THE RESERVE RETIREMENT SYSTEM
A Detailed Explanation
By Ronald Hunter
OVERVIEW
One of the
many benefits of serving in the National Guard
or Reserve is the opportunity to qualify for a
non-regular (or Reserve) retirement. The basic
requirements to qualify for a Reserve retirement
are: (1) attaining 20 qualifying years of
service (a qualifying year of service is
credited for each year in which the member has
earned at least 50 points during his or her
anniversary year), and (2) serving the last six
years in a Reserve Component. NOTE: The requirement to serve the
last six years in a Reserve Component is
repealed for members who attain 20 years of
creditable service for Reserve retired pay at
age 60 on or after April 25, 2005.
The purpose of
this article is to explain, in detail, the
Reserve retirement system, the choices available
upon receiving notice of eligibility to receive
retired pay, and how those choices
impact benefits for the individual member.
REGULAR
RETIREMENT SYSTEM
To understand
the Reserve Retirement system, it is necessary
to be familiar with the overall military
retirement system. The following is a brief
overview of the regular or active duty
nondisability retirement system.
There are three methods for computing regular nondisability
retired pay. The system that is used for each
servicemember depends on the date the individual
first became a member of a uniformed service.
This date is referred to as the Uniformed
Service Initial Entry Calendar Date (DIEUS). The
three systems are Final Basic Pay, High-three
and the Military Retirement Reform Act (REDUX).
Final Basic Pay System.
A member with a DIEUS date prior to September 8,
1980 is under the Final Basic Pay system and
receives 50 percent of final basic pay after 20
years of military service plus 2.5 percent for
each additional year of active service. This
equals, but is not limited to 100 percent for 40
years.
High-three System. A member with a
DIEUS date between September 8, 1980 and July
31, 1986 retires under the High-three system.
Retired pay is computed as 50 percent of the
average of the “High-three years” (36 months) of
basic pay for 20 years of service plus 2.5
percent for each additional year. Note:
The multiplier is applied against the average
basic pay for the highest 36 months of the
member’s career. This typically, though not
always, equals the average basic pay for the
final three years of service.
In addition, members retiring under the Final Basic Pay or
High-three systems receive full Cost of Living
Adjustments (COLAs) annually as determined by
the increase in the Consumer Price Index (CPI).
Members electing to retire under the REDUX
system receive COLAs as determined by the
increase in the Consumer Price Index minus one
percentage point.
REDUX. For those with a DIEUS date
of August 1, 1986 or later, the members must
make a choice during their 15th year of service.
The choice is to retire under the High-three
system previously discussed, or receive a
$30,000 career status bonus and retire under the
Military Retirement Reform Act (REDUX). REDUX
retirement is computed as 40 percent of the
“High-three years” (36 months) of basic pay for
20 years of service plus an additional 3.5
percent for each additional year up to the 75
percent for 30 years of service and an
additional 2.5 percent for each year after 30
years.
A feature unique to REDUX is a recomputation of retirement
pay at age 62. Two adjustments are made. The
first adjusts the multiplier to what it would
have been under the High-three system. For
example, a 20 year retiree’s new multiplier
would increase from 40 to 50 percent, and a 24
year retiree’s multiplier would increase from 54
to 60 percent. A member who has 30 or more years
of service would retain the same multiplier.
Then, a further adjustment is made.
The retiree’s pay, with the readjusted multiplier, is
increased to what it would have been with full
COLAs in each year since retirement. Thus, at
age 62, the REDUX and High-three retired pay
amounts are equal. However, REDUX COLAs in later
years will again be set at CPI minus one
percentage point.
RESERVE
RETIREMENT SYSTEM
Reserve
officers, warrant officers and enlisted members
who complete a minimum of 20 years of
satisfactory service (creditable retirement
years), of which at least six years are as a
member of a Reserve Component, become entitled
to receive Reserve retired pay at age 60 (or a
lower age if eligible). The six year requirement
is repealed for members who attain 20 creditable
years of service on or after April 25, 2005.
