may not be more than 75 percent of the monthly retired pay base
14 upon which the canptatation of retired pay is based; or";
15 ()) by striking out "multiplied by the number of years of service that may
16 be credited to him under section 1405 of this title, but the retired pay so
17 computed may not be more than 75 percent of the basic pay or monthly retired
18 pay base upon which the computation of retired pay is based." where it
19 appears at the end of the paragraph; and
20 (E) by inserting after clause (B) the following new clause (C):
21 "(C) in the case of an officer who first became a member of a
22 uniformed service (as defined in section 1407(a)(2) of this title) on
23 or after the date of the enactment of the Uniformed Services Retirement
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1 Cost Reduction Act of 1985, at the rate determined by taking the
2 monthly retired pay base carputed under section 1407(d) of this title
3 and multiplying that amount by the percentage factor prescribed in
4 section 1407a of this title for the years of service that may be
5 credited to him under section 1405 of this title.".
6 (2) Subsection (b)(2) of section 6325 of title 10, United States Code,
7 relating to the retired grade and pay of certain officers of the Navy and
8 Marine Corps, is amended --
9 (A) by striking out "; or" at the end of clause (A) and inserting in lieu
10 thereof "multiplied by the number of years of service that may be credited
11 to him under section 1405 of this title, but the retired pay so computed may
12 not be more than 75 percent of the basic pay upon which the computation of
13 retired pay is based;";
14 (B) by striking out "on or after September 8, 1980," in clause (B) and
15 inserting in lieu thereof "after September 7, 1980, but before the date of
16 the enactment of the Uniformed Services Retirement Cost Reduction Act of
17 1985,";
18 (C) by striking out the semicolon at the end of clause (B) and inserting
19 in lieu thereof "multiplied by the number of years of service that may be
20 credited to him under section 1405 of this title, but the retired pay so
21 computed may not be more than 75 percent of the monthly retired pay base
22 upon which the computation of retired pay is based; or";
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1 (D) by striking out "multiplied by the number of years of service that may
2 be credited to.him under section 1405 of this title, but the retired pay EC
3 ccaputed may not be more than 75 percent of the basic pay or monthly retired
4 pay base upon which the computation of retired pay is based." where it
5 appears at the end of the paragraph; and
6 (E) by inserting after clause (B) the following new clause (C):
7 "(C) in the case of an officer who first became a member of a
8 uniformed service (as defined in section 1407(a)(2) of this title) on
9 or after the date of the enactment of the Uniformed Services Retirement
10 Cost Reduction Act of 1985, at the rate determined by taking the
11 monthly retired pay hese ccuputeltuer section 1407(d) of this title
12 and multiplying that amount by the percentage factor prescribed in
13 section 1407a of this title for the years of service that may be
14 credited to him under section 1405 of this title.".
15 (d) Subsection (c)(1) of section 6330 of title 10, United States Code,
16 relating to retainer pay for enlisted neuters transferred to the Fleet Reserve
17 or the Fleet Marine Corps Reserve, is amended --
18 (1) by striking out "; or" at the end of clause (A) and inserting in
19 lieu thereof "multiplied by the number of years of active service in the
20 armed forces;";
21 (2) by striking out "on or after September 8, 1980," in clause (B) and
22 inserting in lieu thereof "after September 7, 1980, but before the date of
23 the enactment of the Uniformed Services Retirement Cost Reduction Act of
24 1985,";
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1 (3) by striking out the semdcolon at the end of clause (B) and inserting
2 in .therf. by the number of years of active service in the
3 armed forces; or";
4 (4) by striking out "multiplied by the number of years of active service
5 in the armed forces." where it appears at the end of the paragraph; and
6 (5) by inserting after clause (B) the following new clause (C):
7 "(C) in the case of a member who first became a member of a uniformed
8 service (as defined in section 1407(a)(2) of this title) on or after
9 the date of the enactment of the Uniformed Services Retirement Cost
10 Reduction Act of 1985, at the rate determined by taking the monthly
11 retainer pay base computed under section 1407(d) of this title and
12 multiplying that amount by the percentage factor prescribed in section
13 1407a of this title for the years of his active service in the armed
14 forces.".
15 (e) Section 6383(c)(2) of title 10, United States Code, relating to the
16 retired pay of certain regular officers of the Navy and Marine Corps, is
17 amended to read as follows:
18 "(2) is entitled to retired pay --
19 "(A) in the case of an officer who first became a member of a
20 uniformed service (as defined in section 1407(a)(2) of this title)
21 before September 8, 1980, at the rate of 2 1/2 percent of the basic pay
22 to which he would be entitled if serving on active duty in the grade in
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1 which he retired multiplied by the number of years of service credited
2 to him undqr section 1405 of this title, but the retired pay may not be
3 more than 75 percent of the basic pay upon which the ccuputation of
4 retired pay is based;
5 "(B) in the case of an officer who first became a member of a
6 uniformed service (as defined in section 1407(a)(2) of this title)
7 after September 7, 1980, but before the date of the enactment of the
8 Uniformed Services Retirement Cost Reduction Act of 1985, at the rate
9 of 2 1/2 percent of the monthly retired pay base ccuputed under section
10 1407(d) of this title multiplied by the number of years of service
11 credited to him under section 1405 of this title, but the retired pay
12 may not be more than 75 percent of the monthly retired pay base upon
13 which the ccrnputation of retired pay is based; or
14 "(C) in the case of an officer who first became a member of a
15 uniformed service (as defined in section 1407(a)(2) of this title) on
16 or after the date of the enactment of the Uniformed Services Retirement
17 Cost Reduction Act of 1985, at the rate determined by taking the
18 monthly retired pay base computed under section 1407(d) of this title
19 and multiplying that amount by the percentage factor prescribed under
20 section 1407a of this title for the number of years of service credited
21 to him under section 1405 of this title.".
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Ammumws AFFECMC OCMPUDITICN OF RErnam) PAY OF AmtpaRcE PERSONNEL
2 Sec. 6.1a) Settion 8991 of title 10, United States Code, relating to
3 computation of retired pay, is amended --
4 (1) in the first sentence --
5 (D) by inserting "(a)" before "The monthly"; and
6 (8) by inserting "who first became a member of a uniformed service
7 (as defined in section 1407(a)(2) of this title) before the date of the
8 enactment of the Uniformed Services Retirement Cost Reduction Act of
9 1985," after "subtitle";
10 (2) in the fourth sentence by inserting "(a)" after "1401"; and
11 (3) by adding at the end thereof the following new subsection:
12 "(b) The monthly retired pay of a person entitled thereto under this subtitle
13 who first became a member of a uniformed service (as defined in section
14 1407(a)(2) of this title) on or after the date of the enactment of the
15 Uniformed Services Retirement Cost Reduction Act of 1985, is computed according
16 to the following table. For each case covered by a section of this title named
17 in the column headed "For sections", retired pay is computed by taking, in
18 order, the steps prescribed opposite it in columns 1, 2, and 3, as modified by
19 the footnote. The amount computed, if not a multiple of $1, shall be rounded
20 to the next lower multiple of $1. However, if a person would otherwise be
21 entitled to retired pay computed under more than one pay formula of this table
22 or the tables in section 1401 of this title, he is entitled to be paid under
23 the applicable formula that is most favorable to him. Section references below
24 are to sections of this title.
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=MN 1
FORMULA SIMMONSThKE
COLLMN 2
MULTIPLY BY
=MN 3
AW
A 8911 The monthly retired
8918 pay base as computed
8920 under section
8924 1407(e).
The percentage factor
prescribed in section
1407a for the years of
service credited to
him under section
1405.
8914 The monthly retired
pay base as computed
under section
1407(e).
The percentage factor
prescribed in section
1407a for the years
of service credited
to him under section
8925.
10% of product
of columns 1
and 2 for
extraordinary
heroism in line
of duty, but in :
no case shall
his retired
pay be more
than 75 percent
of his monthly
retired pay
base as computed
under section
1407(e).1
C 8917 The monthly retired
pay base as computed
under section
1407(e).
The percentage factor
prescribed in section
1407a for the years of
service credited to
him under section
8925.
1 The Secretary of the Air Force's determination as to extraordinary heroism
is conclusive for all purposes.".
1 (b) Section 8992 of title 10, United States Code, relating to recamputation
2 of retired pay, is amended --
3 (1) by striking out the first sentence and inserting in lieu thereof:
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1 "(a) An enlisted member of the Air Force who first became a member of a
2 uniformed serviceJas defined in section 1407(a)(2) of this title) before the
3 date of the enactment of the Uniformed Services Retirement Cost Reduction Act
4 of 1985, who is advanced on the retired list under section 8964 of this title
5 is entitled to recompute his retired pay under formula A of the folic:wing
6 table, and a warrant officer of the Air Force who first became a member of a
7 uniformed service before the date of the enactrrent of the Uniformed Services
8 Retirement Cost Reduction Act of 1985, who is so advanced is entitled to
9 recatpute his retired pay under formula 8 of that table."; and
10 (2) by adding at the end thereof the following new subsection:
11 "(b) An enlisted member of the Air Force who first became a member of a
12 uniformed service (as defined in section 1407(a)(2) of this title) on or after
13 the date of the enactment of the Uniformed Services Retirerrent Cost Reduction
14 Act of 1985, who is advanced on the retired list under section 8964 of this
15 title is entitled to recatpute his retired pay under formula A of the following
16 table, and a warrant officer of the Air Force who first became a member of a
17 uniformed service on or after the date of the enactment of the Uniformed
18 Services Retirerrent Cost Reduction Act of 1985, who is so advanced is entitled
19 to recompute his retired pay under formula B of that table. The amount
20 recomputed, if not a multiple of $1, shall be rounded to the next lower
21 multiple of $1.
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COLUMN 1 COLUMN 2
-- TAKE MULTIPLY BY
The monthly retired pay base The percentage factor prescribed
as computed under section- in section 1407a of this title
1407(e) of this title. for the number of years credited
to him under section 8925 of
this title.
B The monthly retired pay base The percentage factor prescribed
as computed under section in section 1407a of this title
1407(e) of this title. for the number of years credited
to him under section 1405 of
this title.".
1 AMENMENTSAFFECTING CI:MR=1CW ar RETIRED PAY OF COAST GUNWIIMCNNEL
2 Sec. 7. (a) Subsection (b) of section 288 of title 14, United States Code,
3 relating to the retirement of captains, is amended by inserting and (c)" after
4 "section 423(b)".
5 (b) Section 423 of title 14, United States Code, relating to the canputation
6 of retired pay, is amended --
7 (1) in the first sentence of subsection (a) by inserting "and (c)" after
8 "subsection (b)";
9 (2) in the fcurth sentence of subsection (a) by inserting "or by which the
10 percentage factor is determined under subsection (c)" after "multiplied";
11 (3) in subsection (b) by inserting "but before the date of the enactment
12 of the Uniformed Services Retirement Cost Reduction Act of 1985," after
13 "September 7, 1980,"; and
14 (4) by adding at the end thereof the following new subsection:
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1 "(c) Notwithstanding any other provision of this title, the retired pay of
2 each officer or eblisted member of the Coast Ward who first became a member of
3 a uniformed service (as defined in section 1407(a)(2) of title 10) on or after
4 the date of the enactment of the Uniformed Services Retirement Cost Reduction
5 Act of 1985, is determined by taking the monthly retired pay base computed
6 under section 1407(f) of title 10 and multiplying that amount by the percentage
7 factor prescribed under section 1407a of title 10 for the number of years of
8 service that may be credited to him under section 1405 of title 10.".
9 (c) Section 424 of title 14, United States Code, relating to limitations on
10 retirement and retired pay, is amended in the first sentence by striking out -
11 "The" and inserting in lieu thereof "Except as provided in section 423 (b) and
12 (c) of this title, the".
13 AMENCMENTS AFFECTIIC COMPUTATICN CF RETIRED PAY OF COMMISSIONED CETICERS OF THE
14 NATIONAL OCEANIC AM PLIXEPHERIC AMMUSTRATION
15 Sec. 8. Subsection (a) of section 16 of the Coast and Geodetic Survey
16 COmmissioned Officers' Act of 1948 (33 U.S.C. 8530) is amended --
17 (1) by inserting "(1)" after "(a)";
18 (2) by redesignating paragraphs (1) and (2) as clauses (A) and (B).
19 respectively;
20 (3) in clause (B) (as redesignated) by striking out "on or after September
21 8, 1980," and inserting in lieu thereof "after September 7, 1980, but before
22 the date of the enactment of the Uniformed Services Retirement Cost
23 Reduction Act of 1985,"; and
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1 (4) by adding at the end thereof the following new paragraph (2):
2 "(2) Each commissioned officer who first became a member of a uniformed
3 service (as defined in section 1407(a)(2) of title 10, United States Code) on
4 or after the date of the enactment of the Uniformed Services Retirement Cost
5 Reduction Act of 1985, who is on the retired list shall receive retired pay at
6 the rate determined by taking the monthly retired pay base computed under
7 section 1407(g) of title 10, United States Code, and multiplying that amount by
8 the percentage factor prescribed under section 1407a of title 10, United States
9 Code, for the number of years of service that may be credited to him under
10 section 1405 of title 10, United States Code, as if his service were service as
11 a member of the Armed Fbroes. Retired pay, if not a multiple of $1, shall be
12 rounded to the next lower multiple of $1.".
13 AMEMMENTS AFFECTING COMPUTATION OF REIM:WPM OF COMMISSICNED OFTICERS OF' THE
14 PUBLIC HEALTH SERVICE
15 Sec. 9. (a) Paragraph (3) of section 210(g) of the Public Health Service Act
16 (42 U.S.C. 211(g)(3)) is amended --
17 (1) by striking out "or" at the end of subparagraph (A);
18 (2) in subparagraph (E) --
19 (A) by striking out "ca CT after September 8, 1980, and inserting in
20 lieu thereof "after September 7, 1980, but before the date of the
21 enactment of the Uniformed Services Retirement Cost Reduction Act of
22 1985,"; and
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1 (B) by striking out the period at the end thereof and inserting in
2 lieu therdbf "; or"; and
3 (3) by adding at the end of subparagraph (B) a new subparagraph (C) as
4 follows:
5 "(C) in the case of an officer who first became a member of a
6 uniformed service on or after the date of the enactment of the
7 Uniformed Services Retirenent Cost Reduction Act of 1985, at the rate
8 determined by taking the monthly retired pay base computed under
9 section 1407(h) of title 10, United States Code, and multiplying that
10 amount by the percentage factor prescribed under section 1407a of--
11 title 10, United States Code, for the number of years, not in excess
12 of thirty, of his active cannissioned service in the Service.".
13 (b) Section 211(a) of such Act (42 U.S.C. 212(a)) is amended --
14 (1) in paragraph (4) by inserting "or (7)" after "paragraph (6)";
15 (2) by redesignating paragraph (7) as paragraph (8); and
16 (3) by adding after paragraph (6) the follaaing new paragraph (7):
17 "(7) The retired pay under paragraph (4) in the case of a commissioned
18 officer who first became a member of a uniformed service on or after the date
19 of the enactment of the Uniformed Services Retirement Cost Reduction Act of
20 1985, is determined by taking the monthly retired pay base computed under
21 section 1407(h) of title 10, United States Code, and multiplying that amount by _
22 the percentage factor prescribed under section 1407a of title 10, United States
23 Code, for the number of years of service credited to him under paragraph (4).".
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SECI1CNAL ANALYSLS
Section 1 of-the bill provides as the title for the proposed act the
"Uniformed Services Retirement cost Reduction Act of 1985".
