1. Currently there are three retirement plans for military members. These are known as FINAL PAY, HIGH-3 and REDUX. Following is a brief summary of each. The plan a particular soldier may be subject to is based on their date initially entered military service, referred to as their DIEMS date. The DIEMS date is used SOLELY to determine which retirement plan a soldier is under. It is NOT used for any other purpose. This date is not necessarily the date they entered active duty, nor is it necessarily the same date as their basic pay entry date (BPED). It is the date the soldier signed any form of agreement to serve in any uniformed military service. It does not change because a person changes component (active, guard or reserve), or changes branch of service (Army, Navy, Marines, Air Force) or has a break in service.
A) Final Pay: This plan pertains to Soldiers with a DIEMS date prior to September 8, 1980. Their retired pay is computed as 2 1/2 times the number of years of service times their final base pay (as of date of retirement). Soldiers in this group receive full annual Cost-Of-Living-Adjustments (COLA) added to their retired pay each year after retirement. The COLA is based on a formula tied to the Consumer Price Index (CPI).
B) High-3: This plan pertains to Soldiers with a DIEMS date between September 8, 1980 and July 31, 1986. Their retired pay is computed as 2 1/2 times the number of years of service times the average of the highest 36 months of base pay during that service. Soldiers in this group receive full annual Cost-Of-Living-Adjustments (COLA) added to their retired pay each year after retirement. The COLA is based on a formula tied to the Consumer Price Index (CPI).
C) REDUX: This plan pertains to Soldiers with a DIEMS date of August 1, 1986 or later. Their retired pay is computed as (2 1/2 times the number of years of service, minus one percent for each year under 30 years of service) times the average of the highest 36 months of base pay during that service. Annual COLA's are reduced by one percent below those for Final Pay and High-3. This reduction remains in effect up to the age of 62. At age 62, a one-time adjustment is made to make the COLA equal to what has been authorized for the Final Pay and High-3 plans. This one-time adjustment is NOT retroactive. In addition, for each year after age 62, annual COLA's are again reduced by one percent.
D) The Soldiers in Groups A and B above are not affected by, and are therefore NOT eligible for, the changes to Group C and the REDUX program.
2. The following chart displays the differences between the FINAL PAY, HIGH-3 and REDUX retirement programs. In particular, the retired pay computational factors affected by the change. The multiplier for FINAL PAY and HIGH-3 is 2.5% per year of service. For REDUX, the multiplier is 2% for the first 20 years of active duty service, then 3.5% for the years above 20, up to the maximum of 30 years:
|
YEARS OF SERVICE
|
FINAL PAY MULTIPLIER
|
HIGH-3 MULTIPLIER
|
REDUX MULTIPLIER
|
|
20
|
50%
|
50%
|
40%
|
|
21
|
52.5%
|
52.5%
|
43.5%
|
|
22
|
55%
|
55%
|
47%
|
|
23
|
57.5%
|
57.5%
|
50.5%
|
|
24
|
60%
|
60%
|
54%
|
|
25
|
62.5%
|
62.5%
|
57.5%
|
|
26
|
65%
|
65%
|
61%
|
|
27
|
67.5%
|
67.5%
|
64.5%
|
|
28
|
70%
|
70%
|
68%
|
|
29
|
72.5%
|
72.5%
|
71.5%
|
|
30
|
75%
|
75%
|
75%
|
3. The Soldier must go through Human Resources Command to have the DIEMS date as recorded in eMILPO updated or corrected. Although the retirement plan and DIEMS date is printed on the Soldier’s monthly Leave and Earnings Statement (LES), it is not maintained in the pay systems. It is printed as a courtesy to the Soldier to show the information as recorded in the Total Army Personnel Database (TAPDB) at Human Resources Command. Finance has no capability to correct these two data elements.
The following information is provided as an aid in responding to questions as to how the DIEMS date was established and what documentation can be used by Human Resources Command to update/correct the DIEMS date.