Although entitled, the member must submit an
application, in accordance with service
regulations, prior to receiving such pay.
While entitlement to receive retired pay will normally begin
at age 60, a member may begin receiving Reserve
Component retired pay three months early for
each aggregate 90 days of qualifying active
service—performed after January 28, 2008—during
a fiscal year period. Qualifying active service
is: service in support of a contingency
operation; voluntary active duty under 10 USC
12301(d)—but not Active Guard and Reserve duty;
and full time National Guard duty under 32 USC
502(f) authorized by the President or Secretary
of Defense for the purpose of responding to a
national emergency declared by the President or
supported by federal funds.
The eligibility age can not go below age 50 and, regardless
of the age that a member begins receiving
retired pay, health care benefits are not
authorized until the member reaches age 60.
A retirement year is defined as the 365 or 366 day period
starting when the member first joins the
military. Example: the member first joins the
military on July 17. The retirement year is from
July 17 to July 16 the following year. The
retirement year does not change unless the
member has a break in service.
A creditable retirement year, under this system, is a year in
which the Reservist earns at least 50 retirement
points during their retirement year. Inactive
point credit is earned for inactive duty
training, Reserve membership, equivalent
instruction, and correspondence courses. By law,
members may receive credit for up to 60 inactive
points for retirement years that ended before
September 23, 1996, up to 75 inactive points for
retirement years ending on or after September
23, 1996 and before October 30, 2000, up to 90
points in the retirement year ending on or after
October 30, 2000 and before October 30, 2007,
and up to 130 points in the retirement year that
includes October 30, 2007 and in any subsequent
year of service. Points from these sources may
be added to points earned from active duty and
active duty for training for a maximum total of
365 or 366 points per retirement year. Points
are credited on the following basis:
• One point for each day of active service (active duty or
active duty for training).
• 15points for each year of membership in a Reserve
Component.
• One point for each period of inactive duty training.
• One point for each day of full time State active duty
performed by a National Guardmember on or after
September 11, 2001 and before October 1, 2002 in
the following counties to support a Federal
declaration of emergency following the terrorist
attacks on the United States on September 11,
2001: In New York: Bronx; Kings; New York
(boroughs of Brooklyn and Manhattan); Queens;
Richmond; Delaware; Dutchess; Nassau; Orange;
Putnam; Rockland; Suffolk; Sullivan; Ulster; and
Westchester. In New Jersey: Bergen, Hudson,
Union, and Middlesex. In Virginia: Arlington.
• One point for each day in which a member is in a funeral
honors duty status.
• Satisfactory completion of accredited correspondence
courses at one point for each three credit hours
earned.
The Secretary
of the military department concerned (Secretary
of Homeland Security for the Coast Guard)
notifies, in writing, members of the Reserve
Forces who have completed the eligibility
requirements for retirement and receipt of
retired pay at age 60 (or earlier age, if
eligible). Notice is sent to the member within
one year of reaching eligibility. Reserve
Component members generally have three options
upon receiving notice of eligibility:
1. Remain in
the Ready Reserve and continue to perform
inactive duty training, annual training and
active duty for training depending on their
training and pay category, or remain on the
active status list of the Standby Reserve and
continue to perform unpaid training for the
purpose of accumulating retirement points.
2. Transfer to the Retired Reserve.
3. Request discharge from the Reserve Components. Regardless
of the option chosen, the member is entitled to
receive retired pay at age 60 (or earlier age,
if eligible), but must apply for it.
There are two
Reserve retirement systems that parallel the
systems for active duty: the Final Basic Pay
System and the High-three System. To determine
which retirement system a Reserve Component
member is under, look at the same criteria that
determine the retirement system for the active
force—the Uniformed Service Initial Entry
Calendar Date (DIEUS). That is the date an
individual first became a member of a uniformed
service. There is one Reserve retirement system
for members with a DIEUS before September 8,
1980 and one Reserve retirement system for those
individuals with a DIEUS of September 8, 1980
and later.