Section 2 of the bill amends subtitle Aof title 10, United States Code, by
amending sections 1331 (relating to retirement for non-regular service), 1401
(relating to ccoputation of retired pay), 1402a (relating to recomputation of
retired pay or retainer pay to reflect later active duty), 1403 (relating to tax
treatment of disability retired pay), 1405 (relating to computing years of
service), and 1407 (relating to the retired pay base), and adding a new section-_
1407a (relating to the retired pay multiplier) to reflect the adoption of a new
method of computing non-disability retired pay for members of the armed forces
who first became menbers of a uniformed service on or after the date of the
enactment of the Uniformed Services Retirement cost Reduction Act of 1985.
Subsection (a) of section 2 of the bill amends section 1331(a) (relating to
age and service requirements for retired pay for non-regular service) to provide
that a person who first became a member of a uniformed service on or after the
date of the enactment of the Uniformed Services Retirement cost Reduction Act of
1985, is entitled to retired pay for non-regular service only if he is a member
of a reserve component at the time he otherwise,beccmes entitled to such retired
pay.
Under current section 1331(a), there is no requirement that a person who is
otherwise qualified for retired pay for non-regular service must have a military
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status as a precondition to receipt of such pay. The proposed change brings the
rules for receipt of retired pay for non-regular service into conformity with
the rules for receipt of other types of military retired pay by requiring the
recipient of that pay to hold a military status.
Subsection (b) of section 2 of the bill amends section 1401 (relating to
computation of retired pay).
Clause (A) of section 2(b)(1) of the bill redesignates the existing text of
section 1401 as subsection (a) of section 1401.
Clause (B) of section 2(b)(1) of the bill amends the redesignated
subsection (a) by inserting "who first became a member of a uniformed service
(as defined in section 1407(a)(2) of this title) before the date of the
enactment of the Uniformed Services Retirement Cost Reduction Act of 1985, or
who is retired for disability under chapter 61 of this title" after "subtitle".
This change would limit the canputation of retired or retainer pay under section
1401(a) and its table to a person who first became a member of a uniformed
service before the date of the enactment of the Uniformed Services Retirement
Cost Reduction Act of 1985. The existing formula that authorizes 2 1/2 percent
for each year of service as a multiplier is preserved for such persons.
Similarly, no change is made to the formula for cceputing the retired pay of a
member retired for disability under chapter 61 of title 10 regardless of the
date such member became a member of a uniformed service.
Paragraph (2) of section 2(b) of the bill adds a new subsection 1401(b)
with a table to reflect a new formula for computing the non-disability retired
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pay or retainer pay of a person who first became a member of a uniformed service
on CT after the date of the enactment of the Uniformed Services Retirement Cost
Reduction Act of 1985. Under the new formula the percentage factor as
prescribed by new section 1407a (retired pay multiplier for members who first
became members on or after the date of the enactment of the Uniformed Services
Retirement Cost Reduction Act of 1985), added by subsection (g) of section 2 of
the bill, would be used to compute retired pay or retainer pay.
Subsection (c) of section 2 of the bill amends section 1402a (relating to
reoomputation of retired or retainer pay to reflect later active duty).
Paragraph (1) of section 2(c) of the bill redesignates the text of existing
section 1402a(a) as section 1402a(a)(1).
Paragraph (2) of section 2(c) of the bill amends the redesignated section
1402a(a)(1) to preserve the formula for the recomputation of retired or retainer
pay for members who first became members of a uniformed service (as defined in
section 1407(a)(2)) after September 7, 1980, but before the date of the
enactment of the Uniformed Services Retirement Cost Reduction Act of 1985. That
formula provides that in calculating retired CT retainer pay to reflect later
active duty, the member's monthly retired or retainer pay base would be
multiplied by 2 1/2 percent of the sum of the years of service credited to him
in computing retired or retainer pay plus his years of active service performed
after becoming entitled to retired or retainer pay.
Paragraph (3) of section 2(c) of the bill adds a new paragraph (2) to
section 1402a(a) to provide a new formula for the recornputation of retired or
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retainer pay of persons who first became members of a uniformed service (as
defined in section-1407(a)(2)) on or after the date of the enactment of the
Uniformed Services:Retirement'Cbst Reduction Act of 1985. Under the new formula
the percentage factor (multiplier) prescribed by new section 1407a, as added by
section 2(g) of the bill, would be used to recompute the retired or retainer pay
in lieu of the existing system of multiplying 2 1/2 percent times the years of
service the member has to his credit in reccuputing such pay.
Subsection (d) of section 2 of the bill amends section 1403 (relating to
tax treatment of disability retired pay) by inserting "(a)" after "1401" to
reflect the redesignation of the existing text of section 1401 as subsection-
(a).
Subsection (e) of section 2 of the bill contains several anambents to
section 1405 (relating to years of service) which add new section references
made necessary by the redesignation of the existing text of sections 1401, 3991,
3992, 8991 and 8992 as, in each case, subsection (a), and the addition to each
of these sections of a new subsection (b).
Subsection (f)(1) of section 2 of the bill adds a new definition to
existing section 1407(a)(2) of title 10. The existing text of section
1407(a)(2) is designated as section 1407(a)(2)(A), and a new clause (B) is added
to incorporate the new definition. The new definition makes clear when a member
"first became a member of a uniformed service" for the purpose of determining
the retirement rules under which the member is eligible to receive retired pay.
The definition provides that a person first becomes a member of a uniformed
service on the date he is first enlisted or was appointed in a uniformed service
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as an officer, an enlisted member, a cadet, or a midshipman, as the case may be.
A1though the taking of the oath at the time of initial enlistment or appointment
often is not coincident with active duty service, entitlement to pay or other
indicia of military service, for the purposes of section 1407 the date of
initial enlistment or appointment is the date to be used.
Included among those who have become members of a uniformed service for
purposes of section 1407 are cadets at the U.S. MilitaryAcadeny, the U.S. Air
Fbrce Academy, the Coast GUard Academy, or midshipmen at the U.S. Neval Academy,
students enrolled in the Senior ROTC of an armed force, students in the
Uniformed Services University of the Health Science, officer candidates:
attending Officer Training School and persons in the Delayed Entry Program.
Subsection (f)(2) of section 2 of the bill amends paragraph (3) of section
1407(b) (relating to determining the monthly retired pay base of reservists
retired under section 1331) to provide a new method for computing the monthly
retired pay base of a reservist who first became a member of a uniformed service
on or after the date of the enactment of the Uniformed Services Retirement Cost
Reduction Act of 1985.
Under the existing provisions of section 1407(b)(3), the monthly retired
pay base of a person who first became a member of a uniformed service after
September 7, 1980, who is retired under section 1331 of title 10, is one
thirty-sixth of the highest total amount of monthly basic pay to which he would
have been entitled during any thirty-six month period (whether or not
consecutive) during the period he was a member of a uniformed service, had he
served on active duty during those months.
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Paragraph (2)(A) of subsection (f) redesignates paragraph (3) of section
1407(b) as subparagraph (3)(A).
Paragraph (2)(B) of subsection (f) inserts an introductory "Except as
provided in subsection (b)" clause in section 1407(b)(3)(A) to clarify that this
provision for determining the retired pay base for non-regular retirees is an
exception in subparagraph (B) for persons who first became members on or after
the date of the enactment of the Uniformed Services Retirement Cost Reduction
Act of 1985.
Paragraph (2)(C) of subsection (f) adds a new subparagraph (3)(B) to-
section 1407(b) which prescribes a new rule for canputing the monthly retired
pay base for a person retired under section 1331 who first became a member of a
uniformed service on or after the date of the enactment of the Uniformed
Services Retirement Cbst Reduction Act of 1985.
Under that new rule the monthly retired pay base is computed in the same
manner as under existing law except that if a reservist who, having been
notified under section 1331(d) of title 10 that he has completed the years of
service required to qualify for retired pay, is thereafter transferred to an
inactive status list or the Retired Reserve, months of membership in a uniformed
service thereafter may not be included in the 36 months used for computation of
the monthly retired pay base. However, the monthly retired pay base will be
increased by the percentage by which the ?answer Price Index increases from the
last of the 36 months used in the computation of that base to the month
preceding the date on which the member is entitled to retired pay.
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Paragraph (1) of section 2(g) of the bill amends chapter 71 of title 10
(relating to computation of retired pay for members of the armed forces) by
adding a new section 1407a following section 1407 to provide a new percentage
factor (multiplier) for use in the computation of retired or retainer pay of
persons who first become members of a uniformed service on or after the date of
the enactment of the Uniformed Services Retirement Cost Reduction Act of 1985.
Subsection (a) of new section 1407a changes the rules for the computation
of the retired or retainer pay of persons who first become members of a
uniformed service on or after the date of the enactment of the Uniformed
Services Retirement Cost Reduction Act of 1985, and who become entitled to
retired or retainer pay for any reason other than physical disability or -
non-regular service. Under current law such persons who have completed 20 or
more years of active service are entitled to compute their retired or retainer
pay by multiplying 2 1/2 percent times their years of service creditable in
ccuputing that pay by either (a) the monthly basic pay of their retired grade if
they first became a member of a uniformed service before September 8, 1980, or
(b) their monthly retired or retainer pay base if they first became a member of
a uniformed service after September 7, 1980.
There is no change in the existing method for computing the retired pay of
persons retired for physical disability. There is a change in subsection (b) of
new section 1407a for computing retired pay of persons entitled to retired pay
for non-regular service (see discussion below).
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The table in subsection (a) of section 1407a contains a listing of
percentage factors ..to be used as a multiplier of the monthly retired or retainer
pay base for persons who first became members of a uniformed service on or after
the date of the enactment of the Uniformed Services Retirement Cost Reduction
Act of 1985.
The table provides a percentage factor for each of the whole years of
service from 20 through 30 which a member has to his credit for use as a
multiplier in computing retired or retainer pay. The table is constructed on
the basis of a 2.20 percent multiplier for the first 20 years of service and a
3.10 percent multiplier for the years over 20, with a ceiling of 75 percent_
(which is the same ceiling as under existing law) for persons with 30 or more
years of service.
In addition, footnotes to the the table provide a formula for an increase
in the percentage factors (by mathematical interpolation between the relevant
percentage factors) for additional whole months of creditable service,
disregarding any remaining fractional part of a month.
The effect of the proposed new method of computing retired or retainer pay
would be to reduce by 12 percent the amount of retired pay for persons retiring
with 20 years of service with a gradual decrease in that reduction for those
retired with 21 through 29 years of service and no reduction for those retired
with 30 or more years of service. This new method for ccuputing the percentage
factor (multiplier) is referred to in the following sections of title 10 (as
amended by the bill): 1401, 1402a, 3991, 3992, 6151, 6323, 6325, 6330, 6383,
8991 and 8992.
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In addition, this new Method of computing the percentage factor
(multiplier) is referred to in new subsection (c) of section 423 of title 14 (as
added by section 7(b)(4) of the bill), relating to computation of retired pay of
members of the Coast GUard; in new paragraph (2) of subsection (a) of section 16
of the Coast and Geodetic Survey COmmissioned Officer's Act of 1948 (33 U.S.C.
8530) (as added by section 8(4) of the bill), relating to computing the retired
pay of .commissioned officers of the National Oceanic and Atmospheric
Administration; and in new subparagraph (C) of paragraph (3) of section 210(g)
of the Public Health Service Act (42 U.S.C. 211(g)(3) and in new clause (7) of
Section 211(a) of suCh Act (42 U.S.C. 212(a)) (as added by sections 9(a)(3) and
9(b)(4) of the bill, respectively) relating to computing the retired pay of
commissioned officers of the Public Health Service.
Subsection (b) of new section 1407a establishes a new rule for ccmputing
the retired pay for non-regular service (as authorized under section 1331 of
title 10) for a person who first became a member of a uniformed service on or
after the date of the enactment of the Uniformed Services Retirement Cost
Reduction Act of 1985.
Under present law (section 1401 of title 10) a person who has ccupleted 20
or more years of "satisfactory Federal service" as defined in section 1332 of
title 10 is, at age 60, entitled to retired pay. That retired pay is computed by
multiplying the "years" of service, including fractions thereof (as computed
under section 1333 of title 10) by 2 1/2 percent of either (1) the monthly basic
pay of the highest grade held satisfactorily at any time, in the case of a
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person who first became a member of a uniformed service before September 8,
1980, or (2) the monthly retired pay base as ccrrputed under section 1407(b), in
the case of a person who first became a member of a uniformed service after
September 7, 1980.
Subsection (b) of new section 1407a would modify the computation of retired
pay for non-regular service for such persons by applying a percentage factor
(multiplier) provided in the table in that subsection to the amount of retired
pay as ccmputed under current law. These percentage factors have the effect of
preserving the current method of computing the retired pay for non-regular
service for reservists with 20 or more years of satisfactory Federal service,
but reducing the amount of retired pay for such service at the same rate by
which retired pay for persons retired with 20 or more years of active service is
reduced under the bill.. As with active service retirees, there is no reduction
in the retired pay of reservists retired with 30 or more years of satisfactory
Federal service.
Paragraph (2) of section 2(g) of the bill adds an item relating to new
section 1407a in the table of sections at the beginning of chapter 71 of title
10.
Section 3 of the bill amends subsection (a) of section 1401a of title 10
(relating to adjustments in retired pay or retainer pay to reflect changes in
the Consumer Price Index (CPI)) by adding two new definitions of terms, and
amends subsection (b) by incorporating a modification of the existing provisions
of subsection (b) in paragraph (1)(A), adding a new paragraph (1) (B), and adding
new paragraphs (2) and (3).
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Subsection (a) of section 1401a currently defines the term "Index" in the
second sentence to mean the Consumer price Index (all items, United States city
average) published by the Bureau of Labor Statistics. As currently understood
and applied the phrase "Consumer Price Index (all items, United States city
average)", refers to the Consumer Price Index for urban wage earners and
clerical workers. For purposes of clarity, the term "Index," is changed to
"price index", with no change in the meaning. Because of changes made in
subsection (b) of section 1401a, the terms "base quarter" and "price index for a
base quarter" are also defined in the second sentence of subsection (a),
conforming them to their usage and definition in section 8340 of title 5, the
current basis for cost of living adjustments in retired and retainer pay. "Base
quarter" is defined as the calendar quarter ending on SepteMber 30 of each year,
and "price index for a base quarter" is defined as the arithmetical mean of the
price index for the three months comprising the base quarter.
Subsection (b) of section 1401a currently provides that each time the
annuities authorized for civil service annuitants under subchapter III of
chapter 83 of title 5 are increased to reflect increases in the cost of living,
the Secretary of Defense shall at the same time increase the retired or retainer
pay of members of the armed forces by the same percent as the percentage by
which those annuities are increased. Paragraph (1) of amended section 1401a(b)
provides for the Secretary of Defense to issue regulations which will provide
for CPI increases in a manner similar to that currently authorized, except that
instead of the increases being linked to the determination of increases for
civil service annuitants they will be determined directly by the Secretary of
Defense based on the Consumer Price Index.
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Clause (A) of amended section 1401a(b)(1) provides for increases for
members of the armed services who first became members of a uniformed service
before the date of the enactment of the Uniformed Services Retirement Cost
Reduction Act of 1985, or who are retired under chapter 61 of title 10 United
States Code on the same basis as under the current system. Such negbers are
"grandfathered" with respect to cost of living increases.
Clause (B) of amended section 1401a(b)(1) will reduce by one percent the
amount of the periodic CPI increases for those retired members of the armed
forces who first became members of a uniformed service on or after the date of:
theenactment of the Uniformed Services Retirement Cost Reduction Act of 1985,
and are not entitled to retired pay for disability under chapter 61 of title
10.