(NOTE: Enlistment contracts for officers are for those who had enlisted status prior to school or commissioning):
|
SOURCE OF ENTRY ON TO ACTIVE DUTY
|
DIEMS VERIFICATION DOCUMENTS
|
|
Academy Graduates
|
Oath of Office, DA Form 71; Letter from the Academy; document verifying date of enlistment, assignment to Prep School.
|
|
R.O.T.C. Graduates
|
ROTC contract; enlistment contract DD Form 4; application for enlistment DA Form 61; document verifying date of enlistment.
|
|
Delayed Entry Program
|
Original initial Enlistment contract DD Form 4/1
|
|
Break-in-Service returnees
|
Enlistment contract DD Form 4/1 from initial period of service
|
|
Direct Commission
|
Oath of Office DA Form 71; enlistment contract DD Form 4/1 if prior enlisted service
|
|
Delayed Commissioning Program
|
Oath of Office DA Form 71; enlistment contract DD Form 4/1 if prior enlisted service
|
|
Medical\Dental School Graduate
|
Oath of Office DA Form 71; enlistment contract DD Form 4/1 if prior enlisted service
|
4. The REDUX Retirement System was changed with the passing of the FY 2000 National Defense Authorization Act (NDAA) in October 1999. These changes were effective October 1, 2000. However, no soldier was eligible for the new benefits until August 1, 2001. The change placed all REDUX eligible Soldiers under the HIGH-3 retirement plan. However, they can elect to switch back to the REDUX plan. In consideration for switching back, they are authorized a $30,000 Career Status Bonus to help offset the reduction in future retirement benefits.
5. The following Soldiers will be eligible to apply for the $30,000 career status bonus and change in retirement plans:
A) Currently serving on active duty;
B) First became a member of a uniformed military service on or after August 1, 1986;
C) Completes 15 years of active duty service in the uniformed service; and
D) Is otherwise eligible, under existing Service regulations, to remain on continued active duty until completion of 20 years of active duty service.
E) Eligibility is a critical point. A soldier must meet ALL conditions of eligibility upon attainment of 15 years of active duty service. Any soldier who fails to meet all conditions at that point may not subsequently be given the opportunity to elect the change and bonus. A Soldier who does not meet current Service requirements to remain on active duty through 20 years of active duty service will not be allowed to make the election at the 15 year mark. However, the services may offer the election and bonus at a later date if the Soldier becomes eligible to remain on active duty through 20 years of service.
6. Election to receive the $30,000 career status bonus and return to the REDUX retirement plan does not mean the Soldier is "locked" in to remaining on active duty to the point where 20 years of service is obtained. The change does NOT negate any other provision of law or Service regulation that would cause a Soldier to be discharged from active duty prior to completing 20 years of service.
7. All eligible members are required to be notified of the available options under the Career Status Bonus program by the date the member attains 14 years and six months of active duty service. Notification and approval of elections are the purview of the Human Resources Command.
8. The notification will include whether or not the member is eligible, and if not, the reason the member is disqualified. If the member is initially disqualified, the Services will notify the member if and when the member becomes fully qualified at a later date. The notification will include instructions on how to apply at that time.
9. If eligible, the notification will inform the member of the effects and requirements of electing to receive the bonus. These include:
A) The election cannot be revoked after attaining 15 years of active duty service;
B) The election requires (but does not "lock in") the member to remain on continued active duty service until 20 years of such service;
C) In most cases, failure to complete 20 years of active duty service will require recoupment of the unearned portion of the bonus;
D) The election to receive the bonus will cause the member's retired pay to be computed under the REDUX plan.
10. From the point of notification, the Soldier has up to six months (180 days) to make the decision. The Soldier may make the election and submit the necessary form as quickly as desired, but the election is not final until the soldier attains 15 years of active duty service. The Soldier has until the 15 year anniversary date to change his/her mind and withdraw the election. And the Soldier can change their mind and resubmit an election or declination repeatedly up to the 15 year anniversary date. But once the 15 year anniversary date is reached, the election on file at that point becomes final and CANNOT be revoked. It is strongly suggested that each Soldier take time to consider their personal and family situations, both present and future, before deciding on or declining the election.