When looking at which retirement system applies to a specific
individual it is important to note that a DIEUS
date will never change. Even a break in service
will not affect a DIEUS date. The date an
individual first became a member of a uniformed
service is the sole determining factor in
determining which retirement system is used when
computing retired pay.
A member who retires under either system receives longevity
credit for those years while a member of the
Retired Reserve awaiting pay at age 60 (or a
lower age if eligible). However, this does not
apply to a former member who is entitled to
retired pay under either the Final Basic Pay
System or the High-three System. A former member
is defined as an individual who elected
discharge rather than transfer to the Retired
Reserve anytime after receiving notification of
eligibility to receive Reserve retired pay at
age 60 (or a lower age if eligible). In the case
of a former member, regardless of the system
under which the individual will receive Reserve
retired pay, longevity credit ceases on the date
the former member was discharged.
Final Basic
Pay System (Reserve).
The first system, the Final Basic Pay System, is
used for members with a DIEUS date before
September 8, 1980. Reserve retired pay is
computed using the following method:
1. Dividing all points credited in all years by 360 to
convert the points into years of service,
including fractions.
2. Using the pay table in effect on the date that the member
or former member reaches 60 years of age (or a
lower age if eligible), taking the monthly basic
pay rate for the member’s highest grade
satisfactorily held and length of service at the
time the member reaches age 60 (or a lower age
if eligible); or in the case of a former member,
the length of service as determined when the
former member was discharged.
3. Multiplying that rate by 2.5 percent of the years of
service computed in (1) above.
High-three
System (Reserve). The
second system, the High-three Retirement System,
is used for members with a DIEUS date of
September 8, 1980 or later. Within this second
system, there are two ways to determine Reserve
retired pay. The first computation is for
members who, at any point after receiving
notification of eligibility to receive retired
pay at age 60 (or a lower age if eligible),
transfer to the Retired Reserve while awaiting
age 60 (or a lower age if eligible) (Retired
Reserve Computation). The second computation is
for members who choose to separate from the
Reserve Components after receiving notification
of eligibility to receive retired pay at age 60
(or a lower age if eligible) (Former Member
Computation).
Retired Reserve Computation. The
retired pay for a member who elects transfer to
the Retired Reserve is computed using the
average monthly basic pay rate to which the
member would have been entitled at the highest
grade satisfactorily held, had the member been
on active duty during the entire period of the
member’s high 36 months. In most cases, this
would be the average basic pay rate in effect
for the member at ages 57, 58, and 59. The
formula to compute the retired pay is as
follows:
1. Divide all points credited in all years by 360 to convert
the points into years of service, including
fractions.
2. Take the average of the last 36 months of monthly basic
pay for the member’s grade and length of service
at the time the member becomes entitled to
receive retired pay—age 60 (or a lower age if
eligible) (remember to include longevity
increases while a member of the Retired
Reserve).
3. Multiply that rate by 2.5 percent of the years of service
computed in (1) above.
Former Member
Computation. An
individual with a DIEUS date of September 8,
1980 or later, who elected discharge rather than
transfer to the Retired Reserve, will have
retired pay computed under the High-three System
using the average of the monthly basic pay in
effect for his or her 36 months of service
immediately preceding the date of discharge, or
the highest 36 months of basic pay to which
entitled based on a higher grade satisfactorily
held while a member of the uniformed services.
The formula to compute the retired pay is as
follows:
1. Divide all points credited in all years by 360 to convert
the points into years of service, including
fractions.
2. Take the average of the monthly basic pay in effect for
the 36 months immediately preceding the date of
discharge, or the highest 36 months of basic pay
to which entitled while a member of the
uniformed services.
3. Multiply that rate by 2.5 percent of the years of service
computed in (1) above.
Members
receiving Reserve retired pay, regardless of the
system under which retired pay is received, are
entitled to annual Cost of Living Adjustments as
determined by the increase in the Consumer Price
Index. This is the same system that is used for
retirees from the active forces under the Final
Basic Pay and High-three systems.