Paragraph (2) of amended section 1401a(b) provides for a one-time "catch
up" by means of a reoarputation of the retired or retainer pay of any member of
the armed forces (other than a member retired under chapter 67 of title 10)
whose retired pay or retainer pay was reduced in accordance with the provisions
of paragraph (1)(8) of section 1401a(b), with the reccmputation to occur on the
date of the first increase in retired pay authorized under the provisions of
paragraph (1)(B) after the member completes 40 years as a member of a
uniformed service. The retired pay that such a member is entitled to receive at
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the time of that recomputation is an amount equal to the amount of retired pay
that member would have been entitled to receive if the provisions for reducing
that pay in paragraph (1)(B) had not been in effect. Thereafter, such a member
would continue to 'receive CPI increases with the reductions as provided in
paragraph (1)(B). The retired pay of reservists retired under Chapter 67 of
title 10 is not recomputed under this paragraph because their retired pay base
was initially adjusted at the time of retirement under section 1407(b)(3)(B) of
Title 10 as amended by the bill.
Paragraph (3) of amended section 1401a(b) defines "years as a member of a
uniformed service" for the purpose of this subsection. Such years include all
periods of service creditable for determining the member's basic pay under -
section 205 of title 37 at the time he retires, as well as all periods while
entitled to retired pay. A, restriction provides that no period may be counted
more than once.
Section 4 of the bill amends subtitle B of title 10 by amending sections
3991 and 3992 as they relate to the computation of retired pay of members of the
Army who first became members of a uniformed service on or after the date of the
enactment of the Uniformed Services Retirement Cost Reduction Act of 1985. The
amendments require the use of the percentage factor (multiplier) prescribed in
new section 1407a, as added by subsection (g) of section 2 of the bill, rather
than the formula prescribed in existing law.
Subsection (a) of section 4 of the bill amends section 3991 (relating to
ccacutation of retired pay of members of the Army) as follows:
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Clause (A) of section 4(a)(1) of the bill redesignates the text of existing
section 3991 as subsection 3991(a).
Clause *(B) of section 4(a)(1) of the bill amends the redesignated
subsection 3991(a) by inserting "who first became a member of a uniformed
service (as defined in section 1407(a)(2) of this title) before the date of the
enactment of the Uniformed Services Retirement Cost Reduction Act of 1985,"
after "subtitle". This change limits the computation of retired pay under new
subsection 3991(a) to a member who first became a member of a uniformed service
before the date of the enactment of the Uniformed Services Retirement Cost
Reduction Act of 1985. Thus, it preserves for sudhmedbers the entitlement to
use the current formula that authorizes 2 1/2 percent for each year of
creditable service as a multiplier in canputing their retired pay.
Paragraph (2) of section 4(a) of the bill adds "(a)" after "1401" in the
fourth sentence of subsection 3991(a), as redesignated, to reflect the
redesignation of the existing text of section 1401 as section 1401(a).
Paragraph (3) of section 4(a) of the bill adds a new subsection (b) to
section 3991 to provide a new formula for computing the retired pay of a member
who first became a member of a uniformed service on or after the date of the
enactment of the Uniformed Services Retirement Cost Reduction Act of 1985.
Under the new formula the percentage factor (multiplier) prescribed by new
section 1407a, as added by section 2(g) of the bill, would be used to caTpute
retired pay. These changes correspond to the changes made to section 1401 by
section 2(b) of the bill.
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Subsection (b) of section 4 of the bill amends section 3992 (relating to
recomputation of retired pay to reflect advancement on the retired list of
members of the Army).
Paragraph (1) of section 4(h) of the bill incorporates the substance of the
existing section 3992 in subsection 3992(a) and limits the reputation of
retired pay for an enlisted member and a warrant officer advanced to a higher
grade under the provisions of redesignated subsection (a) to a member who first
became a member of a uniformed service before the date of the enactment of the
Uniformed Services Retirement Cost Reduction Act of 1985. This change preserves
for such members the entitlement to use the existing formula that authorizes 2
1/2 percent for each year of service as a multiplier in computing their retired
pay.
Paragraph (2) of section 4(b) of the bill adds a new subsection (b) to
section 3992 to provide a new formula for recarputing retired pay of enlisted
members and warrant officers upon advancement on the retired list to a higher
grade. Under the new formula, the percentage factor (multiplier) prescribed by
new section 1407a, as added by section 2(g) of the bill, would be used to
recompute retired pay.
Section 5 of the bill amends subtitle C of title 10 by amending sections
6151, 6323, 6325, 6330 and 6383 as they relate to the ocriputation of retired or
retainer pay of members of the Navy and Marine Corps who first became members of
a uniformed service on or after the date of the enactment of the Uniformed
Services Retirement Cost Reduction Act of 1985, to require the use of the
percentage factor (multiplier) prescribed in new section 1407a, as added by
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section 2(g) of the bill, rather than the formula prescribed in current law.
Under existing law members of the Navy and Marine Cbrps are entitled to compute
their retired or retainer pay by multiplying 2 1/2 percent times the years of
service creditable in computing their retired or retainer pay by either (a) the
monthly basic pay of the grade in which retired, if they first became a member
of a uniformed service before September 8, 1980, or (b) their monthly retired or
retainer pay base, if they first became a member of a uniformed service after
September 7, 1980.
Subsection (a) of section 5 of the bill amends subsections (b) and (c) of
section 6151 of title 10 (relating to determination of higher retired grade and
pay in the case of persons advanced on the retired list). Under existing
section 6151(b)(1)(A), a person (other than a former member of the Fleet Reserve
or Fleet Marine Corps Reserve) who first became a member of a uniformed service
before September 8, 1080, and who is advanced on the retired list to a higher
grade, is entitled to compute his retired pay by multiplying the monthly basic
pay for that higher grade by 2 1/2 percent of the years of service credited to
him under section 1405 of title 10. That provision is not changed.
Clause (A) of section 5(a)(1) of the bill amends section 6151(b)(1)(B) by
striking out the words "on or after September 8, 1980" and inserting in lieu
thereof the words "after September 7, 1980, but before the date of the enactment
of the Uniformed Services Retirement Cbst Reduction Act of 1985,". The effect
of this change is to limit the applicability of the retired pay formula in
clause (B) of section 6151(b)(1) to members of the Navy and Marine CorpsAother
than former members of the Fleet Reserve or Fleet Marine Corps Reserve who are
covered by section 6151(c)(2) (see discussion below of section 5(a)(2)(A) of the
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bill)) advanced on the retired list who first became members of a uniformed
service after September 7, 1980 but before the date of the enactment of the
Uniformed Services Retirement Cost Reduction Act of 1985. This change is
required in view of the new method prescribed in new paragraph (2) of section
6151(b), as added by section 5(a)(1)(C) of the bill (see discussion below), for
computing the retired pay for persons advanced on the retired list who first
became members of a uniformed service on or after the date of the enactment of
the Uniformed Services Retirement Cost Reduction Act of 1985.
Clause (B) of section 5(a)(1) of the bill redesignates existing paragraph
(2) of section 6151(b) as paragraph (3).
Clause (C) of section 5(a)(1) of the bill amends section 6151(b) by adding
a new paragraph (2) which provides that a member of the Navy and Marine Corps
(other than a former member of the Fleet Reserve or Fleet Marine Corps Reserve)
who first became a member of a uniformed service on or after the date of the
enactment of the Uniformed Services Retirement Cost Reduction Act of 1985, and
who is advanced on the retired list shall, in the amputation of his retired
pay, use the percentage factor (multiplier) prescribed by new section 1407a, as
added by section 2(g) of the bill, rather than the formula prescribed in current
law.
Clause (A) section 5(a)(2) of the bill amends section 6151(c) by striking
out the words "on or after September 8, 1980" in paragraph (2) and inserting
"after September 7, 1980, but before the date of the enactment of the Uniformed
Services Retirement Cost Reduction Act of 1985," in lieu thereof. The effect of
that change is to limit the applicability of the existing retired pay formula in
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section 6151(c)(2) (relating to advancement on the retired list of former
members of the Fleet Reserve CT Fleet Marine Corps Reserve) to those members who
first became members of a uniformed service after September 7, 1980, but before
the date of the enactment of the Uniformed Services Retirement Cost Reduction
Act of 1985.
Clause (B) of section 5(a)(2) of the bill amends section 6151(c) by adding
a new paragraph (3) which provides that each formerymmter of the Fleet Reserve
or Fleet Marine Corps Reserve who first became a member of a uniformed service
on or after the date of the enactment of the Uniformed Services Retirement Cost
Reduction Act of 1985, and who is advanced on the retired list, shill, in the
computation of his retired pay, use the percentage factor (multiplier)
prescribed in new section 1407a, as added by section 2(g) of the bill, rather
than the formula prescribed in current law.
Subsection (b) of section 5 of the bill amends subsection (e) of section
6323 (relating to retirement of officers after 20 years of service).
Paragraph (1) of section 5(b) of the bill amends section 6323(e) by
inserting "(1)" after "(e)" to reflect the redesignation of the existing text
(as amended) as paragraph (1).
Paragraph (2) of section 5(b) of the bill amends section 6323(e) by
redesignating existing paragraphs (1) and (2) as clauses (A) and (B), and by
amending clause (B), as redesignated, by striking out the words "on or after
September 8, 1980" and inserting "after September 7, 1980, but before the date
of the enactment of the Uniformed Services Retirement Cost Reduction Act of
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1985," in lieu thereof. The effect of this change is to limit the applicability
of the retired pay formula in the redesignated clause (B) of section 6323(e)(1)
to those officers who first became members of a uniformed service after
September 7, 1980, but before the date of the enactment of the Uniformed
Services Retirement Cost Reduction Act of 1985.
Paragraph (3) of section 5(b) of the bill amends section 6323(e) by adding
a new paragraph (2) which provides that an officer retired under section 6323(e)
who first became a member of a uniformed service on or after the date of the
enactment of the Uniformed Services Retirement Cost Reduction Act of 1985,
shall, in the computation of his retired pay, use the percentage factor
(multiplier) prescribed in new section 1407a, as added by section 2(g) of the
bill, rather than the formula prescribed in current law.
Subsection (c)(1). of section 5 amends section 6325(a)(2) (relating to
retired grade and pay of certain officers of the Navy and Marine Corps).
Clause (A) of section 5(c)(1) of the bill strikes out "; or" at the end of
clause (A) of section 6325(a)(2) and adds language providing that the monthly
basic pay would be multiplied by the years of service credited under section
1405, but that the amount of retired pay so computed could not exceed 75 percent
of the monthly basic pay of the member's retired grade. The added language
merely relocates in clause (A) the existing text currently contained in the last
sentence of section 6325(a)(2), which is deleted by clause (D) of section
5(c)(1) of the bill (see discussion below).
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Clause (B) of section 5(c) (1) of the bill amends clause (B) of section
6325(a) (2) by limiting the applicability of the retired pay formula to those
officers who first became members of a uniformed service after September 8,
1980, but before the date of the enactment of the Uniformed Services Retirement
Cost Reduction Act of 1985. This change is necessary in view of the new rule
for such officers set out in new clause (C) added to section 6325(a)(2) by
clause (E) of section 5(c)(1) of the bill (see discussion below).
Clause (C) of section 5(c)(1) of the bill further amends clause (B) of
section 6325(a)(2) by striking out the semicolon at the end and adding language
providing that the monthly retired pay base would be multiplied by the years of
service credited under section 1405, but that the amount of retired pay computed
under that clause could not exceed 75 percent of the monthly retired pay base.
The added language merely relocates in clause (B) the existing text currently
contained in the last sentence of section 6325(a)(2), which is deleted by clause
(D) of section 5(c)(1) of the bill (see discussion below).
Clause (D) of section 5(c)(1) of the bill deletes from paragraph (2) of
section 6325(a) the existing language which has been inserted in clause (A) and
clause (B) of section 6325(a)(2) by clauses (k) and (C) of section 5(c)(1) of
the bill (see discussion above).
Clause (E) of section 5(c)(1) of the bill adds a new clause (C) to section
6325(a)(2). New clause (C) provides that in the case of an officer who first
became a member of a uniformed service on or after the date of the enactment of
the Uniformed Services Retirement Cost Reduction Act of 1985, his retired pay
would be computed by using the percentage factor (multiplier) prescribed in new
section 1407a, as added by section 2(g) of the bill.
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Subsection (c)(2) of section 5 of the bill amends section 6325(b)(2)
(relating to retired grade and pay of certain officers of the Navy and Marine
Corps).
Clause (A) of subsection 5(c)(2) of the bill strikes out "; or" at the end
of clause (A) of section 6325(b)(2) and adds language providing that the monthly
basic pay would be multiplied by the years of service credited under section
1405, but that the amount of retired pay so computed could not exceed 75 percent
of the monthly basic pay of the mernber's retired grade. The added language
merely relocates in clause (A) the existing text of the language currently
contained in the last sentence of section 6325(b)(2), which is deleted by clause
(D) of section 5(c)(2) of the bill (see discussion below).
Clause (B) of section 5(c)(2) of the bill amends clause (B) of section
6325(b)(2) by limiting the applicability of the retired pay formula to those
officers who first became members of a uniformed service after September 8,
1980, but before the date of the enactment of the Uniformed Services Retirement
Cbst Reduction Act of 1985. This change is necessary in view of the new rule
for such officers set out in new clause (C) as added by clause (E) of section
5(c)(2) of the bill (see discussion below).
Clause (C) of section 5(c)(2) of the bill further amends clause (B) of
section 6325(b)(2) by striking the semicolon at the end and adding language
providing that the monthly retired pay base would be multiplied by the years of
service credited under section 1405, but that the amount of retired pay so
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computed could not exceed 75 percent of the monthly retired pay base. The added
language merely relocates in clause (B) the existing text currently contained in
the last sentence of paragraph (2), which is deleted by clause (D) of section
5(c)(2) of the bill (see discussion below).
Clause (D) of section 5(c)(2) of the bill deletes from paragraph (2) of
section 6325(h) the existing language which has been inserted in clause (A) and
clause (B) of section 6325(b)(2) by clauses (A) and (C) of section 5(c)(2) of
the bill (see discussion above).
Clause (E) of section 5(c)(2) of the bill adds a new clause (C) to section_
6325(b)(2), which provides that in the case of an officer who first became a
member of a uniformed service on or after the date of the enactment of the
Uniformed Services Retirement Cost Reduction Act of 1985, his retired pay would
be computed by using the percentage factor (multiplier) prescribed in new
section 1407a, as added by section 2(g) of the bill.
Subsection (d) of section 5 of the bill amends paragraph (1) of section
6330(c) (relating to transfer of enlisted members of the Navy and Marine Corps
to the Fleet Reserve or the Fleet Marine Corps Reserve and the computation of
retainer pay for those so transferred). Under existing law enlisted members of
the Navy and Marine Corps who are transferred to the Fleet Reserve or the Fleet
Marine Corps Reserve are entitled to compute their retainer pay by multiplying 2
1/2 percent times the years of service creditable in computing their retainer
pay by either (a) the monthly basic pay of the grade in which so transferred, if
they first became a member of a uniformed service before September 8, 1980, or
(b) their monthly retainer pay base if they first became a member of a uniformed
service after September 7, 1980.
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Paragraph (1) of subsection 5(d) amends clause (A) of section 6330(c)(1) by
deleting the word "or" at the end and incorporating in clause (A) the existing
text at the end of paragraph (1), which has the effect of preserving the current
method of computing retainer pay for those enlisted members of the Navy and
Marine Corps who first became members of a uniformed service before September 8,
1980.
