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Military Retired Pay

Retirement Benefits for Military Service Members

Members of the United States military may have retirement benefits in a defined benefit plan if they have met certain requirements. They also may contribute to the Thrift Savings Plan (TSP). More information on TSP benefits is available on our Federal Retirement Plans page.

In order for an active duty member to qualify for Regular Retirement, they must complete 20 years of active service in the military. In some circumstances members can become eligible for retirement under the Temporary Early Retirement Authority (TERA) with at least 15, but less than 20 years of active service.

Active duty members are covered by one of four different retirement plans:

  1. Final Pay Plan: Those entering before September 8, 1980 are under the Final Pay plan in which the Final Basic Pay (one year) is multiplied by 2.5 percent times the years of service (minimum 20 years).
  2. High Three Plan: Those entering service before July 31, 1986 are under the High Three plan in which the average of three years of wages are multiplied by the benefit percentage of 2.5 percent for each year of service.
  3. REDUX Plan: Those entering service on or after August 1, 1986 can elect to be covered under the REDUX plan, which reduces the 20-year benefit to 40% from 50% in exchange for a Career Status Bonus (CSB) of $30,000 at 15 years of service. The COLA for REDUX is the Consumer Price Index minus 1 percent. At 62, the military pension is bumped back up to where it would have been had the reduced benefit formula not been applied. However, going forward, the less generous COLA continues to apply.
  4. Blended Plan: Those entering service on or after January 1, 2018 or those with 12 years or less of service electing the Blended plan as of December 31, 2017 will automatically have a Thrift Savings component and a reduced 20-year pension of 40% of the High-3 salary. The new plan also allows retirees to receive lump sum payments for 25% to 50% of their pension from the date of retirement to age 67.

A reservist becomes eligible to receive retirement benefits at age 60 if they have completed 20 “satisfactory” years of service. A satisfactory year is defined as a year-long period in which the member accumulates at least 50 retirement points.

Financial Damage to Former Spouse with REDUX and Blended Plans

The election of REDUX or the Blended Retirement Plan is very destructive to the overall value of the retirement because both choices result in a 20% reduction to the retirement annuity. Of course, those elections are made in exchange for other benefits, including lump sums, but may still financially damage the former spouse and call for special considerations in the Property Settlement Agreement (PSA).

We concur with the analysis of REDUX done by CNA Analysis & Solutions pursuant to a federal contract that concluded: “We find that, for almost all servicemembers, the REDUX retirement plan plus a $30,000 bonus paid at their 15th year of service is a bad choice that significantly reduces their retirement income.” The CNA analysis demonstrates that REDUX participants receive hundreds of thousands of dollars less during retirement than non-REDUX participants with a Chief Warrant Officer 3 retiring after 20 years at age 38 receiving a $451,303 reduction in retirement pay under the REDUX/CSB Bonus plan.

Now consider the Blended Retirement Plan that will be compulsory for all service members entering the military on or after January 1, 2018. Clearly, there is no election issue for service members who are automatically enrolled in a specific system. However, the election issue crops up for service members with less than 12 years of service on December 31, 2017.

Members electing the Blended Plan will, similar to the REDUX plan, see their pension for a 20-year retirement cut from 50% 40% of their base pay. In exchange for the lower annuity, the service member automatically receives 1 percent of basic pay into her or his personal Thrift Savings Retirement Account. The Department of Defense also offers another 4 percent of matching contributions if the service member puts in 5 percent.

Practice Tip: The non-military spouse would be well advised to include a continuing jurisdiction clause in the PSA to allow for modifying the property division not just to cover the recharacterization of disposable retired pay as disability pay but to cover service member elections, i.e., REDUX election, the election of the Blended Retirement System, lump sum payments in lieu of a portion of the retirement pension, severance pay and various voluntary separation incentives taken in lieu of the pension.

Division of Military Retired Pay

The Uniformed Services Former Spouses’ Protection Act (USFSPA) was passed by Congress in 1982. This Act grants a state court the authority to treat “disposable retired pay” as marital property subject to equitable distribution in a divorce. 10 U.S. Code §1408(a)(4) defines this term as the amount remaining after reducing “gross retired pay” by several amounts, most importantly; any pay waived to receive VA disability benefit and any reduction due to the election of Survivor Benefit Plan (SBP) for the benefit of the former spouse seeking a share of the retirement.

The Defense Finance and Accounting Service (DFAS) provides a helpful list of Frequently Asked Questions related to the Former Spouse Protection Act.

Former spouses apply for direct payments by submitting a copy of DD Form 2293 along with a copy of a court order specifically setting forth the amount awarded to the former spouse. This court order could be the decree of divorce, dissolution or separation but is most often a separate document the is typically referred to as a Military Retirement Pay Division Order (MRPDO).