IF YOU ONLY READ ONE
PARAGRAPH IN THIS ARTICLE - READ THIS:
The choice to elect discharge from the Reserve Components is
irrevocable. That choice could cost
several thousands of
dollars in lost retired pay.
Therefore, members with a DIEUS date prior to
September 8, 1980 must consider the loss of
longevity increases by electing discharge (if
applicable). In addition, members with a DIEUS
date of September 8, 1980 or later must be
certain to elect the choice of discharge only
after carefully considering the loss of both
longevity increases and the increased multiplier
(due to increases in active duty basic pay while
awaiting age 60, or lower age, if eligible) used
in determining Reserve retired pay for members
who elect transfer to the Retired Reserve.
The following illustration compares two 45-year-old
Reservists. They both have the same rank and
years of service for pay and receive notice of
eligibility for retired pay at age 60. Both have
4,000 retirement points. One elects discharge
and the other elects transfer to the Retired
Reserve. The member who elected discharge is
completely separated from the military and
cannot be recalled to active duty, even in the
event of a full mobilization.
The member that is transferred to the Retired Reserve becomes
a “Gray Area” retiree. The time spent in the
Retired Reserve is counted for longevity pay
purposes. The following are examples, using the
January 2009 pay scale, of how choosing one
option over the other affects retired pay:
Example 1:
E-7 with 22 years of service for pay at time of
discharge or transfer to retired Reserve:
Discharged from Reserves.
Based on the pay scale in effect on January 1, 2009, monthly
retired pay at age 60 for an E-7 over 22 years
of service is .......................
$1,073.61
Transferred to Retired Reserve.
Based on the pay scale in effect on January 1, 2024, monthly
retired pay at age 60 for an E-7 over 26 years
of service for pay is ........... $1,896.81
Example 2: W-3
with 20 years of service for pay at time of
discharge or transfer to retired Reserve:
Discharged from Reserves.
Based on the pay scale in effect on January 1, 2009, monthly
retired pay at age 60 for a W-3 over 20 years of
service for pay is ............ $1,379.67
Transferred to Retired Reserve.
Based on the pay scale in effect on January 1, 2024, monthly
retired pay at age 60 for a W-3 over 26 years of
service for pay is ............ $2,458.94
Example 3: O-5
with 22 years of service for pay at time of
discharge or transfer to retired Reserve:
Discharged from Reserves.
Based on the pay scale in effect on January 1, 2009, monthly
retired pay at age 60 for an O-5 over 22 years
of service for pay is ........... $2,062.58
Transferred to Retired Reserve.
Based on the pay scale in effect on January 1, 2024, monthly
retired pay at age 60 for an O-5 over 22 years
of service for pay is ........... $3,326.54
Note: The previous illustrations
assume: both members have a DIEUS of September
8, 1980 or later; reached age 45 on January 1,
2009; discharge or transfer to the retired
Reserve both occurred on January 1, 2009; and
basic pay increased 3.2 percent in each year
from 2010 through 2024.
COST OF LIVING
ADJUSTMENTSS
Members receiving Reserve retired
pay, regardless of the system under which
retired pay is received, are entitled to annual
Cost of Living Adjustments as determined by the
increase in the Consumer Price Index. This is
the same system that is used for retirees from
the active forces under the Final Basic Pay and
High-Three systems.
THE IMPORTANCE OF
DIEMS
When looking at
which retirement system applies to a specific
individual it is important to remember that a
DIEMS date will NEVER change. Even a break in
service will not affect a DIEMS date. The date
an individual first became a member of a
uniformed service is the sole determining factor
in determining which retirement system is used
when computing retired pay.
© 2009 Ronald S. Hunter
Ronald Hunter is president of Uniformed
Services Almanac, Inc., which publishes almanacs
for military personnel dealing with military pay
and benefits. His specific interests focus on
compensation for members of the armed forces.
He is also a lieutenant colonel in the United
States Army Reserve.
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