Paragraphs (2) and (3) of section 5(d) of the bill amend clause (B) of
section 6330(c)(1) by deleting the words "on or after September 8, 1980," and
inserting the words "after September 7, 1980, but before the date of the
enactment of the Uniformed Services Retirement Cost Reduction Act of 1985," in
lieu thereof, and by deleting the semicolon at the end and adding "multiplied by
the number of years of active service in the armed forces; or". These changes
preserve the formula contained in that clause for those persons who first became
members of a uniformed service after September 7, 1980, but before the date of
the enactment of the Uniformed Services Retirement Cost Reduction Act of 1985.
Paragraph (4) of section 5(d) of the bill deletes the language at the end
of section 6330(c)(1) made surplus by the arrenthents to paragraphs (1)(A) and
(1)(B) of section 6330(c).
Paragraph (5) of section 5(d) of the bill adds new clause (C) to section
6330(c)(1) to provide that an enlisted member of the Fleet Reserve or Fleet
Marine Corps Reserve who first became a member of a uniformed service on or
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after the date of the enactment of the Uniformed Services Retirement Cost
Reduction Act of 1985, shall, in the canputation of his retainer pay, use the
new percentage factor (multiplier) prescribed in new section 1407a, as added by
section 2(g) of therbill, rather than the formula prescribed in existing law.
Subsection (e) of section 5 of the bill amends paragraph (2) of section
6383(c) (relating to the retirement and camputaticn of retired pay of certain
officers of the regular Navy and Marine COrps) by restructuring existing clauses
(A) and (B) and by adding a new clause (C).
Clause (A) of section 6383(c)(2) is amended by incorporating within the
clause the language at the end of paragraph (2). This preserves the formula -
prescribed in existing law for canputing the retired pay of those officers who
first became members of a uniformed service before September 8, 1980.
Clause (B) of section 6383(c)(2) is amended by incorporating within the
clause the language at the end of paragraph (2). This preserves the formula
prescribed in existing law for ccmputing the retired pay of those officers who
first became members of a uniformed service after September 7, 1980, but before
the date of the enactment of the Uniformed Services Retirement Cost Reduction
Act of 1985.
Anew clause (C) of section 6383(c)(2) is added. This clause provides that
those officers retired under section 6383 who first became members of a
uniformed service on or after the date of the enactment of the Uniformed
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Services Retirement Cost Reduction Act of 1985, shall, in the computation of
their retired pay, use the percentage factor (multiplier) prescribed in new
section 1407a, as added by section 2(g) of the bill, rather than the formula
prescribed in current law.
Section 6 of the bill amends subtitle D of title 10 by amending sections
8991 and 8992 as they relate to the computation of retired pay of members of the
Air FOrce who first became members of a uniformed service on or after the date
of the enactment of the Uniformed Services Retirement Cost Reduction Act of
1985. The amendments require the use of the percentage factor (multiplier)
prescribed in new section 1407a, as added by section 2(g) of the bill, rather
than the formula prescribed in existing law.
Subsection (a) of section 6 of the bill amends section 8991 (relating to
computation of retired Pay of members of the Air Force) as follows:
Clause (A) of section 6(a)(1) of the bill redesignates the text of existing
section 8991 as subsection 8991(a).
Clause (B) of section 6(a)(1) of the bill amends the redesignated
subsection 8991(a) by inserting "who first became a member of a uniformed
service (as defined in section 1407(a)(2) of this title) before the date of the
enactment of the Uniformed Services Retirement Cost Reduction Act of 1985,"
after "subtitle". This change limits the computation of retired pay under new
subsection 8991(a) to a member who first became a member of a uniformed service
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before the date of the enactment of the Uniformed Services Retirement Cost
Reduction Act of 1985. Thus, it preserves for such members the entitlement to
use the current formula that authorizes 2 1/2 percent for each year of
creditable service as a multiplier in computing their retired pay.
Paragraph (2) of section 6(a) of the bill adds "(a)" after "1401" in the
fourth sentence of subsection 8991(a), as redesignated, to reflect the
redesignation of section 1401 as section 1401(a).
Paragraph (3) of section 6(a) of the bill adds a new subsection (b) to
section 8991 to provide a new formula for computing the retired Fey of a member
who first became a member of a uniformed service on or after the date of the
enactment of the Uniformed Services Retirement Cost Reduction Act of 1985. Under
the new formula the percentage factor (multiplier) prescribed by new section
1407a, as added by section 2(g) of the bill, would be used to ccmpute retired
pay. These changes correspond to the changes made to section 1401 by section
2(b) of the bill.
Subsection (b) of section 6 of the bill amends section 8992 (relating to
recomputation of retired pay to reflect advancement on the retired list of
members of the Air Force).
Paragraph (1) of section 6(b) of the bill incorporates the substance of the
existing section 8992 in subsection 8992(a) and limits the recanputation of
retired pay for an enlisted member and a warrant officer advanced to a higher
grade under the provisions of redesignated subsection (a) to a member who first
became a member of a uniformed service before the date of the enactment of the
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Uniformed Services Retirement Cost Reduction Act of 1985. This change preserves
for such members the entitlement to use the existing formula that authorizes 2
1/2 percent for each year of service as a multiplier in computing their retired
pay.
Paragraph (2) of section 6(b) of the bill adds a new subsection (b) to
section 8992 to provide a new formula for recanputing retired pay of enlisted
members and warrant officers upon advancement on the retired list to a higher
grade. Under the new formula, the percentage factor (multiplier) prescribed by
new section 1407a, as added by section 2(g) of the bill, would be used to
recompute retired pay.
Section 7 of the bill amends title 14 in section 288 (relating to the
retirement of captains), section 423 (relating to amputation of retired pay),
and section 424 (relating to limitations on retirement and retired pay) to
reflect the adoption of the new method of corrputing non-disability retired pay
for members of the Coast Guard who first became members of a uniformed service
on or after the date of the enactment of the Uniformed Services Retirement Cost
Reduction Act of 1985.
Subsection (a) of section 7 of the bill amends section 288(b) (relating to
retirement of regular captains) by inserting "and (c)" after "section 423(b)" to
reflect the amendment of section 423 by section 7(b) of the bill.
Subsection (b) of section 7 of the bill amends section-123 (relating to
computation of retired pay).
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Paragraph (1) of section 7(b) of the bill amends the first sentence of
subsection 423(a) by inserting "and (c)" after "subsection (b)" to include new
subsection (c) in the cpening "Except as provided" clause.
? MP.
Paragraph (2) of section 7(b) of the bill amends the fourth sentence of
subsection 423(a) by inserting "or by which the percentage factor is determined
under subsection (c)" after "multiplied" to reflect the new method of computing
retired pay under new subsection (c).
Paragraph (3) of section 7(b) of the bill amends section 423(b) by
inserting
Retirmemt
preserves
of service
Guard who
but before
"but before the date of the enactment of the Uniformed Services
Cost Reduction Act of 1985" after "September 7, 1980,". This change
the existing entitlement that authorizes 2 1/2 percent for each year
as a multiplier in computing the retired pay of a member of the Coast
first became -a member of a uniformed service after September 7, 1980,
the date of the enactment of the Unifollied Services Retirement Cost
Reduction Act of 1985.
Paragraph (4) of section 7(b) of the bill adds a new subsection (c) to
section 423 to provide a new formula for computing the retired pay of a member
who first became a member of a uniformed service on or after the date of the
enactment of the Uniformed Services Retirement Cost Reduction Act of 1985. Under
the new formula the percentage factor (multiplier) prescribed by new section
1407a of title 10, as added by section 2(g) of the bill, would be used to
ccxrpute retired pay. This new formula does not apply to the computation of
disablity retired pay.
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Subsection (c) of section .7 of the bill amends section 424 by striking the
word "The" in the first sentence and inserting "EXcept as provided in section
423 (b) and (c) of this title, the" in lieu thereof. This amendment makes clear
that the limitations in section 424 do not affect the conputation of retired pay
in section 423 (b) or (c).
Section 8 of the bill amends section 16(a) of the Coast and Geodetic Survey
Commissioned Officers' Act of 1948 (section 853o of title 33) (relating to
computation of retired pay of comissioned officers of the National Oceanic and
Atmospheric Administration) to reflect the new method of computing
non-disability retired pay for ccurrissioned officers of the National Oceanic and
Atmospheric Administration who first become members of a uniformed service on or
after the date of the enactment of the Uniformed Services Retirement Cost
Reduction Act of 1985.
Paragraphs 1 and 2 of section 8 of the bill insert "(1)" after "(a)",
thereby redesignating section 16(a) as 16(a)(1), and redesignate existing
paragraphs (1) and (2) of section 16(a) as clauses (A) and (B), respectively.
Paragraph (3) of section 8 amends redesignated clause (B) by striking out
"on or after September 8, 1980," and inserting in lieu thereof "after September
7, 1980, but before the date of the enactment of the Uniformed Services
Retirement Cost Reduction Act of 1985,". This change preserves the existing
entitlement that authorizes 2 1/2 percent for each year of service as a
multiplier in computing the retired pay of a commissioned officer of the
National Oceanic and Atmospheric Administration who first became a member of a
uniformed service before the date of the enactment of the Uniformed Services
Retirement Cost Reduction Act of 1985.
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Paragraph (4) of section 8 adds a new paragraph (2) to section 16(a) to
reflect the new formula for canputing the retiredpay of a commissioned officer
who first became a member of a uniformed service on or after the date of the
enactment of the Uniformed Services Retirement Cost Reduction Act of 1985. Under
the new formula the percentage factor (multiplier) prescribed by new section
1407a of title 10, as added by section 2(g) of the bill, would be used to
canpute retired pay. This new formula does not apply to the computation of
disability retired pay.
Section 9 of the bill amends section 210(g)(3) of the Public Health Service
Act (section 211(g)(3) of title 42) (relating to separation and retirement of
officers upon failure of section for promotion) and section 211 of that Act
(section 212 of title 42) (relating to retirement of oannissicred officers) to
reflect the adoption of the new method of computing non-disability retired pay
for commissioned officers of the Public Health Service who first became members
of a uniformed service on or after the date of the enactment of the Uniformed
Services Retirement Cost Reduction Act of 1985.
Section 9(a) of the bill amends section 210(g)(3) of the Public Health
Service Act (section 211(g)(3) of title 42) (relating to computation of retired
pay of commissioned officers).
Paragraph (1) of section 9(a) of the bill strikes out "or" at the end of
subparagraph (A) of section 210(g)(3).
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Paragraph (2) of section 9(a) of the bill amends subparagraph (B) of
section 210(g)(3) by striking out "on or after September 8, 1980," and inserting
in lieu thereof "after September 7, 1980 but before the date of the enactment
of the Uniformed Services Retirement Cost Reduction Act of 1985," and by
striking out the period at the end thereof and inserting "; or" in lieu
thereof. This amendment reflects that subparagraph (B) applies only to officers
who first became members of a uniformed service after September 7, 1980, but
before the date of the enactment of the Uniformed Services Retirement Cost
Reduction Act of 1985, and preserves the existing method of computing their
retired pay.
Paragraph (3) of section 9(a) of the bill adds to section 210(g)(3) a new
subpumeirraph (C) that contains a new formula for ccaputing the retired pay of an
officer who first became a member of a uniformed service on or after the date of
the enactment of the Uniformed Services Retirement Cost Reduction Act of 1985.
Under the new formula the percentage factor (multiplier) prescribed by new
section 1407a of title 10, as added by section 2(g) of the bill, would be used
to compute retired pay. This new formula does not apply to the computation of
disability retired pay.
Paragraph (b) of section 9 of the bill contains three amendments to
section 211(a) of the Public Health Service Act (section 212(a) of title 42).
Paragraph (1) of section 9(b) of the bill amends the first sentence of
paragraph 4 of section 211(a) by inserting "or (7)" after "paragraph (6)" to
include reference to new paragraph (7).
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Paragraph (2) of section 9(b) of the bill redesignates existing paragraph
(7) of section 211(a) as paragraph (8).
These first two amendments to section 211(a) preserve the existing
entitlement that authorizes 2 1/2 percent for each year of service as a
multiplier in computing the retired pay of a commissioned officer who first
became a member of a uniforrmad service before the date of the enactment of the
Uniformed Services Retirement Cost Reduction Act of 1985.
Paragraph (3) of section 9 of the bill adds a new paragraph (7) to section
211(a) that contains a new formula for computing the retired pay of a
commissioned officer of the Public Health Service who first became a member of a
uniformed service on or after the date of the enactment of the Uniformed
Services Retirement Cost Reduction Act of 1985. Under the new formula the
percentage factor (multiplier) prescribed by new section 1407a of title 10, as
added by section 2(g) of the bill, would be used to compute retired pay. This
new formula does not apply to the computation of disability retired pay.
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FORCE MANAGEMENT
AND PERSONNEL
ASSISTANT SECRETARY OF DEFENSE
WASHINGTON, D.C. 20301-4000
Mr. Alton G. Keel
Associate Director for National
Security and International Affairs
Office of Management and Budget
Washington, D.C. 20503
Dear Mr. Keel:
0 1 NOV 1985
The pending Defense Authorization Bill for fiscal year 1986
requires the Department of Defense to submit a report to the
Congress that contains draft legislation on at least two options
to reduce military retirement accrual funding by $2.9 billion.
Further, we understand that the Senate Budget Committee is
stipulating in its pending legislation that the required report
be submitted within ten days following the date of enactment.
Upon enactment of the Authorization Act, the Department is
prepared to submit the required report immediately. A copy of
the report is enclosed, together with a summary of the retirement
changes. Our compliance should not be construed to mean that the
Department supports the included legislative drafts. To the
contrary, the forwarding report states that we are opposed to
this significant degradation in military retirement compensation
for the men and women who will serve in the future. Addition-
ally, the effect of the Congressionally imposed reduction will
not complement our efforts to maintain a strong combat readiness
capability.
In order to comply with the anticipated Congressional
requirements, your clearance of the enclosed report is requested
as soon as possible.
Sinc7ra,
.1c7r;
(7.31c
Enclosures
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THE SECRETARY OF DEFENSE
WASHINGTON. THE DISTRICT OF COLUMBIA
Honorable George Bush
President of the Senate
Washington, D.C. 20510
Dear Mr. President:
The enclosed report complies with the requirements of
section 667 of the Defense Authorization Act for fiscal year
1986.
Included in the report are drafts of the two pieces of
legislation that would change the military non-disability retire-
ment system. Each would result in a reduction in military
retirement accrual funding of $2.9 billion in fiscal year 1986 as
mandated by the Congress. This is a 16 percent reduction in
military retired pay from the current system and is in addition
to the 13 percent reduction that was imposed by the Congress in
the high-three-year averaging adjustment in 1980.
Although the Department of Defense has prepared the draft
legislation as required by the Congress, I want to make it
absolutely clear that such action is not to be construed as
support for either of the options for change. To the contrary,
the Department of Defense is steadfastly opposed to the signifi-
cant degradation in future combat readiness that would result
from the changes required to achieve the mandated reduction. I
am particularly concerned about the potential loss of mid-level
officers, NCOs and Petty Officers who provide the first-line
leadership and technical know-how so vital to the defense mission.
Unless offsetting compensation is provided, our models conserva-
tively indicate that our future manning levels in the 10 to 30
year portion of the force would drop below the dismal levels of
the late 1970s when aviator shortages and shortfalls in Army NCO
and Navy Petty Officer leadership seriously degraded our national
security posture.
While the changes we have been required to submit technically
affect only future entrants, we expect an insidious and immediate
effect on the morale of the current force. No matter how the
reduction is packaged, it communicates the same message, i.e.,
the perception that there is an erosion in support from the
American people for the Service men and women whom we call upon
to ensure our safety. It says in absolute terms that the unique,
dangerous and vital sacrifices they routinely make are not worth
the taxpayers' dollars they receive, which is not overly generous.
