Choosing discharge status can cost thousands

Some Reservists and National Guardsmen, having attained 20 years of creditable service to qualify for reserve retired pay at age 60, are cutting the value of future annuities unknowingly by electing "discharge" from service rather than transfer to the Retired Reserve, pay experts warn.

The drop in annuities can be especially deep for reservists who first entered service after Sept. 7, 1980, under the so-called "High-3" retirement plan.

The first High-3 reservists began retiring in September this year. Some probably have made decisions already that will slice into the value of their annuities when they begin at age 60.

Ronald Hunter, an Army Reserve major and president of Uniformed Services Almanac Inc., publisher of guides on military pay and benefits, is a High-3 reservist himself who will be eligible to "retire" next year. He learned of the impact of being discharged, rather than transferred to the Retired Reserve, months ago while researching an article.

Since then, Hunter has campaigned to educate individual reservists and to persuade senior Reserve and National Guard leaders to make sure reservists are better briefed on the pitfalls of their retirement decisions.

Reserve officials say most reservists, on attaining 20 or more creditable years of service to qualify for retirement, elect transfer to the Retired Reserve until annuities begin at age 60. But others, usually to avoid the possibility of recall for war or national emergency, elect to be discharged until benefits kick in at age 60.

The price for doing so is more modest for persons who entered service before Sept. 8, 1980. These reservists fall under "Final Basic Pay" retirement.

Under that plan’s rules, those who transfer to the Retired Reserve, rather than be discharged, continue to gain longevity raises that boost future retirement benefits.

The reservist who elects to be discharged, to assume "former member" status, still will have retired pay at age 60 and based on the latest military pay scales. But pay will be calculated on 20 years, not 26.

Retired pay will be lower as a result, but not dramatically.

It’s a different story for reserve retirees under High-3. Those who transfer to the Retired Reserve, and thereby make themselves available for recall, still do pretty well. Retired pay is calculated at age 60 based on average basic pay for the highest three years, or 36 months, of pay. They also receive whatever longevity increases accrued since they retired.

But High-3 reserve retirees who elect be discharged have their retired pay at age 60 based on average pay during their highest 36 months of pay before discharge. For a reservist who retired at 40, that means an annuity using pay scales 20 years old, with no cost-of-living or longevity raise.

Hunter estimates that a lieutenant colonel or commander who retires at 45 under High-3, and elects a discharge, would see a 40 percent drop in the value of his or her annuity at age 60. In today’s dollars, that’s a loss of about $1,000 a month.

Tom Bush, a Defense Department expert on reserve personnel issues, said an article Hunter wrote on this issue that details reserve retirement plans overall, has been distributed to senior Reserve officials to heighten awareness. Hunter’s article also is posted at his company’s Web site: www.militaryalmanac.com

Additionally, Defense officials will send a legislative proposal to Congress early next year that would authorize the services to transfer High-3 reserve retirees into the Retired Reserve unless they opted out. Members who elected instead to be discharged would have to be briefed on the retirement plans.

Tricare officials said they were premature last week in advising Medicare-eligible beneficiaries to revise their records at Defense Enrollment Eligibility Reporting System to include information on enrollment in Medicare Part B. The DEERS’ system has no way to record that information for beneficiaries 65 and older, officials said. DEERS is working on a connectivity plan with Medicare databases so it can update Part B enrollment information automatically.

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