11. If a Soldier is not notified by the 15 year anniversary date, the six months starts once notification is received. However, unlike the Soldiers notified prior to the 15 year anniversary date, since the Soldier is past the 15 year anniversary date, the initial form turned in, whether an acceptance or a declination, becomes final and is irrevocable because the Soldier is already past the 15 year anniversary date. Again, it is strongly suggested that each Soldier take time to consider their personal and family situations, both present and future, before deciding on or declining the election.
12. The career status bonus is considered an active duty bonus under the provisions of Title 37, U.S.C., and is therefore NOT subject to division in a divorce agreement or under the Former Spouse Protection Act.
13. Recoupment of the bonus, if necessary, can be waived, in whole or in part, if the Secretary determines that recovery would be against equity and good conscience or contrary to the best interests of the United States. The Secretary concerned shall waive the required recoupment if the Soldier:
A) Dies, or;
B) Is separated or retired as a result of a physical disability under Chapter 61 of Title 10, United States Code, or;
C) Is separated under a Service offer for early retirement (such as TERA) or separation program.
The Secretary concerned shall not waive recoupment if the Soldier's separation is due to misconduct or if waiver would be inconsistent with other prescribed law, regulation, or policy.
14. Recoupment of any unearned portion shall be based on the portion of actual years, months and days of service not served up to the attainment of 20 years of service. For example, if a Soldier makes the election at the 15 year anniversary date, the expected additional service is five years (20 minus 15). If the Soldier is subsequently separated after an additional 1 year 2 months and 20 days of service, the portion unearned will be 3 years, 9 months, and 10 days of required service. For each full month of service, the computation factor will be .08333333. For each day not completed, the computation factor will be .00277778. Following is a chart showing the various factors to be applied:
|
Month
|
DAYS
|
|
1 0.08333333
|
1 .00277778
|
13 .03611114
|
25 .06944450
|
|
2 0.16666666
|
2 .00555556
|
14 .03888892
|
26 .07222228
|
|
3 0.24999999
|
3 .00833334
|
15 .04166670
|
27 .07500006
|
|
4 0.33333332
|
4 .01111112
|
16 .04444448
|
28 .07777784
|
|
5 0.41666665
|
5 .01388890
|
17 .04722226
|
29 .08055562
|
|
6 0.49999998
|
6 .01666668
|
18 .05000004
|
30 .08333333
|
|
7 0.58333331
|
7 .01944446
|
19 .05277782
|
|
|
8 0.66666664
|
8 .02222224
|
20 .05555560
|
|
|
9 0.74999997
|
9 .02500002
|
21 .05833338
|
|
|
10 0.83333330
|
10 .02777780
|
22 .06111116
|
|
|
11 0.91666663
|
11 .03055558
|
23 .06388894
|
|
|
12 1.00000000
|
12 .03333336
|
24 .06666672
|
|
16. Under current guidelines, the $30,000 may be used to contribute, in an amount not to exceed $15,500 for the annual deferred contribution, and up to $45,000 for the annual tax exempt contribution, to the Thrift Savings Plan (TSP) for the military. Of course, the Soldier must be a member of TSP and contributing from basic pay at the time of payment, and have designated a contribution percentage for any bonus payment, in order to contribute the desired portion of the Career Status Bonus to TSP. The Soldier should make sure that the bonus percentage is established in the M0 entry on the pay account BEFORE the date the Career Status Bonus is paid.
17. The document required to request the Career Status Bonus is the DD Form 2839 dated September 2002. The revised form has the various payment options in Block 12. The completion of the form is fairly self-explanatory, except for the following rules:
A) It is RECOMMENDED that Section II, Block 13 and Block 17 be completed and signed by the same person.