I do not believe the majority of the American people support this
view and ask that you consider this in your deliberations on this
very crucial issue to our national security.
Enclosure
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THE SECRETARY OF DEFENSE
WASHINGTON. THE DISTRICT OF COLUMBIA
Honorable Thomas P. O'Neill, Jr.
Speaker of the House of
Representatives
Washington, D.C. 20515
Dear Mr. Speaker:
The enclosed report complies with the requirements of
section 667 of the Defense Authorization Act for fiscal year
1986.
Included in the report are drafts of the two pieces of
legislation that would change the military non-disability retire-
ment system. Each would result in a reduction in military
retirement accrual funding of $2.9 billion in fiscal year 1986 as
mandated by the Congress. This is a 16 percent reduction in
military retired pay from the current system and is in addition
to the 13 percent reduction that was imposed by the Congress in
the high-three-year averaging adjustment in 1980.
Although the Department of Defense has prepared the draft
legislation as required by the Congress, I want to make it
absolutely clear that such action is not to be construed as
support for either of the options for change. To the contrary,
the Department of Defense is steadfastly opposed to the signifi-
cant degradation in future combat readiness that would result
from the changes required to achieve the mandated reduction. I
am particularly concerned about the potential loss of mid-level
officers, NCOs and Petty Officers who provide the first-line
leadership and technical know-how so vital to the defense mission.
Unless offsetting compensation is provided, our models conserva-
tively indicate that our future manning levels in the 10 to 30
year portion of the force would drop below the dismal levels of
the late 1970s When aviator shortages and shortfalls in Army NCO
and Navy Petty Officer leadership seriously degraded our national
security posture.
While the changes we have been required to submit technically
affect only future entrants, we expect an insidious and immediate
effect on the morale of the current force. No matter how the
reduction is packaged, it communicates the same message, i.e.,
the perception that there is an erosion in support from the
American people for the Service men and women whom we call upon
to ensure our safety. It says in absolute terms that the unique,
dangerous and vital sacrifices they routinely make are not worth
the taxpayers' dollars they receive, Which is not overly generous.
I do not believe the majority of the American people support this
view and ask that you consider this in your deliberations on this
very crucial issue to our national security.
Enclosure
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DOD REPORT TO THE CONGRESS
ON OPTIONS TO
REDUCE MILITARY RETIREMENT ACCRUAL FUNDING
IN FISCAL YEAR 1986
?????
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SECTION 1
INTRODUCTION
This report on the military retirement system is submitted
in accordance with section 667 of the Department of Defense
Authorization Act, 1986.
Military Retirement System: Unlike the majority of retirement
programs in the civilian sector, the military retirement system
is not an old-age income maintenance plan. Rather, it is
designed and intended to operate as an element of the military
compensation structure and as an element of the personnel
management system. Retired pay has been characterized by the
Supreme Court as reduced pay for reduced military service on the
basis that members retain their military status, remain subject
to the Uniform Code of Military Justice, and are subject to
recall to military duty. Indeed, contingency mobilization plans
include the recall of retired members to supplement the active
standing force and reserve force.
Unlike civilian retirement plans, there are no rights of
ownership to military retired pay--receipt is a conditional
entitlement subject to the provision of continued enabling
legislation. These statutory restrictions and limitations are
not resident in any civilian retirement program, public or
private, and have been enacted into law recognizing the
governmental function to provide for the security and defense of
the nation. As such, statutory requirements extend sovereign
authority to the retired military community and set aside certain
personal freedoms, rights, and entitlements for the common good
of the country. This basic function of government--to provide
for the defense and protection of the citizenry--has been
reflected in the military retirement laws and underlies its basic
purpose.
As a personnel management tool, the retirement system
operates as a retention incentive and an egress mechanism to
shape and sustain the force compatible with the defense
requirements and readiness capability that must be maintained to
fulfill the national defense mission. Through retirement and
separation, the age/skill/experience mix of the active force is
kept in proper balance with military requirements. This reflects
the necessity of maintaining a youthful and vigorous force
capable of sustained combat, of providing a means of enhancing
the flow of experience and talent through the force, and of
offering a means to remove selectively individuals from the force
consistent with the force profile requirements. For individuals
it offers an incentive for career commitments, and for management
it permits selective retention to maintain a quality force.
Many proponents of change advocate revision based upon cost
considerations only without regard to the effect on force
et
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composition or readiness capability. Such criticism fails to
recognize the national policy to maintain a standing force of
at least two million since the mid-1950s. That force size is now
reflected in a maturing retirement system?the force size is
stabilizing. In concert with continued control of inflation,
retired pay growth will stabilize and cease to be a cost growth
issue.
Military Service--"A Way of Life": The most common misconception
among critics of military compensation is the equating of
military service with civilian employment. The two are
distinctly different. Military service is distinctly different
from civilian employment by the very nature of such service. To
be a member of the military service is to agree to accept the
surrender of certain personal freedoms. There is no such
sacrifice in civilian employment. The Service member can be
ordered to go anywhere at anytime. He has taken an oath to serve.
If the member does not like the orders he receives, e.g., the
location of the next duty station, he cannot change jobs. No
civilian job restricts the personal freedom of an individual in
this way.
A military career demands long hours of work with no
overtime pay, forced family separations, frequent exposure to
risk, inability to control one's working and living conditions,
the acceptance of a.highly disciplined life and the abridgment of
individual freedoms; It takes unique people to give of
themselves in such measure. In times of war, the American
civilian sector has proven it can match that sacrifice for long
periods. But the American public has clearly demonstrated its
reluctance to accept that measure of sacrifice as a continuing
way of life. While personal satisfaction can be achieved through
a military career, Service members know that their personal
preferences must be subordinated to the good of the military unit
(whether it be an infantry squad or the crew of a ship or
aircraft) and of the entire nation. Thus, the call to serve in
the armed forces is less a "job" and more "a way of life."
Because it is a way of life, body and soul, the compensation
structure is entirely different.
The way of life is not limited to the Service member alone.
It is a way of life for the military family as well. Military
service involves both frequent and lengthy periods of separation
from the family. The spouse is forced to assume the role of a
single parent with all the pressures and responsibilities that
entails. The Service member is often absent as the children
grow, when they enter school, and as they attempt to adjust to a
new environment incident to frequent moves. The spouse attempts
to obtain employment and finds that the periodic moves result in
higher unemployment rates and lower salaries for the working
military spouse. Finally, the military member and his family
realize that many of his civilian counterparts have developed an
equity in their home that represents a savings that can be used
in old age or to finance the children's education. The periodic
?0
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moves, time overseas and government housing develop no such
savings. The Service member's primary savings is the military
retirement pay he has developed through years of service to the
nation.
Basic Question: If military retirement benefits are too great or
too lucrative as some have claimed, Why do so few remain for a
career? The fact is that given existing pay and the existing
military retirement system, additional reenlistment bonus funding
has been required to retain Service members. The reduced
retirement benefit implemented in 1980 for new entrants--high-3--
has decreased the average value of military retirement pay by 13
percent. This reduction will affect retention in the early 1990s
as Service members reach their second reenlistment point and
evaluate military retirement pay as an incentive.
Events Leading to This Report: Until 1984, military retired and
retainer pay was financed on a "pay-as-you-go" basis. Funds to
defray the costs of retired and retainer pay entitlements of
retired military personnel were appropriated annually by Congress
and charged to the Department of Defense operating budget.
Partially because this method of financing military retirement
pay did not adequately recognize the future costs of current
manpower and force-structuring decisions, and partially because
it was not consistent with the then-current practice of private
sector employers under the Employee Retirement Income Security
Act of 1974, Congress adopted, in the Department of Defense
Authorization Act, 1984, a requirement to establish a Department
of Defense Military Retirement Fund (see sections 1461 through
1467 of title 10, United States Code).
Accordingly, the Department of Defense now "pays" for
military retirement benefits when they are being earned by
members of the active duty force and the selected reserve, not
when such members later become entitled to benefits. Actuarially
determined payments that represent the accrued cost of future
military retirement payments attributable to a given year's
service by members of the armed forces are made to the Fund for
that year. Because such payments appear in the Department of
Defense personnel budget each year, the Congress reviews future
retirement costs annually.
In reviewing the Department of Defense's proposed budget for
fiscal year 1986 for authorization purposes, both the House and
Senate Committees on Armed Services recommended a ceiling on the
total dollars available for transfer to the Military Retirement
Fund. The Senate recommended a reduction of $1.8 billion, While
the House recommended $4 billion. The Committee of Conference on
S. 1160 agreed on $2.9 billion.
Pursuant to that agreement, the Secretary of Defense was
instructed to submit two alternative proposals for changing the
non-disability retirement system to achieve the $2.9 billion
reduction. One of the proposals was to achieve the required
So
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reduction by changes to the military retirement system other than
by changing the procedure for periodic cost-of-living
adjustments, i.e., structure-only change; the second was
unconstrained.
The Congressional guidance provided that changes should not
apply to any individual already retired or to any individual who
had entered the military before the effective date of the
legislation; that such changes should, to the extent compatible
with military requirements, encourage members who become eligible
for retirement after completing 20 years of service to remain on
active duty; and that the actuarial methods and assumptions used
to calculate the savings shall be the same as those approved by
the Board of Actuaries for use in calculating the military
retirement accrual funding in the President's budget for FY 86.
Report: The report is organized into six sections and responds
to the specific requests of Congress as follows:
- This, the first section provides background information
on the military retirement system, summarizes events leading to
the report, and provides an outline of the report.
- The second describes the two options developed in
response to Congressional direction to reduce retirement accrual
funding by $2.98 in.FY 86.
- In the third section, several quantitative methods are
used to analyze the impact of these options on the individual, on
retention and recruiting and on combat readiness.
- The fourth section provides the Department's views on a
four-year transition plan.
- In the fifth section, the Department's views are provided
on adjustments to other personnel or military compensation
policies that would be required should retirement benefits be
reduced.
- Finally, the sixth section analyzes the impact of the
five specified levels of military retirement accrual funding
reduction--$1.88, $2.9B, $3.6B, $4.0B, and $5.4B--employing the
quantitative methods used to analyze the impact of the two
options in the third section.
Tables and figures are included in the sections they support.
The draft legislation for the two options to reduce retirement
accrual by $2.9B in FY 86 are attached as Appendix A and B.
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SECTION 2
TWO OPTIONS TO ACHIEVE A $2.9B REDUCTION IN RETIREMENT ACCRUAL
FUNDING IN FY 86
As directed by the Congress, the Department of Defense has
developed two options to reduce retirement accrual funding by
$2.9B in FY 86. The $2.98 savings would occur if the new system
applied as of October 1, 1985, to new entrants only. All current
and former Service members would be totally grandfathered, i.e.,
would continue to accrue retirement benefits under the retirement
system currently in effect for them.
Development of these two options and submission to the
Congress should not be construed to mean that the Department of
Defense supports either option. To the contrary, the Department
is opposed to this significant reduction in military retirement
benefits for the men and women who will serve their country in
uniform in the future.
Of the two options submitted, one is a structure-only change
involving reduced multipliers for years of service and
incorporating high-5 (highest 60 months' basic pay) as the basis
for determining retirement pay. The other is a combination
option which includes reduced multipliers and a reduction to the
cost-of-living adjustment (COLA). The combination option assumes
high-3 (highest 36 months' basic pay) as the basis for
determining retirement pay, which has been in effect for new
entrants since September 8, 1980.
The two options are:
o Structure-only
Basis: high-5, retired pay computed based on highest
60 months' basic pay
Multipliers:
???????
2.15 percent per year for years 1-20
3.2 percent per year for years 21-30
- COLA: existing system of full CPI
o Combination
- Basis: existing high-3 system for new entrants
- Multipliers:
-- 2.2 percent per year for years 1-20
eo
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-- 3.1 percent per year for years 21-30
- COLA: Non-disability retirees would receive CPI-1 for
life with restoral at the 40th anniversary of entry into service.
Retirees would receive a COLA of the percentage increase in the
Consumer Price Index minus one percentage point (CPI-1) for life
with a one-time restoral. Restoral is defined as recomputing
retirement pay at that point assuming full CPI had been in
effect. Disability retirees and survivors receive full CPI
protection.
The following major considerations guided the development of
these options:
- Any revision to the military retirement system will apply
only to those entering after the enactment of the revision.
- The Services must maintain a youthful and vigorous force
relative to the labor force of society as a whole or the civil
service labor force for that matter.
- The initial retirement eligibility point of 20 years of
service should be maintained both to provide the youthful and
vigorous force and to provide the necessary career incentive for
those serving in the relatively greater arduous duty locations.
- The multipliers (percent of basic pay per year of
service) are the most visible aspects of any revision.
- The revision should provide an incentive for all to serve
20 years of service, yet encourage members to remain on active
duty past 20 years of service.
- Any reduction to COLA must be restored to preclude the
real value of retired pay falling to an unacceptable level in old
age. The requirements of a youthful and vigorous force as
implemented by the Defense Officer Personnel Management Act and
Service policies result in the forced retirement of Service
members from the military. Thus, the duration of retirement from
the military is longer, and without restoral a reduced COLA would
unduly lower the real value of retired pay in old age.
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SECTION 3
IMPACT OF REDUCING RETIREMENT BENEFITS TO ACHIEVE A $2.9B SAVINGS
IN FY 86
There are several quantitative ways to view the impact of
the two options submitted and they will be presented in this
section.
First, the reduction of $2.9B in FY 86 retirement accrual
payments equates to a reduction of 16 percent--original figure
for FY 86 was $18.2B. As the actuarial method for FY 86 involved
costing the accrual payment based on the retirement benefit
available for individuals entering the armed forces in FY 86, the
reduction translates directly to a 16 percent reduction in
retirement benefits for such individuals. This reduction in
benefits is independent of the option selected--the two submitted
or any others developed that also would save $2.9B. Further,
this reduction is an addition to the 13 percent reduction on
high-3--implementated in 1980 for all new entrants. It is
intuitively obvious that an additional 16 percent reduction in
future retirement benefits will be a disincentive for
reenlistment and to a lesser degree for initial enlistment.
Surveys conducted by the armed forces at reenlistment have
repeatedly found that the military retirement system is the
single greatest factor influencing decisions to reenlist. An .
additional 16 percent reduction in benefits will significantly
degrade the Department of Defense's ability to maintain the
personnel required for combat readiness.
A second view of the impact of such change is to look at the
degradation of initial retirement pay. Table 1 displays the
initial percentage of final basic pay that typical retirees
receive currently upon retirement, that those entering since
September 1980 who are under high-3 will receive, and what would
be received under the two options. Whereas the current retiree
receives from 50 percent to 75 percent of basic pay depending
upon years of service, even without further change to the
military retirement system this range will be reduced to from 45
percent to 69 percent for Service members entering since 1980.
The options would further reduce retirement pay to 36 percent of
basic pay for the 20-year retiree under the structural-only
option, and 40 percent under the combination option.
As retirement pay is calculated on the basis of a portion of
total pay, basic pay only, Table 2 provides information similar
to Table 1 but shows initial retirement pay as a percentage of
final total pay, excluding special pays such as aviator
continuation incentive pay, sea pay, etc. The special pays have
been excluded as they vary significantly for individuals;
however, if included the percentages in Table 2 would be
lower. This Table dispels the myth that a Service member retires
at half pay after 20 years of service. Those retiring today
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receive only 34 percent of final pay, and the younger Service
members will receive only 31 percent of final pay after 20 YOS.
