Officer To Lose 1/3 Of Retirement Pay

You’ve probably heard me talk about Doug Nordman, founder of The Military Guide website and author of The Military Guide to Financial Independence and Retirement.  One of Doug’s readers has found himself in a shocking situation, and you should know about it.  You especially need to know about it if you are one of the many military officers who has prior enlisted service.

Doug’s reader is an Army Captain who was selected by the reduction in force board to separate from the service early next year.  Because he had 13 years of enlisted service prior to commissioning, he will have 20 years of service and, therefore, be eligible to retire instead of involuntarily separating.

Common sense says this isn’t a terrible thing:  retiring as an Army Captain isn’t a bad career run, he’ll have his pension and health care benefits.

Unfortunately, everything here isn’t exactly as it appears.  It seems that a confluence of various laws will mean that this Captain will be retired as a Sergeant First Class, and his retirement pay will be calculated as if he spent the last three years at that rank.  Rough calculations show that this will decrease his retired pay approximately 1/3 over the retirement pay of an O-3E permitted to fulfill the time-in-commission requirements set forth in law.

Say wwhhaatt?

Most currently serving military members, including Doug’s reader, fall under a High-Three retirement plan.

Title 10 U.S. Code section 1407 (c) states that  “the total amount of monthly basic pay to which the member was entitled for the 36 months (whether or not consecutive) out of all the months of active service of the member for which the monthly basic pay to which the member was entitled was the highest, divided by […] 36.”  

Seems pretty clear so far, right?

Yes, except there is an exception for former enlisted.  Officers who have enlisted years are required to fulfill a certain number of years time-in-commission before they are allowed to request retirement as an officer.  The law is usually 10 years, but Congress wrote provisions for the various services to reduce the required years-in-commission to 8 years as they see necessary.  Former enlisted who don’t serve the necessary commissioned years don’t get retirement pay based upon their actual high-three calculations, they get retirement pay based upon a hypothetical high-three pay chart that would have occurred if they had not accepted a commission and did not promote again.

Again, this is apparently common knowledge amongst the prior enlisted officers currently service.  However, that exception to the high-three law was written to entice freshly commissioned officers to remain in active duty and not retire as soon as they hit 20 years of service.  It was written to prevent voluntary retirement shortly after commissioning, which is a perfectly reasonable thing.  However, this Captain isn’t asking to retire, he is being forced to retire.  There is no specific law for involuntary retirements, so the services are taking a law that was written for voluntary retirements and applying it to involuntary retirements.

We’ve got a guy who has honorably served in the military for 20 years, and stepped up to the plate when the military was looking for people to move to the commissioned ranks.  He’s not been passed over for promotion, nor has he been involved in any adverse situation.  The military is downsizing and he’s being asked to leave the service to meet the needs of the Army.  Because of this, he is unable to meet the required service requirements to retire at the rank in which he’s been serving.

As part of their force-shaping measures, the military service branches are handing out waivers for all sorts of service requirements.  The one I know most clearly is the service requirement after the transfer of Post 9/11 GI Bill benefits, but there are other service requirements that are explicitly being waived in order to be fair to those being involuntarily separated from the service.  Why wouldn’t this requirement get a similar waiver?

It also seems that this reader isn’t the only affected service member.  Anecdotal evidence suggests that many of those selected by the reduction in force boards have prior enlisted service.  I wonder how many of them will fall into a similar situation?

At the best, this is a freak combination of factors not anticipated in federal law.  At worst, it is a blatant breach of faith specifically intended to deprive service members of the retirement pay they’ve earned.

What do you think?

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
  • MizGritz

    “Freak combination” doesn’t begin to address this issue. Federal law sends our prior enlisted military members down a rabbit hole that would make Lewis Carroll’s ‘Alice’ look like an amateur. It doesn’t need to be this hard: take combined years + highest grade = retirement pay at highest grade. Once again the Fed’s are seemingly penalizing those willing to step into the breech with the proverbial “thanks for your service and don’t the door-knob hit you in the rear as you exit.”

  • Stephanie Burgess

    None of his years working as a commissioned officer will be applied to his retirement. Unbelievable!