B) It is REQUIRED that Block 13 and Block 17 be completed and signed by the same person.
C) Section II, Block 13 and Block 17 should be completed by the first O-5 or above in the Soldier’s chain of command, his/her designee, or in accordance with local installation policy. If done in accordance with a local installation policy, that policy must be in writing, and a copy on file with the servicing finance office.
18. No forms are to be forwarded to the servicing Finance Office until 10 days prior to the member’s 15 year anniversary date of active federal military service. In addition, the ONLY forms to be forwarded to finance are those where the member has elected to switch to REDUX and receive the CSB. Applications with a declination of the switch/bonus, or those indicating that the member is currently not eligible to make an election, are to be retained by Human Resources Command only. If finance receives declination or ineligible forms, they should be immediately returned to the Soldier.
19. The finance office should review the forms to ensure that they are complete and signed by both the soldier and the designated service official, in accordance with the requirements in Item 17 above. Finance personnel should first review Sections I and II to ensure that the Soldier was indeed eligible for the election. Next, review Section IV. Block 12 to ensure it is completed and signed, and that the Soldier has elected a method of payment. The Soldier’s election must be witnessed in Block 13 by the designated official. In addition, Section VI, Blocks 16 and 17 must be completed by the same designated service official that witnessed the Soldier’s election. Block 16 should be either: a) the Soldier’s 15 year anniversary date if election is made prior to the completion of 15 years active duty; or b) the date the Soldier signed the DD Form 2839 (Block 12c) if election is made AFTER the 15 year anniversary date. In NO CASE should this date be prior to the 15 year anniversary date.
Once it is determined that the form is accurate and complete, and contains the data necessary to authorize payment, finance personnel should review the Soldier’s TT entry on the MMPA to determine if the member has reached the 15 year anniversary of active military service. If the date is determined to be more than 10 days prior to the Soldier’s 15 year anniversary date, the form must be returned to Human Resources Command, with instructions to resubmit once the Soldier is within 10 days of the 15 year anniversary date of active duty.
If there is any question regarding the information or dates on a particular DD Form 2839, the form should be returned to Human Resources Command for clarification and\or correction.
20. Once it has been determined that the document is accurate and correct for payment, the document should be scanned, a CMS case created for submission to the Bonus Branch at Central Site, and the scanned DD Form 2839 attached to the case prior to submission. Again, it CANNOT be submitted for payment until 10 days prior to the 15 year anniversary date. By law, no payment is authorized until on or after the 15 year anniversary date.
21. For those field sites with unique input capability, the Career Status Bonus should be input at the local level, on or after the 15 year anniversary date, rather than a CMS case being created. Again, by law no payment is authorized prior to the 15 year anniversary date of active duty.
22. The transactions to be used are as follows:
Officers: input a 9903/08 for payment, and an R5 insert for historical recording of the payment.
Enlisted members: input a 9903/31 for payment, and an R5 insert for historical recording of the payment.
A review of the MMPA after input has processed should show the following:
Officers: an 08 entitlement, a PW payment entry, an N9 memo, an R5 entry, an FJ entry for federal tax, and an FK entry for state tax if applicable. The PW will be released through normal EFT processing. No manual release action is necessary. The bonus is not added in to the regular paychecks.
Enlisted: a 31 entitlement, a PM payment entry, an N9 memo, an R5 entry, an FJ entry for federal tax, and an FK entry for state tax if applicable. The PM will be released through normal EFT processing. No manual release action is necessary. The bonus is not added in to the regular paychecks.
23. If the payment is coded just prior to regular end of month processing, and the payment goes through month-end restructure, the PW and PM entries will convert to an open PX entry and have to be manually released. Offices should take this into consideration when posting the bonus close to end of month cut-off.
24. CSB payments can be made in the following methods:
A. Lump sum of $30,000
B. Two installments of $15,000. First paid on the 15 year anniversary date, the second paid January 15th of the following year.