Under the structural-only option, the 20-year retiree would
receive 25 percent of final pay and those serving 30 years or
more would receive only 46 percent of final pay. For the
combination option, the percentages of final pay would be 27 for
20 years and 50 for 30 years or more. These reductions would
clearly indicate that the Congress and the nation place a
significantly lower value on service to country.
Next, the impact on individual retired pay over time is
exhibited in Figures 1 and 2. Monthly retired pay is displayed
for typical officer and enlisted retirees currently retiring, for
those who entered after September 1980 and will retire under
high-3, and for the two options. The initial retired pay shows
the effect of high-5 combined with the multiplier reduction for
that alternative. The value of retired pay with respect to
inflation or real retired pay over time for the retirees is
displayed to capture the effect of the COLA reduction. As
previously stated, both options reduce current benefits by 16
percent. As Figures 1 and 2 reveal, the combination option
provides relatively more retired pay initially and less retired
pay prior to restoral at the 40th anniversary, more retirement
pay following restoral and less in old age due to the COLA
reduction. The typical enlisted retiree initially would receive
$941 per month currently, $813 under high-3, $684 per month under
the structure-only 'option and $743 per month under the
combination option. Whereas the real monthly retired pay would
be maintained for the structure-only option, it would decrease to
$693 at age 75 under the combination option. Without the
absolutely necessary restoral feature, the effect of a continuous
CPI-1 would reduce the real value of retired pay to $522 at age
75. Given the nature of a military career as previously
discussed, the High-3 system which applies to Service members who
entered since 1980 provides only $813 per month to the typical
enlisted retiree and $1838 per month to the typical officer
retiree is far from "lavish" and is considered the minimum amount
necessary to provide the incentive for young Americans to opt for
a career in the armed forces, anticipating periods of war as well
as peace.
Finally, Tables 3 through 6 display the impact of the
options on recruiting and retention. These tables were
formulated using the recruiting and retention model developed for
use by the recently completed Fifth Quadrennial Review of
Military Compensation. As can be seen, the impact of both
options is similar.
Assuming today's total force size, Tables 3 through 6
display the change in force size at various experience levels
(years of service) resulting from a change in retention and the
concomitant increase in accessions required to sustain the force
size. The resultant force projected for the options is a
steady-state force. In other words, it is the force that would
S.
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result in the long run, after the effect of the change to the
military retirement system had stabilized.
The effect of' the options is shown first relative to today's
force (7-year average) which includes a career force whose
retention decisions were based on a retirement system wherein
retired pay is calculated based on terminal pay, i.e., not high-3.
Then the projected impact of high-3, which will affect all
Service members entering since September 7, 1980, and the impact
of the options relative to it are displayed.
Relative to today's force (Tables 3 and 5), the options
would significantly reduce the experience level of the enlisted
force as can be seen by the reduction of 38 to 39 thousand
Service members in the 11-20 year group and 19 to 20 thousand
Service members in the 21-30 year group. Such a hemorrhage of
experience--approximately 12 percent of the mid-grade force and
35 percent of the senior force--would significantly reduce combat
readiness. The complexity of warfare today and in the future
exacerbates the degradation in combat readiness which would
result from the loss of experienced officers, non-commissioned
officers and petty officers. This degradation in combat
readiness would be the direct result of a loss in leadership
capability and overall technical expertise. 'Even a sizable
increase in training funds for careerists could not totally
alleviate the problem. Concomitantly, the options would increase
the number of accessions required by 20 thousand. Given the
improving economy and in particular the reduced unemployment
rate, this would place a significant burden on our recruiting
force. In FY 86 the Department of Defense will spend
approximately $1.5B on recruiting. Given the degradation in the
military retirement system incentive, recruiting costs would most
likely exceed the 6 percent or $90M in FY 86 dollars indicated by
a proportional increase. Likewise, recruit training costs would
increase as would other first-term training costs and permanent
change of station and temporary duty costs.
The impact of high-3 for those entering since September 1980
has not had time to materialize as few have faced the first
reenlistment decision and none have reached the subsequent
reenlistment decisions which shape the force. Nevertheless, the
options are presented relative to high-3 as well. As can be seen
in Tables 4 and 6, the impact of the options relative to high-3
is similar but not as great. The exception is that while fewer
Service members would opt for a military career (reduction in the
11- to 20-year group) more of those who remained for 20 YOS would
choose to remain longer.
The effect on recruiting and retention shown in Tables 3
through 6 is the output of the modified Annualized Cost of
Leaving (ACOL) model used by the 5th Quadrennial Review of
Military Compensation. While this model takes into account the
direct effect of a reduction in retirement benefits, it does not
take into account the change in propensity to serve in the armed
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forces resulting from a perception that such a reduction by the
Congress is indicative of the nation's placing less value on such
service. Such a perception would exacerbate the impact on
retention and recruiting.
In the final analysis, the impact of a change to the
military retirement system required to reduce accrual costs by
$2.9B in FY 86 would
- reduce individual retirement benefits an average of 16
percent
- significantly decrease the career content, experience
level, leadership capability and technical expertise of the armed
forces
- increase required accessions, recruiting costs, training
costs and permanent change of station costs
- significantly degrade the combat readiness of the armed
forces and the Department of Defense's ability to meet national
security objectives.
S.
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TABLE 1
Initial Military Retired Pay As A Percentage of Final Basic Pay *
Years of Service
At Retirement
Option
Current
Hi-Three
Structure Only
Combination
20
50.0%
45.3%
36.3%
39.8%
21
52.5
48.1
39.5
43.2
22
55.0
47.6
40.0
43.4
23
57.5
51.1
43.5
47.3
24
60.0
54.4
46.9
51.2
25
62.5
57.8
50.3
55.0
26
65.0
53.6
47.9
51.6
27
67.5
58.1
52.3
56.6
28
70.0
62.6
56.3
61.6
29
72.5
67.1
60.2
66.5
30
75.0
69.3
64.3
69.3
* The effect of averaging basic pay in computing initial
retired pay varies by paygrade. Figures shown are for grade
E-7.
The computation of percentages are based on the following:
Current-based on final basic pay and applies to members who
entered service prior to September 8, 1980; Hi-Three-based
on average of high three basic pay and applies to members who
entered service on or after September 8, 1980; Structure
Only-based on average of high five basic pay;
Combination-based on average of high three basic pay.
Computation of basic pay assumes a 6.2% pay growth and
accounts for longevity increases but not for promotions.
Excluding promotions understates the effect of averaging
basic pay to compute initial retired pay.
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TABLE 2
Initial Military Retired Pay As A Percentage of Final Total Pay *
Years of Service
At Retirement
Option
Current
Hi-Three
Structure Only
Combination
20
34.3%
31.1%
24.9%
27.3%
21
36.0
33.0
27.2
29.6
22
38.4
33.227.9
30.3
23
40.1
35.6
30.4
33.0
24
41.9
38.032.7
35.7
25
43.6
40.3
35.1
38.3
26
46.6
38.4
34.3
37.0
27
48.4
41.7
37.5
40.5
28
50.2
44.9
40.3
44.1
29
52.0
48.0
43.2
47.7
30
53.8
49.7
46.1
49.7
* The effect of averaging basic pay in computing initial
retired pay varies by paygrade. Figures shown are for grade
E-7.
The computation of percentages are based on the following:
Current-based on final basic pay and applies to members who
entered service prior to September 8, 1980; Hi-Three-based
on average of high three basic pay and applies to members who
entered service on or after September 8, 1980; Structure
Only-based on average of high five basic pay;
Combination-based on average of high three basic pay.
Computation of basic pay assumes 6.2% pay growth and accounts
for longevity increases but not for promotions. Excluding
promotions understates the effect of averaging basic pay to
compute initial retired pay.
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FIGURE 1
ENLISTED
MONTHLY RETIRED PAY - 1985 DOLLARS
ALTERNATIVE SYSTEMS E-7 W/22 YOS
Dollars
1000 ?
900
BOO
700
600
500
400
941
813
743
684
FTNAL pA.y
UIGH-;TuRg.g
STRUCTURE QNLY
CRIOtk7PIVE PLUS .
vulaipLiMI PgDucTioN1
comBINATIoN
cppzi for LIFE,
RESTORED AT 40-
A NIVERSARY1
I I I I I I I I
40 45 50 55 60 65 70 75
Age
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EiVIWJAL ?
OFFICER
ONTHLY RETIRED PAY - 1985 DOLLARS
ALTERNATIVE SYSTEMS 0-5 W/23 YOS
Dollars
2000
1800
4.4
co
1600
1400
1200
1000
Oaxwm?
1?1010
2031
1838
1704
1563
FINAL PAY
HIGH -THREE
COMBINATION
(CPI-1 FOR LIFE,
RESTORED AT 40th
ANNIVERSARY)
STRUCTURE ONLY
(HIGH-FIVE PLUS
MULTIPLIER REDUCTION)
I I I I I I I I________
40 45 50 55 60 65 70 75
Age
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TABLE 3
IMPACT RELATIVE TO TODAY'S FORCE
ENLISTED
TODAY'S STRUCTURE-ONLY COMBINATION
7-YR AVG OPTION OPTION
ACCESSIONS
332,546
352,895
352,743
DIFF
20347
20195
%CHANGE
6.1
6.1
(YDS). 1-4
1,030,730
1,091,797
1,091,423
DiFF
61067
60693
%CHANGE
5.9
5.9.
(YDS) 5-10
389,129
386,499
386,647
DIFF
-2630
-2482
%CHANGE
-0.7
-0.6
(YDS) 11-20
329,617
291,468
290,358
DIFF
-38149
-39259
%CHANGE
-11.6
-11.9
(VOS) 21-30+
55,262
34,977
36,310
DIFF
-20285
-18952
%CHANGE
-36.7
-34.3
(YOS) 5-20.
718,746
677,967
677,005
DIFF
-40779
-41741
%CHANGE
-5.7
-5.8
(YOGI 5-30+
774,008
712,944
713,315
DIFF
-61064
-60693
%CHANGE
-7.9
-7.8
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TABLE 4
IMPACT RELATIVE TO FORCE
WITH HIGH-3 AVERAGING
ENLISTED
TODAY'S FUTURE STRUCTURE-ONLY COMBINATION
7-YR AVG Hi-3 OPTIONS OPTIONS
ACCESSIONS
332,548
340,315
352,895
352,743
DIFF
12580
12428
%CHANGE
3.7
3.7
(YOS) 1-4
1,030,730
1,054,389
1,091,797
1,091,423
DIFF
37408
37034
ICHANGE
3.5
3.5
(YOS) 5-10
389,129
390,308
386,499
386,641
DIFF
-3809
-3661
XCNANGE
-1.0
-0.9
(YOS) 11-20
329,617
320,978
291,468
290,358
DIFF
-29510
-30620
CHANGE
-9.2
-9.5
(YOS) 21-30+
55,262
39,061
34,977
36,310
DIFF
-4084
-2751
XCHANGE
-10.5
-7.0
(YOS) 5-20
718,746
711,286
677,967
677,005
DIFF
-33319
-34281
%CHANGE
-4.7
-4.8
(YOS) 5-30+
774,008
750,347
712,944
713,315
DIFF
-37403
-37032
ICHANGE
-5.0
-4.9
3-10
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TABLE 5
IMPACT RELATIVE TO TODAY'S FORCE
OFFICERS
TODAY'S STRUCTURE-ONLY COMBINATION
7-YR AVG OPTION OPTION
ACCESSIONS
25,775
27,788
27,852
DIFF
2013
2077
/CHANGE
7.8
8.1
(YOS) 1-4
93,764
100,532
100,848
DIFF
6768
7084
CHANGE
7.2
7.6
(YDS) 5-10
81,398
83,416
83,505
DIFF
2018
2107
ICHANGE
2.5
2.6
(YOS) 11-20
73,772
67,977
67,870
DIFF
-5795
-5902
%CHANGE
-7.9
-8.0
(YOS) 21-30+
20,967
17,878
17,674
DIFF
-3089
-3293
%CHANGE
-14.7
-15.7
(YDS) 5-20
155,170
151,393
151,375
DIFF
-3777
-3795
XCHANBE
-2.4
-2.4
(YOS) 5-30+
176,137
169,271
169,049
DIFF
-6866
-7088
%CHANGE
-3.9
-4.0
et
3-11
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TABLE 6
IMPACT RELATIVE TO FORCE
WITH HIGH-3 AVERAGING
OFFICERS
TODAY'S
7-YR AVG
FUTURE
Hi-3
STRUCTURE-ONLY
OPTIONS
COMBINATION
OPTIONS
ACCESSIONS
25,775
26,572
27,788
27,852
DIFF
1216
1280
%CHANGE
4.6
4.8
(YOS) 1-4
93,764
96,437
100,632
100,848
DIFF
4195
4411
%CHANGE
4.3
4.6
(YOS) 5-10
81,398
82,114
83,416
83,505
DIFF
1302
1391,
CHANGE
1.6
1.7
(YOS) 11-20
73,772
72,447
67,977
67,870
DIFF
-4470
-4577
%CHANGE
-6.2
-6.3
(YOS) 21-30+
20,967
18,912
17,878
17,674
DIFF
-1034
-1238
CHANGE
-5.5
-6.5
(YOS) 5-20
155,170
154,561
151,393
151,375
DIFF
-316B
-3186
%CHANGE
-2.0
-2.1
(YOS) 5-30+
176,137
173,473
169,271
169,049
DIFF
-4202
-4424
%CHANGE
-2.4
-2.6
3-12
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SECTION 4
IMPLEMENTATION PLAN
The Authorization Bill further requests DoD to submit a plan
for implementing the options submitted over a four-year period.
If the military retirement system is to be degraded in spite of
the DoD's objections, the Department requests the change be
implemented in full rather than over a four-year period for the
following reasons:
(1) The options to the retirement system must reduce
the accrual funding to the military retirement fund by $2.9B in
FY 86. Thus, that portion of any total change which is
implemented in FY 86 must save $2.98 in that year. Any portion
of the total change deferred for implementation in the next three
years would increase the total degradation of the military
retirement system beyond that contained in the options submitted.
(2) The retirement benefit for today's Service members
who entered before September 7, 1980, is based on final pay. For
those entering after that date, it is based on highest 36 months
(High-3). A change to the system will introduce a third class of
Service members with respect to retirement pay. Such is far from
desirable but definitely preferable to not grandfathering
individuals who entered the service and chose to remain under a
previous retirement system. However, a four-year phased
implementation of either option submitted would create
unnecessary additional classes which would be unacceptable.
4-1
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SECTION 5
OFFSETS FOR FURTHER DEGRADATION OF THE MILITARY RETIREMENT SYSTEM
The accrual reduction of each option as determined by the
DoD Actuary was calculated employing the methods and economic
assumptions used to submit the accrual funding requirement in the
President's budget. As such, the $2.98 reduction is determined
by changing the retirement benefits and then applying those
benefits to the force structure used to calculate the accrual
payment for FY 86. In other words, the benefit is changed and
the accrual reduction is determined based upon recent retention
rates and today's force size. If the significant degradation to
the career force projected actually occurs, the accrual
reductions are substantially underestimated. On the other hand,
one can argue that the nation will not degrade its national
security and additional funding in the form of pay, bonuses and
training will be appropriated to offset the change to the
retirement system. If so, the reduction to retirement accrual is
not overstated, but the net projected reduction to the DoD budget
will be significantly less. As an aside, the accrual reduction
decreases the DoD budget but has no effect on overall federal
outlays nor the deficit for approximately 20 years.