Issues to Address When Dividing Military Benefits

1. Difficulty in Obtaining Information

Obtaining information regarding a member’s retirement benefits is difficult. We find that the military is most willing to provide information to the member. In contested divorce cases, where the member is not willing to provide information, it may be necessary for the court to compel them to comply by either providing the necessary documentation or by signing an authorization to release records.

2. No Pre-retirement Survivorship

If the member dies prior to retiring, the former spouse will not receive any portion of the military retired pay. For this reason, we recommend that a life insurance policy be obtained to protect the former spouse’s interest in the event of the member’ pre-retirement death. The amount of this coverage should relate directly to the former spouse’s share of the marital portion and is often determined with an actuarial present value calculation.

3. May Not be Directly Divisible – 10/10 Rule

If the 10/10 Rule is not satisfied, DFAS will not honor a court order to divide the member's retired pay. The rule is defined as follows in 10 U.S Code §1408(d)(2):

If the spouse or former spouse to whom payments are to be made under this section was not married to the member for a period of 10 years or more during which the member performed at least 10 years of service creditable in determining the member's eligibility for retired pay, payments may not be made under this section to the extent that they include an amount resulting from the treatment by the court under subsection (c) of disposable retired pay of the member as property of the member or property of the member and his spouse.

This rule applies to the direct division of military retired pay. When it is not met, the former spouse would have to receive their share through other means. Often a present value can be prepared and the marital value offset against other assets. In other cases, a spousal support award might be used.

4. Limits on the Assignment of Benefits

Unlike a QDRO that can provide an alternate payee with up to 100% of the participant's accrued pension benefits, there are limits on providing former spouses with a portion of the member's disposable retired pay. The total amount of the disposable retired pay of a member payable under all court orders may not exceed 50% of such member's disposable retired pay.

However, in cases where there is both a division of disposable retired pay and a "garnishment" to enforce collection of child support and/or alimony, the total amount payable cannot exceed 65 percent of such retired pay.

The National Defense Authorization Act for Fiscal Year 2017 (NDAA ’17) has changed the definition of what portion of the military retirement benefit can be divided with a MRPDO. For current members (non-retirees) with divorces/dissolutions that took place after December 23, 2016, the MRPDO must specify the following information:

The requirement of this information in a MRPDO, freezes the retirement benefit as of the date of divorce. There could be a significant difference between the portion of the retirement benefit that was assigned to the former spouse (based on traditional coverture) and the amount they are permitted to receive in a MRPDO. Since this shortfall cannot be assigned directly, another approach is needed. For more information on this issue, see our sample separation agreement language for military pensions.

5. Necessary Election of SBP

The only way to provide a former spouse with continued benefit payments after the death of the member is through the Survivor Benefit Plan ("SBP"). Without SBP protection, the former spouse’s benefits will cease at the member's death.

The court order may require a member to elect (or enter into an agreement to elect) SBP coverage for the former spouse. Any such election to provide a former spouse with SBP coverage would prevent any payments of the survivor annuity to a current spouse or child.

There is a time limit on the election of former spouse SBP coverage by the member. Any such election must be written, signed by the member, and received by DFAS within one year of the date of the decree of divorce, dissolution, or annulment.

When making the election for former spouse SBP coverage, the member must disclose whether such election of the former spouse coverage was required.

The disclosure statement must be in writing, signed by the member and must set forth:

Warning: It is important for you to understand that a former spouse will lose their right to SBP if they remarry before the age of 55. However, if they are remarried before reaching age 55 and that marriage is subsequently terminated by death, annulment, or divorce, SBP shall be resumed effective as of the first day of the month in which that marriage is terminated.

Importance of the Deemed Election: Even if the member is required to elect SBP coverage for the former spouse pursuant to the terms of a divorce decree, such coverage may be lost if the member fails to make the election on a timely basis. In order to help secure your client's rights to SBP coverage, they may effectuate a “deemed election” for such coverage in the event their ex-spouse fails or refuses to make such an election.

There is a separate time limit for the former spouse to make a deemed election on behalf of the member. A deemed election will only be honored if DFAS receives it within one year of the date of the court order or filing involved.

You should never assume that your client's ex-spouse will make the required SBP election in a timely manner. To best secure your client's rights to a potential survivor annuity in the event of the member’s death, you should have your client submit a Deemed Election Notice, and submit it to DFAS concurrently with the submission of the court order to divide the military retired pay.

If you would like us to draft a MRPDO, please complete our Military Order Request Form or feel free to contact us with questions you may have.