C. Three installments of $10,000. First paid on the 15 year anniversary date, second and third installments paid on January 15th of the next two years.
D. Four installments of $7,500. First paid on the 15 year anniversary date, second, third, and fourth installments paid on January 15th of the next three years.
E. Five installments of $6,000. First paid on the 15 year anniversary date, second, third, fourth, and final installments paid on January 15th of the next four years.
F. Installments will be paid on January 15th of each subsequent year, regardless of when the initial payment was made (i.e. initial payment made December 31st, first installment will be paid January 15th following year).
G. For all initial payments issued during January 1-15 of any calendar year, there will NOT be an installment issued on the 15th for that same calendar year. Installments will commence on January 15th of the following year.
25. Federal taxes will be collected at the standard I.R.S. one-time lump sum payment rate in effect at the time. Currently, that rate stands at a flat 25%. State taxes will be withheld at the Soldier’s normal applicable state tax rate IF the member currently has state taxes collected from regular monthly pay. For members entitled to a combat zone tax exclusion, a manual adjustment will be required after the payment processes because of the use of unique (99) transactions.
26. Combat Zone Tax Exclusion: A Soldier is considered tax exempt for an entire calendar month during any portion of which, to include a portion of a single day, the Soldier was in a combat zone. The determining factor in deciding whether the CSB payment will receive a combat zone tax exclusion is the “effective date of election”, the date the election becomes irrevocable. For the Career Status Bonus, the CZTE will apply if the member is/was serving in a combat zone during any portion of the month the CSB election becomes effective and irrevocable. As this applies to the CSB and the “effective date of election”, the following examples are provided:
1) Soldier is in a combat zone on September 1st, leaves the zone on September 15th, the effective date of election for the CSB is September 22nd, the CSB will be tax exempt.
2) Soldier’s effective date of election is October 8th, arrives in the combat zone on the 13th, the CSB will be tax exempt.
3) Soldier turns in the DD Form 2839 on November 29th, is in the combat zone on November 29th, leaves the zone on November 30th, and Soldier’s effective date of election is December 1st, the CSB is taxable.
The following charts are provided to cover the various scenarios centering around the CSB, the 15 year anniversary date, and a combat zone tax exclusion. It should provide appropriate guidance and assist in answering inquiries received from Soldiers as well as technicians. In all cases, the determining factor is the Soldier’s “election effective date”.
There are two situations: those who make an election to receive the CSB on or before the 15 year anniversary date, and those who make their election after reaching their 15 year anniversary date. “In zone” implies that the Soldier was in a combat zone at any point during a single calendar month that the “effective date of election” occurred, not necessarily on the specific calendar date that the status occurred.
The first situation is a Soldier who makes an election, but has not yet reached the 15 year anniversary date. For these Soldiers, the effective date of election becomes the 15 year anniversary date. The following chart applies to these members.
|
SOLDIER’S STATUS ON ELECTION DATE
|
STATUS ON 15 YEAR ANNIVERSARY DATE
|
STATUS ON DATE PAYMENT EFFECTIVE AND IRREVOCABLE
|
CZTE STATUS OF PAYMENT
|
|
Not in zone, and prior to 15 years
|
Not in zone (Note 1)
|
Not in zone
|
Not exempt
|
|
In zone, but prior to 15 years
|
Not in zone (Note 1)
|
Not in zone
|
Not exempt
|
|
In zone, but prior to 15 years
|
In zone
(Note 1)
|
Not in zone
|
Exempt
(Note 2)
(Note 5)
|
|
In zone, but prior to 15 years
|
Not in zone (Note 1)
|
In zone
|
Not exempt
(Note 3)
|
|
In zone, but prior to 15 years
|
In zone
(Note 1)
|
In zone
|
Exempt
(Note 4)
(Note 5)
|
|
Not in zone, and prior to 15 years
|
In zone
(Note 1)
|
Not in zone
|
Exempt
(Note 2)
(Note 5)
|
|
Not in zone, and prior to 15 years
|
In zone
(Note 1)
|
In zone
|
Exempt
(Note 4)
(Note 5)
|
|
Not in zone, and prior to 15 years
|
Not in zone (Note 1)
|
In zone
|
Exempt
(Note 3)
(Note 5)
|
NOTES:
1.