  • RetnavyCPO

    This is one for the lawyers. The man in this predicament had an implied contract that he’d be allowed, as a careerist, to serve not only as long as necessary to draw officer retired pay, but as an officer be allowed to retire at thirty years. An enlisted is normally expected to retire at twenty, but this is not so with officers.

    • USMarine4

      He should also go visit his Congressman and Senator ASAP. They can change the law as it affects prior enlisted commissioned officers caught in this sequestration debacle.

  • Dano

    Advancement on the retired list to highest rank/grade held satisfactorily once a combination of active and retired time equals 30 years if you so choose it or you can remain retired enlisted.

  • THD

    This seems totally reasonable to me. Otherwise, guys with 15 years enlisted could put in a LDO package, rise up to O-3, retire then make considerably more retirement money than if they retired as an E-8 or E-9. That wouldn’t be right.

    The guy served more time as enlisted, less as officer. Take the retired enlisted pay and stop crying. You were paid an officer’s salary for 7 years. That’s your compensation for the O time. The sense of entitlement nowadays is ridiculous.

    • Kate

      THD, I agree with you entirely, if he were requesting retirement. However, it upsets me that the branches can and do give all sorts of waivers to people who are being involuntarily separated. They give them for schools, they give them for Post 9/11 GI Bill benefits, and they give them for pretty much every other service obligation that exists. To single out this particular service obligation to NOT get a waiver is wrong, in my opinion.

    • Donny

      You’re just a tad wrong (when you mentioned LDO), which makes me think you were/are Navy. You are selected for LDO; you continue to promote in your enlisted pay grade; at your 4th year of commissioned service you have to make a choice, revert back to your enlisted pay grade (usually an E-9 by then) or accept a PERMANENT Officer status. That’s the way it was in 80’s & 90’s.

  • Rae

    High three will still be based on his three highest paid years. His ID may not say Lt but his retirement pay will be the average of whatever three years he earned the most. He’s not losing 1/3 of his pay.

    • Kate

      Rae, that’s what the general public seems to think, but it is not the case. I certainly wouldn’t have had anything to write about if it were true. According to the applicable law, as it stands, and according to his installation’s retirement office, he will receive high-three based upon a hypothetical pay that would have existed had he not accepted a commission and had he not promoted again. I think that’s wrong.

  • Kim

    20 years, 7 an an officer isn’t someone who thinks he’s “entitled”. He’s a person who made the military a career, sacrificed 20 years of a normal, stable life, and probably spent a good percentage separated from his family. He deserves the benefits that the military and the government promised him….and I’m sure he wasn’t told about this federal rule, because people wouldn’t work hard to achieve these things without the benefits promised. So yes, he is ENTITlLED to what he EARNED!

  • Phillip Patterson

    Rae is correct. High 3 is based on highest 3 years of basic pay. Yes he will have his enlisted rank on his ID card. No he will not lose any of his retirement pay. Please do a little more research before blogging nonsense.

    • Kate

      Mr. Patterson, I respectfully disagree with you. I spent literally hours researching this subject. That page specifies general guidelines that apply to most people. This reader is not in a general situation, he’s in a very specific situation. The more specific laws, written when we were not in a drawdown situation, state that an officer who request retirement before serving as an officer for 10 (revised to 8) years will receive retirement pay based upon the enlisted rates. This is very clear and designed to prevent people from accepting a commission then retiring three or five years later.

      However, the services want people to leave, and they’re making exceptions all over the place to give people the best benefits while still getting them off the rolls of active duty pay. Why not do the right thing and make an exception for this officer, and the others in a similar situation?

  • Phillip Patterson


    I have been digging into this myself and owe you an apology. So far I have found reference to serving 10 years (8 with a waiver) or reverting to enlisted grade for retirement purposes. While I have not found anything that shows how they calculate the notional high3…I did call DFAS and it appears something along those lines exist. I must say my argument missed the point earlier anyway. This should be wavered and you are doing a great service by bringing it to light. He is not taking a voluntary measure. You are spot on. He should write his representatives and seek legal counsel IMO. Also…who came up with the calculation? In theory the person could be a CMSgt had he/she not received a commission. Again…apologies to you.


    • Kate

      Wow, Phil, thank you very much. I agree that this is an unusual situation, and we’re all learning as we go. It will be interesting to see how it works out.