Projecting the amount of funding and its form, i.e., pay
raises, bonuses, etc., that would be required to offset the lower
retention resulting from reducing the retirement element of
compensation is difficult, to say the least. For example, high-3
was implemented in 1980 for new entrants at a time of extremely
low retention resulting from successive pay caps. The pay raises
and other compensation initiatives (e.g., the variable housing
allowance) authorized and appropriated by the Congress in 1980
and 1981 resulted in significantly improved retention and most
likely mitigated the potential initial impact of high-3.
Furthermore, surveys and analyses reveal that while the
retirement system is a major incentive for the first reenlistment
decision, it becomes an even more significant factor affecting
reenlistment decisions of Service members with eight to ten years
of service and thereafter. As high-3 affects only those entering
in the last five years, insufficient time has passed to determine
the compensation changes that will be required to offset this
1980 change to the military retirement system. These facts
significantly hamper the Department's ability to project the
increases to compensation that would be required to offset
further change.
Nevertheless, the following Congressional actions would be
prudent if the military retirement system is again changed to
further reduce military retired pay and the retention incentive
of the system.
o Ensure military pay remains fair, competitive and
comparable with pay in the private sector,
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o Quickly respond to requests to increase bonus levels and
total bonus funding,
.o Fully fund requests to increase non-pay components of
compensation such as medical and dental care for dependents,
military housing, permanent change of station allowances and
other elements affecting the Service member and the military
family,
o Be receptive to the necessity either to overturn the
change implemented or to consider and test other alternatives
that may be proposed by the Department, such as lump-sum payments
or an Individual Career Investment account.
5-2
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SECTION 6
EVALUATION OF SPECIFIED LEVELS OF REDUCTION IN RETIREMENT
ACCRUAL FUNDING
The Defense Authorization Act for FY 86 further requested an
evaluation of the effects of reducing the retired accrual payment
by $1.8B, $2.9B, $3.6B, $4.0B, and $5.4B in FY 86. Specific
options for the four other levels were not developed. However,
the relative impact of these changes can be captured by assessing
the effects of structural-only alternatives, which include high-5
and reduced multipliers, rounded to the nearest tenth of a
percent. These alternatives are:
Reduction Pay Basis Multiplier (%)
Years 21-30
2.7
3.2
3.5
3.7
4.3
($B)
Years 1-20
1.8
High-5
2.4
2.9
High-5
2.15
3.6
High-5
2.0
4.0
High-5
1.9
5.4
High-5
1.6
The effect of the alternatives will be presented in a manner
similar to that presented for the two options. First, each of
the five levels can be translated directly into a percentage
reduction in retirement benefits. The $1.88 reduction is a 10
percent reduction in retirement benefits, whereas $2.9B reduces
it 16 percent, $3.68 reduces it 20 percent, $4.08 reduces it 22
percent, and $5.4B reduces it 30 percent. The greater the
reduction in retirement benefits, the greater the negative effect
on retention and recruiting, though for technical reasons
discussed below this relationship is not proportional.
Again, the effect of these five levels can be viewed by
looking at the degradation of initial retirement pay as a
percentage of final basic pay (Table 7) and as a percentage of
total pay (Table 8). The previously discussed caveats for total
pay apply. Without further reduction of military retired pay,
new entrants in FY 86 would receive 45 percent of final basic pay
and 31 percent of final total pay when retiring after 20 years of
service. The percentages for 30 years of service would be 69
percent and 50 percent, respectively. The figures for retirement
pay as a percentage of total pay are overestimated in that they
do not account for the effect high-5 averaging has on pay due to
promotions during the last five years of service, nor do they
include special pays. Nevertheless, 31 percent of final pay for
20 years' service and 50 percent for 30 years' service is not
lavish. In fact, the Department of Defense is concerned that
such percentages may be insufficient to provide the necessary
career incentive in the 1990s to those who entered service after
1980. The alternative levels of accrual reduction would further
reduce retirement pay. As can be seen in Table 8, at the extreme
6-1
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case of a $5.4B reduction, retired pay as a percentage of total
pay would be reduced to 18 percent for 20 years of service and 46
percent for 30 years of service, virtually eliminating retired
pay as a career incentive.
The effect on retired pay for typical enlisted and officer
retirees is shown in Figures 3 and 4. In all cases--today's
retirees, high-3 retirees and the five levels of reduction under
high-5--retired pay is assumed to be fully protected against
inflation. Current retired pay levels will be reduced
significantly by the effect of high-3 when Service members who
entered since 1980 retire. Thus, the retired pay for the typical
enlisted retiree who entered service in FY 86 will be only $813
per month (Figure 3). For the typical officer, the figure for 20
years' service will be $1838 per month (Figure 4). The
alternative levels of accrual reduction would further reduce
these figures. At the $5.4B level, the typical enlisted would
receive $562 per month and the officer $1335 per month. Thus,
further reduction of military retired pay will unduly decrease
the effect of the military retirement system as a career
incentive and undercompensate Americans who choose to serve their
country as careerists in times of both peace and war.
Finally, Tables 9 through 12 display the impact on retention
and recruiting for the five levels of retirement accrual
reduction using the ACOL model developed by the 5th Quadrennial
Review of Military Compensation. Again, the impact is shown for
enlisted personnel and for officers, first in relation to Service
members retiring today (Tables 9 and 11) and then in relation to
high-3 retirees, those who entered since 1980 (Tables 10 and 12).
As one would expect, the reduction in numbers of mid-grade
officers, non-commissioned officers and petty officers increases
progressively as the level of accrual reduction increases. The
loss of mid-grade enlisted personnel ranges from 8 percent to 16
percent compared to today's force and from 5 percent to 14
percent compared to the projected high-3 force. The losses are
similar for mid-grade officers. In contrast, the number of
officers and enlisted personnel progressively increases in
absolute terms for the 20-30+ year groups. Nevertheless, there
is significant loss of senior personnel. For the senior enlisted
leadership, the loss ranges from 42 percent to 20 percent with
respect to today's force. For senior officers, the range of
losses is from 18 percent to 9 percent for today's force. The
losses are similar for both senior enlisted personnel and senior
officers with respect to the projected high-3 force, with one
exception. The gain shown for the $5.4B level results from the
characteristics of the model that will be discussed in subsequent
paragraphs and from the fact that the model is unconstrained by
Congressionally imposed grade limitations for officers and senior
enlisted personnel (E-8/E-9). The net result is a progressive
decrease in available leadership capability and technical
expertise, and increased accessions, recruiting costs, first-term
training costs and permanent change of station costs.
6-2
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Inspection of Table 9 and Table 11 reveals that there is not
a direct, proportional relationship between the actuarial
estimates of accrual cost savings from a change in the retirement
system, and the impact that change has on force manning. A
change in the system that saves $1.8B, for example, reduces the
size of the enlisted career force (YOS 5-30+) by 6 percent and
the size of the officer force by 3 percent, relative to today's
force. However, moving from a system which the actuary estimates
will save $4.0B to one that saves $5.4B, an increase in accrual
savings of $1.4B, has a negligible impact on enlisted and officer
force manning, as measured by the number of members with five or
more years of service.
The reason for the absence of a direct relationship between
accrual cost savings and force impact is a fundamental difference
between the assumptions required for the actuarial model
generating the accrual estimates and the way the retention
effects are modeled in the Annualized Cost of Leaving (ACOL)
model. The estimates of accrual cost savings resulting from a
change in the retirement system assume that retention rates, and
therefore numbers of people leaving at each year of service, are
unaffected by the change in the retirement system. The retention
model, on the other hand, assumes that members adjust their
retention behavior as their financial incentives change.
Consider, for example, the force impact of the alternative
that saves $1.8B in accrual costs. The ACOL model predicts that
retention rates prior to 20 years of service decline. However,
individuals with less than 20 years of service will still look
primarily to the 20-year retirement point in calculating the
financial advantage of staying in military service. The
incentive to remain beyond 20 years of service, once the 20-year
point is achieved, increases, but only modestly. Now consider
the effect on force manning from doubling the accrual savings
(from $1.88 to $3.68). Even with the effect of high-3 removed,
as in Table 10, the additional impact is less than twice the
impact of the original $1.88 cut in accrual. The reason for this
is, primarily, the incentive to remain beyond 20 years of
service, once the 20-year point has been reached, increases
dramatically relative to the $1.88 reduction. Retention rates
beyond the 20-year point increase, offsetting partially the
decline in retention rates prior to 20 years of service.
When moving from the option that saves $3.6B in accrual
costs to the one that saves $5.48, the force manning impact is
much less than could reasonably be inferred from the previous
cases. There are two reasons for this. First, as in the
previous instance, the incentive to remain in service beyond the
20-year point, once the 20-year point is reached, increases
substantially. Hence, the increase in post-20-year of service
retention rates offsets, partially, the decline in retention
rates prior to 20 years of service. The second reason is related
to how the ACOL model works. For a member at, say, the tenth
year of service, the difference in the financial incentive to
so
6-3
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stay when comparing the system implied by the $3.6B reduction in
accrual costs to that of the $5.4B reduction, When the twentieth
year of service is used as the "time horizon" for the
calculation, is large. However, as one pushes this time horizon
beyond the twentieth, the differential financial incentive
becomes less and less, until it disappears at the thirtieth year
of service. The ACOL model is constructed to search for the
"horizon" which provides the greatest financial incentive to
stay, for this is implicitly how an optimizing military member
views the problem. In the last three levels of retirement
change, the ACOL model is beginning to look at horizons beyond
the 20-year point, for some reenlistment decisions before the
twentieth year. Hence, the relative changes in the retention
incentive of alternative retirement systems as computed by the
ACOL model will not always be consistent with the relative
changes in cost as computed by the actuarial model that employs
assumptions and methods peculiar to actuarial science.
The models developed by the 5th Quadrennial Review of
Military Compensation (5th QRMC) are good models, but this is not
to say that they are uniquely the best. Models which project the
effect of a major change of a magnitude that has not been
observed in the past are extremely sensitive to assumptions. In
this case, the projections of the effect of change to the
retirement system on force structure are highly sensitive to
discount rates which represent the individual's preference of pay
over time and to continuation rates which incorporate the effect
changes in benefits have on retention.
For example, the Army has developed its version of the ACOL
model to project the impact of retirement changes which
incorporates lower personal discount rates and higher
elasticities. Some studies show that people decrease their
retirement assets at an implicit discount rate which is very low.
People value the certainty of retirement pay highly. This
implies that the present value of retirement income could be
larger than the 5th ORMC's estimate; and therefore people will be
more sensitive to reductions in retirement.
The elasticities used in the 5th QRMC models were estimated
from changes in reenlistment bonuses. These elasticities relate
the effect that a temporary change in income will have on
behavior. However, a change in retirement is a permanent change
in income. One could expect much more significant effects from a
permanent change. Further, the 5th QRMC estimates of elasticity
were made using data collected when the current retirement system
was in effect. A significant change in retirement could
substantially alter the attractiveness of a military career. No
one knows what continuation rates will be after a major change in
retirement. Using elasticities estimated from temporary changes
in income and continuation rates in effect under the current
retirement system could produce an optimistic effect compared to
what will occur if retirement benefits are reduced.
6-4
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As a result of the change in the personal discount rate and
continuation rates used, the Army version of the ACOL model
predicts an impact on force retention up to twice that shown in
Tables 9 through 12. Both are appropriate models based on
reasonable but different assumptions. Given., the magnitude of
difference in the projections, the effect of the options on force
structure as displayed using the 5th ORMC model may be
optimistic; i.e., the degradation of the force and combat
readiness may be far greater than projected.
In summary, the increasing levels of accrual reduction would
in turn progressively decrease the career content of the armed
forces, combat readiness, and the ability of the Department of
Defense to satisfy national security requirements. None of the
levels are considered prudent nor acceptable; however, of the
five, the $1.88 reduction in accrual funding is least damaging.
Thus, if the Congress intends to reduce military retired pay for
future entrants in spite of the Department of Defense's
objections and the projected degradation to national security,
the Department would strongly prefer the $1.8B level over the
others specified in the Defense Authorization Act.
?
6-5
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Table I
Military Retired Pay As A Percentage of Final Basic Pay *
Years of Service
Option
At Retirement
Current
HI-Three
1.8B
2.9B
3.68
4.0B
5.4B
20
50.0%
45.3%
40.5%
36.3%
33.8%
32.1%
27.0%
21
52.5
48.1
43.4
39.5
37.2
35.7
31.1
22
55.0
47.6
43.3
40.0
38.1
36.8
32.9
23
57.5
51.1
46.4
43.5
41.8
40.6
37.1
24
60.0
54.4
49.4
46.9
45.4
44.4
41.3
25
62.5
57.8
52.5
50.3
49.0
48.2
45.6
26
65.0
53.6
49.4
47.9
47.0
46.4
44.5
27
67.5
58.1
53.5
52.3
51.5
51.1
49.6
28
70.0
62.6
57.1
56.3
55.8
55.4
54.4
29
72.5
67.1
60.7
60.2
60.0
59.8
59.3
30
75.0
69.3
64.3
64.3
64.3
64.3
64.3
* The effect of averaging basic pay in computing initial retired pay varies
shown are for grade E-7.
The computation of percentages are based on the following: Current-based
,applies to members who entered service prior to September 8, 1980; Hi-Thr
high three basic pay and applies to members who entered service on or aft
Structure Only-based on average of high five basic pay; Combination-based
basic pay.
Computation of basic pay assumes 6.2% pay growth and accounts for longevi
promotions. Excluding promotions understates the effect of averaging bas
retired pay.
by paygrade. Figures
on final basic pay and
ee-based on average of
er September 8, 1980;
on average of high three
ty increases but not for
ic pay to compute initial
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Military Retired Pay As A Percentage of Final Total Pay *
Years of Service
Option
At Retirement
Current
Hi-Three
1.8B
2.9B
3.6B
4.08
5.4B
20
34.3%
31.1%
27.8%
24.9%
23.2%
22.0%
18.5%
21
36.0
33.0
29.8
27.2
25.6
24.5
21.3
22
38.4
33.2
30.2
27.9
26.6
25.7
22.9
23
40.1
35.6
32.3
30.4
29.1
28.3
25.9
24
41.9
38.0
34.5.
32.7
31.7
30.9
28.8
25
43.6
40.3
36.6
35.1
34.2
33.6
31.8
26
46.6
38.4
35.4
34.3
33.7
33.2
31.9
27
m
1
-4 28
29
48.4
50.2
52.0
41.7
44.9
48.0
38.3
40.9 '
43.5
37.5
40.3
43.2
36.9
40.0
43.0
36.6
39.7
42.9
35.6
39.0
42.5
30
53.8
49.7
46.1
46.1
46.1
46.1
46.1
* The effect of averaging basic pay in computing initial retired pay varies by paygrade. Figures
shown are for grade E-7.
The computation of percentages are based on the following: Current-based on final basic pay and
applies to members who entered service prior to September 8, 1980; Hi-Three-based on average of
high three basic pay and applies to members who entered service on or after September 8, 1980;
Structure Only-based on average of high five basic pay: Combination-based on average of high three
:
basic pay.
Computation of basic pay assumes 6.2% pay growth and accounts for longevity increases but not for
promotions. Excluding promotions understates the effect of averaging basic pay to compute initial
retired pay.
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FIGURE 3
ONTHLY RETIRED PAY - 1985 DOLLARS
STRUCTURAL CHANGE ALTS E-7 w/22 YOS
Dollars
1000 ?