The 15 year anniversary date becomes the soldier’s “effective and irrevocable” date of election, the determining factor for the combat zone tax exclusion (CZTE).
2.
Only the Career Status Bonus (CSB) is tax exempt. Regular monthly entitlements would NOT be tax exempt.
3.
Regular monthly entitlements would be CZTE, but not the CSB payment.
4.
Both regular monthly entitlements and the CSB payment would be CZTE.
5.
An officer’s total tax benefit is limited by I.R.S. rules. See paragraph 27 below.
The second situation is a soldier who reaches the 15 year anniversary date, but has not made an election. Since the Soldier has passed the 15 year anniversary date, the “effective date of election” becomes the date the initial DD Form 2839 is signed and turned in. The following chart applies to these Soldiers.
|
STATUS ON ELECTION DATE
(Block 12c)
|
STATUS ON 15 YR ANNIVERSARY DATE
|
STATUS ON PAYMENT DATE
|
CZTE STATUS OF PAYMENT
|
|
Not in the zone, and after 15 years
(Note 1)
|
Not in the zone
|
Not in the zone
|
Not exempt
|
|
In zone, and after 15 years
(Note 1)
|
Not in the zone
|
Not in the zone
|
Exempt
(Note 2)
(Note 5)
|
|
In zone, and after 15 years
(Note 1)
|
In the zone
|
Not in the zone
|
Exempt
(Note 2)
(Note 5)
|
|
In zone, and after 15 years
(Note 1)
|
Not in the zone
|
In the zone
|
Exempt
(Note 4)
(Note 5)
|
|
In zone, and after 15 years
(Note 1)
|
In the zone
|
In the zone
|
Exempt
(Note 4)
(Note 5)
|
|
Not in the zone, and after 15 years
(Note 1)
|
In the zone
|
Not in the zone
|
Not exempt
|
|
Not in the zone, and after 15 years
(Note 1)
|
In the zone
|
In the zone
|
Exempt
(Note 3)
(Note 5)
|
|
Not in the zone, and after 15 years
(Note 1)
|
Not in the zone
|
In the zone
|
Exempt
(Note 3)
(Note 5)
|
NOTES:
1.
Since soldier has passed the 15 year anniversary date of active duty, the “effective and irrevocable” date of election is the date the Soldier makes the election (Block 12c on the DD Form 2839). The date the Soldier signs become the determinant factor for CZTE.
2.
Only the CSB is exempt. Regular monthly entitlements are not.
3.
Regular monthly entitlements are tax exempt. The CSB is not.
4.
Both regular monthly entitlements and the CSB are tax exempt.
5.
An officer’s total tax benefit is limited by I.R.S. rules. See paragraph 27 below.
27. CZTE and CSB payment to officer personnel: Some Soldiers are under the impression that payment of the CSB while in a combat zone makes the entire amount tax exempt. Although true for enlisted soldiers, this is NOT the case for officers. If the officer is eligible for the combat zone tax exclusion, by I.R.S. rules it is for total pay received in the calendar month. The officer’s tax exclusion is equal to the highest enlisted pay scale, plus $225 if drawing Imminent Danger Pay (IDP). This means that the exclusion for 2007 would be $6,642.60 per month without receipt of IDP, and $6,867.60 when receiving IDP. Again, the officer combat zone tax exclusion is for total taxable income in a particular calendar month. The exclusion is not available separately for any additional lump sum or one-time payments the officer may receive in a particular month, to include the CSB. In most cases, majors and above would have the entire $30,000 CSB taxed, as their regular monthly income would use up their CZTE exemption. Captains and below may receive some additional tax benefit exclusion for the CSB, depending on their regular monthly wages.