    • Mchivis

      Phillip, retracting, apologizing, and looking deeper into the issues takes person of character and integrity. God bless you, the author and others out there manikins a positive difference.

  • ken

    We have turned the world upside down on some of these vets who showed professionalism, bravery, and fidelity throughout their careers. The military has become military unfriendly, and is kicking the new vets while they are down. I am lost for words for how some are treated.

  • Rae

    Just based on various news reports, I’m starting to believe the government didn’t eliminate soldiers with derogatory issues in their files first, as they would have us to believe. It’s ALL about the payout. Upon separation, who can they pay the LEAST? First, those that didn’t make retirement and will just get separation pay, then those that did make it, but weren’t commissioned for 8 years and will lose a lot of the retirement pay. This is almost criminal.

  • Rae S

    Sorry. My name is Rae too. Just realized there is another Rae.

    • Kate

      No problem :) I bet that doesn’t happen very often. Welcome to the conversation.

  • Rebbecca

    Ok I have a different situation but similar out come. 1st he will be advanced at his 30 year anniversary so 10 yrs as a E whatever than he will get his officer pay at his 30 yr anniversary. Sucks cause he did not voluntarily do this.

    I was force shaped in 2006 and decided I reenlist, I did not ask for the separation pay but still received it. Retired at 20 years a couple of years ago and my retirement is at my E rank (again not my top 36) and told at 30 year I get advanced. Remember that seperation pay? They are taking that out. So figure this out…I got seperation pay as a officer and paying it back as an enlisted. The regs are convoluted with resigning commission and going back enlisted for 3 days to retire blah blah blah all NOT done but what to do beside pay some one big bucks to figure it out to just be in the same boat of waiting?

    To the people writing this article come talk to me maybe you can help me figure his all out!

    • Kate

      Rebbecca, I would love to hear your story but I am having difficulty following what you’ve written here. Could you try to write it in a different way so that I can understand more clearly.

      The short answer is that you may require a civilian attorney who specializes in these sorts of things. A consultation should be free, and they can tell you if you have a valid case.

    • Pauper

      Rebecca is correct about separation pay being fully recouped from the retirement pay–active or reserve–before the member collects one dime of retirement pay. But it gets worse. If the member rates disability pay, the separation pay is similarly recouped from that before the member receives it. So if a soldier received $60K in sep pay (taxed as a bonus), and subsequently rated to receive $1K per month in disability pay, it would be FIVE YEARS before the member saw any dis pay. On the bright side, that’s about the same amount of time as many VA waiting lists.

  • Lynn

    The commissioned service requirement has been reduced from 10 years down to 8.

    • Kate

      Yes, that is correct. The Army has taken advantage of the temporary authorization to lower the years of required service to 8. It will remain at eight until the Army decides to no longer offer that waiver, or until that option expires.

  • robert

    At his 30 year anniversary his pay will revert to high3 of his career, 03E pay.

    • Kate

      Robert, could you explain more and send some sources for this. A group of us have spent literally days researching this subject, and this is only the second time we’ve heard this concept. Thanks!

  • JohnD

    You have to have ten years service as a commissioned officer to retire as one! Most OCS,PAs face that due to enlisted service. Such officers are the first to go in cut backs! I believe after your total time served plus retirement time totals are correct,, you can apply to get paid as an officer.

    • Kate

      JohnD, the services have taken advantage of a provision in the law that allows them to reduce the required time-in-commission to 8 years. The issue here is that law specifically states that it applies when the officer is requesting retirement. In this case, none of the officers affected are retiring voluntarily.

  • Donald M. Miller

    Can I find any information on the recission of the regulation that prohibited a retired RA officer from receiving his retirement pay if employed by another federal agency? I retired on 23 as a RA officer, went with the Department of State for another 15 years during which time I did not receive my Army retirement, according to regulation then in effect. Since then, that restriction has been rescinded and as I understand, retired RA officers are now allowed to receive their Army retirement while holding another Federal position, but NOT with DA.
    Am I correct on this? If so, is there any retroactive provision? My point is that I seem to have simply lost 15 years of my Army retirement pay, which I believe I have earned and was, indeed, promised by the Army. Thanks for help.