800
600
400
200
0
941
813
740
684
651
629
562
Currently Retiring
Entrants after 1980
? ? Alt Saving Levels
SAVINGS LEVEL
$1 , 8 B
$2.9 B
$3.6 B
$4.0 B
$5.4 B
1
40 45 50 55 60 65 70 75 80 85
Age
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FIGURE 4
CL1
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al CO ta 0:1 CO
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living. Servicemen do not contribute to Cheir but retain features that attract skilled
retirement plan, although they do contrib-i,peopleAo_public-Service and encourage exi:Lie-
tite to social security. The projected cost of rienced workerste remain.
the system in 1986 is $18.2 billion. (Please help me update my mailing lists
Like the CSRS, the military pension is by notifying me of any incorrect or dupli-
criticized for its price tag and generosity. cate mailings.)
Since 1975, cost increases have far outpaced
inflation, tripling in just ten years. Pension
payments now account for 55% of total mili- HURRICANE DAMAGE IN
Lary payroll. The automatic COLAs, the ab- APALACHICOLA BAY
sence of any contribution by military per-
sonnel to their own retirement, and the
availability of early retirement with imme-
diate and full annuity are frequently cited
as causing the increase.
Military pensions also seem to cause the
military to lose experienced personnel to
early retirement. The average age of retire-
ment is 43 for officers and 40 for enlisted
personnel. Military retirees can collect half
their final salaries in pension benefits and
also earn salaries in the private sector. At
age 65 they can draw social security with no
reduction in military benefits. The Defense
Department says it needs big pensions to at-
tract and retain qualified people, and that
military personnel deserve extra benefits
for undertaking the risk of war. But far
from encouraging experienced personnel to
remain in the military, current benefits are
a strong Incentive to leave the service after
20 years. ?
REFORM EFFORTS
In 1984. Congress set up art interim plan
to supplement federal employee participa-
tion in social security while it studied ways
to replace the current pension system. New
government workers make full contributions
to social security, and pay 1.3% to CSRS.
The interim plan ends on December 31,
1985. Unless a new plan is developed or the
temporary system continued, federal em-
ployees hired after January 1. 1984, will
have to pay 7.05% of their salaries to social
,security and another 7% to CSRS.
One reform proposal would create a new
pension plan built upon social security for
workers hired after January I, 1984. Savings
in the plan would come from raising from 55
to 62 the age at which full retirement bene-
fits could be received. Further savings would
come from cutting COLAs to 2% below the
CPI and basing retirement benefits on an
average of the highest five years of salary,
rather than on the highest three. The plan
Includes a capital accumulation plan (CAP),
not offered in CSRS, to which employees
could contribute up to 10% of pay, matched
by a 5% employer contribution. With the
CAP, benefits under this proposal would ac-
tually exceed those of CSRS for retirees age
62 and older.
Reforms in military pensions have also
been undertaken. A bill now being consid-
ered would cut from $18.2 billion to $14.2
billion the sum paid into the military retire-
ment trust fund in 1986. The proposal stipu-
lates that savings can be made only by
changing the amount of retirement benefits
paid to future enlistees. forcing the Defense
Department to recommend permanent
changes in the military pension system and
HON. DON FUQUA
OF FLORIDA
IN THE HOUSE OF REPRESENTATIVES
Wednesday, October 2, 1985
Mr. FUQUA. Mr. Speaker, the people of
Franklin and Wakulla Counties suffered
immense damage as a result of Hurricane
Elena. Apalachicola Bay is famous
throughout the world for its oysters and it
may be 2 years or more before they can be
harvested again. This is a most serious eco-
nomic blow to the thousands of people who
depend on the oysters for their livelihood.
I wrote to President Reagan last week to
urge that steps be taken to expedite Federal
relief efforts to these counties which have
already been designated as major disaster
areas. I have received far too many com-
plaints of excess bureaucracy and paper-
work and these people need the assistance
of their Government and they need it now.
Recently, the New York Times ran an ar-
ticle explaining the situation facing the
people on Apalachicola Bay and I insert
this article into the RECORD at this point
and want to call to the attention of my col-
leagues the situation in Franklin and Wa-
kulla Counties.
FLORIDA OYSTERS AND A HARDY LIVELIHOOD
LEFT DEVASTATED AFTER HURRICANE ELENA
(By Jon Nordheimer)
APALACHICOLA. FL.?For more than a cen-
tury the oyster was the pride of bountiful
Apalachicola Bay and a handy symbol of
the hardy men who harvested the mollusks
from the 6,000 acres of beds lying in shallow
waters protected by offshore barrier islands.
In recent years the oystermen presented a
tough, doughty exterior as they went about
their bone-weary work out on the bay,
hand-tonging oysters from the bottom.
They clung tenaciously to old ways in a
world that gripped them with viselike pres-
sure to change.
They resisted plans to speed up the devel-
opment of St. George Island, one of the bar-
rier islands, fearing that the construction of
resorts would pollute the bay and damage
the oyster beds.
When they talked among themselves
about the future on the flyblown docks of
Eastpoint and Apalachicola, where mounds
of sunbleached shells piled high outside the
corrugated shucking sheds, they seemed vul-
nerable but never yielding.
0 This "bullet" symbol identifies statements or insertions which are not spoken by a Member of the Senate on the floor.
Boldface type indicates words inserted or appended, rather than spoken, by a Member of the House on the floor.
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?
MEMORANDUM FOR THE RECORD
25 September 1985
SUBJECT: Conversation with Bill Bacchus of State Department
regarding status of ?their supplemental retirement
efforts
1. In discussion with Bill Bacchus, of State Department, he
advised that State was moving forward with their plans to' become
part of the Roth/Stevens Supplemental Retirement Bill.
Procedurally he stated that their inclusion would in all
likelihood be in the form of a floor amendment by either Senator
Lugar of the Foreign Relation Committee or Senators Eagleton or.
Mathias who both sit on the Foreign Relation and the Governmental
Affairs Committees. The amendment would be to the Foreign -
Service Act to incorporate the Roth/Stevens provisions. Bacchus
stated there were two issues for them: 1) keeping a separate
retirement fund for the Foreign Service, and 2) keeping the
administration of the retirement processing at State Department,
the latter being the more important to them.
2. Bacchus advised that they had no problem with Roth or
Stevens on this amendment, but were getting some flack from OMB
on having separate administration. There is also some concern
that the amendment should be part of the Title 5 (the Civil
Service Retirement Act) rather than an amendment to the Foreign
Service Act. State apparently will not argue strongly for it to
,be p-art-of the Foreign Service Act, if they can get separate
ddministration.
3. There apparently is also an additional wrinkle in that
consideration is being given by the Congress to include the whole
retirement issue in this year's Reconciliation Act. This is seen
as a method of speeding up the process to get the. legislation
enacted this year. State sees this as making it more difficult
to incorporate their floor amendments.
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?
SUBJECT:
Conversation witAi Bill Baq,hus of State Department
regarding status of thei: supplemental retirement
efforts
4. In more general terms, Bacchus stated they could live
with the Roth/Stevens Bill as long as there was a supplement
included in the annuity formula. However, it is apparent that
State is relying heavily. on voluntary participation in the Thrift
Plan to achieve adequate annuity levels.
STAT
Chief, Retirement Division
Employee Benefits and Services
Distribution:
D/Pers
DD/Pers
DD/Pers/EBS
ADD/Pers/EBS
STAT
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qFP 1e C (I STAT
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..L ???? ?,....s'
Dear Mr. Wright:
nshingum, D.C. 20520
We seek expedited clearance by the Office of Management
and Budget of the'enclosed draft testimony on S. 1527, the
Civil Service Pension Reorm Act, scheduled for presentation
to the Senate Governmental Affairs Committee on September 9,
by the Director General of the Foreign Service and Director
of Personnel, Ambassador George S. Vest.
The proposed testimony supports the general thrust of
the Stevens-Roth bill, and requests the Committee to con-
sider amending the bill to include the Foreign Service as a
special category of employees. In that vein, we believe
that the Foreign Service should retain its current retire-
ment eligibility threshold of age 50 with 20 years service.
Requests for changes in the enclosed draft, or for
supporting information, may be made by telephone to
William I. Bacchus or Torrey S. Whitman of the Director
General's Policy and Coordination Staff, on 632-5157.
Thank you for your consideration of this testimony.
With best wishes,
Sincerely,
William L. Ball, III
Assistant Secretary
Legislative and Intergovernmental Affairs
Enclosure:
Draft Statement on S. 1527
The Honorable
Joseph R. Wright, Jr.,
Acting Director,
Office af Management and Budget.
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DRAFT
STATEMENT OF
GEORGE S. VEST, DIRECTOR GENERAL OF THE FOREIGN SERVICE
AND DIRECTOR OF PERSONNEL, DEPARTMENT OF STATE
? BEFORE THE
SENATE GOVERNMENTAL AFFAIRS COMMITTEE
ON S. 1527, THE CIVIL SERVICE PENSION REFORM ACT,
SEPTEMBER 9, 1985
The Secretary of State has asked me to represent him at
these hearings on the design of a retirement system for Federal
employees covered by Social Security. We appreciate this
opportunity very much. Retirement provisions are essential to
any personnel system, and are especially so for the Department
of State which has employees under two statutorily distinct
retirement systems--Civil Service and Foreign Service.
We believe that S. 1527, the Stevens-Roth bill, is a
constructive effort to make the new Federal retirement system
both fair and equitable to participants and financially sound
as well. The three-tiered structure of benefits should
accommodate the retirement planning goals of a wide variety of
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EMEMWMprnlinely,1,22.!,
,441Mttr1.11M3,1TtLAWRIVITIOSTWENSEE WigligtantagiZIMEgleatnat
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Federal employees with different careeropatterns. The bill's
provisions for a thrift plan with employer matching of employee
contributions are a particularly attractive feature. Thrift
plans are, of course, an established, part of many private
sector retirement plans. It is our belief that offering access
to a thrift plan may make Federal emproyees more mobile, and
generally encourage more movement back and forth between
private and public sector employment. Such a development would
be beneficial to all concerned. Moreover, the thrift plan
could give a boost to capital formation and thereby aid in
maintaining and expanding the national economy.
Our overall impression of the bill is thus very positive.
In fact, my principal reason for being here today is to request
that this Committee consider including Foreign Service
personnel under Stevens-Roth.
The basic framework of the bill will be beneficial to both
Foreign Service and Civil Service employees of the Department
of State. Since we have appreciable numbers of employees who
convert from the Civil Service to the Foreign Service in
mid-career, and vice-versa, the Department of State has a
management interest in seeing a similar retirement structure
for each personnel system. Employees currently can transfer
.either to or from the Foreign Service with no major effect on
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ROA .:10_; fa. Z.Z"
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their entitlement to retirement benefits; we would not be well
served by a Foreign Service system structured significantly
differently from the general Civil Service system.
In looking at the Sevens-Roth bill, we believe that the
Foreign Service clearly should be regarded as a "special
category" of employment, as are air traffic controllers,
firefighters, and law enforcement officers. I would note that
the Foreign Service retirement system, like those of the other
special groups, allows optional retirement earlier and with
fewer years of service than the existing Civil Service system.
In our case, Foreign Service employees may retire at age 50
with 20 or more years of service.
There are two overriding and related reasons for these
existing Foreign Service provisions. First, we need to retire
mandatorily the less competitive, as determined by management,
to ensure that the highest standard of performance in foreign
policy analysis
Foreign Service
and overseas representation is guaranteed.
personnel are subjected to increasingly
rigorous competition with their peers in the course of their
careers, with the result that some employees are retired
involuntarily each year, for failure to be promoted to the next
higher grade or class within a specified time period. This
."time-in-class" limitation requires officers who are performing
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- 4 -
competently at their current grade leva, but who are not
sufficiently competitive to advance to higher levels to be
retired.
Second, we must provide through early retirement an exit,
other than for substandard performance, for those who are no
longer able to serve abroad. The Foreign Service is an arduous
and dangerous life; those who, after a long and valued career,
cannot continue to meet those challenges should be able to
retire voluntarily, without being selected out for substandard
performance.
Our workforce analyses indicate that an appreciable number
of those potentially subject to retirement for ?time-in-class",
both now and into the future, will be between the ages of 50
and 55. These employees typically would have about 25 years of
service. The Stevens-Roth special category rules would allow
such employees to receive an immediate annuity, but the income
replacement at time of separation would be quite small compared
to the current situation: an involuntary retiree aged 50 with
25 years service would receive an annuity of about 18 percent
of his salary under Stevens-Roth, as opposed to about 50
percent under the current system.
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I do not believe that we could continue to operate
involuntary retirement for time-in-class under such
conditions. Frankly speaking, such a small benefit would be
perceived as harsh and inequitable, and managers and
supervisors would be likely to change their personnel
management decisions in order to shield employees from
selection out, thereby defeating the basic purpose of the
selection-out mechanism.
It is necessary in our view, then, to give some special
attention to employees who retire before the age of 55. We
believe that the Foreign Service should retain its existing
retirement threshold, allowing retirement without annuity
reduction at age 50 with 20 years service. This age and
service requirement conforms to that which has been proposed by
OPM Director Horner for all special categories of employees.
It might also be desirable to consider allowing agencies
to pay the supplemental payment in lieu of Social Security to
all special category employees from the time of retirement,
rather than solely from age 55 to age 62. I believe that the
provision of one or more of these income supplements would
allow the Foreign Service to harmonize the new retirement
system with its existing selection-out system. I hope that we
-can work together on these special points of concern.
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- 6 -
The Committee should also be aware that the Foreign
Service system. differs from the Civil Service system in several
other respects, such as its treatment of the rights of former
spouses to annuities, pay provisions for reemployed annuitants,
and certain benefits for foreign national employees. Each of
these existing differences would need to be addressed in
development of a final bill.
I would draw your attention to one other feature of the
Foreign Service Retirement System: the Department of State
currently administers the system, rather than the Office of
Personnel Management, and a separate retirement trust fund is
maintained for the Foreign Service by the Department of the
Treasury. Presumably the separate fund will continue in
existence for those pre-1984 Foreign Service employees who do
not elect to transfer into the new system, and the Department
will continue to administer the Foreign Service system at least
for those employees.
We believe that the most sensible arrangement would be to
maintain a separate trust fund for Foreign Service appointees
under the new system, as well. We already have an expert and
efficient retirement and disability staff in place, fully
capable of managing the new system as well as the current one.
1f hasseveral times been viewed as a model for the rest of
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Government, including by the Congress. 0This staff handles
retirement and disability claims not just for the Department of
State, but for all five agencies using Foreign Service
appointing authorities.
Transferring retirement responsibility to the Office of
Personnel Management and disability claims to private insurers
for new system employees would probably require additional
resources without any fully corresponding savings for the
Department. Moreover, the division of responsibility between
the Department'and OPM as regards verifying service, financial
accounting, and retirement counseling for transferees from the
old to the new system would create a bureaucratic nightmare
that would serve no one's interest. Similar problems would
arise in trying to transfer disability responsibility, with the
added problem of finding private insurers versed in assessing
disabilities arising from diseases or environmentally induced
illnesses arising from service worldwide. We do now have and .
will continue to have a medical staff that includes specialists
in these areas, whose duties now include making disability
determinations. All in all, we believe that it would be ?far
superior to preserve the existing retirement management
arrangements for the Foreign Service system.
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I have dwelt at some length on special treatments needed
to make the Stevens-Roth retirement structure mesh with the
Foreign Service personnel structure. But let me emphasize that
I believe the effort to be well worthwhile. The world has
?
changed immeasurably since Federal retirement legislation was
put in place; it is now time to bring our treatment of
retirement in line with those changes in the world. We must
recognize that our young employees of today, those after all
who have the most to gain or lose from this legislation, have a
different outlook, a different set of assumptions about career
mobility and change than the employees of two generations ago
for whom the existing systems were designed. The bill under
consideration by this committee does recognize that important
fact. ,We believe that the bill will benefit the government,
the employees, and the taxpayers of this country and we support
it.
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