Needed Legislative Change to
Special Separation Benefit (SSB)
Voluntary Separation Incentive (VSI)
Recoupment Rules
References:
Title 10 U.S.C. 1174 subsection (h) (1) authorizes,10 U.S.C. 1175(e) (3) recoup from Retired Pay DOD Financial Management Regulation Vol. 7B Chapter 4 December 2005
Congressional Budget Office 1999 Analysis "The Draw Down of the Military Officer Corps" Chapter III.
Social Security Actuarial Table Defense Finance Accounting Service Monthly Basic Pay Table Jan 2007
Truth in Lending Act (15 U.S.C. 1601 226.5)
Usurylaw.comCertificate of Release or Discharge from Active Duty (DD 214)
DFAS Customer Inquiry email
Background:
Between 1991 and 1996 the Department of Defense, primarily the Department of the
Army provided financial incentives to mid-grade Officers and Noncommissioned Officers with 9-14 years active duty to separate from service. This action accelerated the end strength drawdown of forces and provided the touted "Peace Dividend". The incentive was paid either in a lump sum (smaller portion SSB) or a larger portion (VSI) paid over twice the length of the Soldiers period of active service. The Service Members were discharged from active duty but were essentially in an "on
call” or "retainer” status by being required to remain eligible / subject to recall as addressed in the discharge certificate (DD214). Personnel were placed into the Individual Ready Reserve (IRR), or could participate in the Active Reserves or National Guard and continue their service until such time as they chose to retire. At no time during the discharge process or in subsequent communication was any information provided to the recipients of SSB/ VSI as to the egregious penalty that would be imposed upon them at the time of retirement. Retirement could be achieved either through
accumulating 20 or more years active federal service, or at age 60 by way of attaining 20 or more good years of Reserve / NG service. Under current rules as outlined by DoD Financial Management Regulation Volume 7B Chapter 4 and derived from U.S.C. Title 10 the formula for recoupment/ repayment will occur at a rate of 55% to 85% of the retiree's pay or not less than 2.5 times the rate at which it was received. Since the onset of this incentive program, more than a half dozen recall events have
occurred requiring Reserve and NG personnel to mobilize, thereby accelerating their opportunity and likelihood of reaching retirement eligibility . To date more than two thirds of the entire reserve force has been deployed since 9/11 and as of December 2006, over 76,000 personnel are actively mobilized. Several thousand members within the IRR have also been recalled and more continue to receive notification for such recall. The entire purpose of this financial Benefit/Incentive program was solely promulgated as a rapid method to draw down the force to meet budget constraints; and it was also designed to enhance the Reserves personnel inventory by migrating vested personnel
with incentives not to collect any portion of SSB/ VSI payments as an offset for their subsequent service hence a retainer for availability. At no time were SSB/VSI recipients warned they would be ultimately financially penalized for their patriotic support and continued service to their country.
Facts:
16,156 personnel accepted SSB/VSI, during the five year period of the program 11,000 were mid grade officers with 11-14 years service.
The average VSI payment to a Captain/ O-3 was $10, 600 annually, basically $883.00 per month for 22 years. Under current DoD finance recoupment formulas, a minimum of 55% and up to a maximum of 85% of the retirees retired pay will be garnished to repay what was never identified as a loan or early retirement payment or retainer though the
recipient was subject to recall. The repayment in most cases will be at a rate more than 2.5 times faster than received annually. SSB and VSI payments are subject to State and Federal Taxes This incentive program was never announced as a LOAN or OFFSET program.
At no time during the discharge proceedings were SSB/VSI recipients provided any disclosure documents or an explanation of terms/ conditions of repayment. At no time were the formulas documented or repayment methodology addressed before, during or throughout the period of payments. This is in fundamental violation of the Truth in Lending Law and falls dangerously close to the category of a bait and switch practice. The excessive repayment schedule also exceeds ethical standards of Usury repayment law. Under current repayment formula this "Incentive Program" will collect the gross amount received from the retired pay after taxes, actually burdening the retiree to pay taxes twice. Should any personnel receiving VSI annuity payments expire prior to completion
of the VSI program remaining unpaid proceeds are paid to beneficiaries'. Using Social Security actuaries' 1,100 of the original 16,000 personnel will expire and another 1000 are expected to expire within the program repayment timelines and those repayments will also be forgiven.. No information is available of how many may have been KIA or WIA conducting the Global War on Terror Because of numerous mobilizations, deployments and recalls to active duty over 400 Reserve personnel currently attained Sanctuary status and will meet Active
Federal Service conditions to retire prior to reaching age 60 and will then be penalized for patriotically serving their country by having 55% or more of their awarded retired pay garnished. Those (SSB/VSI) Reservists who eventually succeed in achieving 20 years of Reserve retirement eligibility or 7300 points will also upon reaching age 60 begin drawing retired pay however it too will be garnished by 55% or more until the full recoupment is complete or they die.
IMPACT EXAMPLE:
Using CBO information:
Captain O3 separates accepting VSI after 11 years of active service, receives $10,600 annually for a total of $233, 200 over a 22 year period ($883/month for 264 months). The officer is subject to recall, serves in the reserves and deploys several times during the VSI payment period. Assuming the officer gets promoted at least once to Major O4, under the current (2007) pay chart, the officer's retirement at 20 years of service would be $3126/month (50% of $6252). Using the recoupment formula, the officer separated with 4015 days of service at 20 years, the officer will have 7300 points or days of service credit. As a result, 55% of the officer’s retired pay ($1720) will be deducted for recoupment (4015/7200=55%).Dividing 7300 into 4015 = 55% each month will be deducted from the officers retired pay, and this deduction will take place after taxes. A repayment of $1720/month is significantly near twice the rate at which the monies were originally received. Had the officer separated with more years of service, the recoupment rate could
be as high as 85% of the retired pay each month. In this example, $2657 deducted after taxes each month. In these cases, the retired officer will have to pay back on an annual basis twice the amount they received during the VSI payment period. This formula of retired pay garnishment was NEVER disclosed and has only been revealed as a result of significant research.
Desired Outcome
Complete change to Title 10 U.S.C. 1175(e) (3) recoup from Retired Pay. Directing complete elimination of any SSB/VSI recoupment at time of retirement regardless of when retirement occurs. All DFAS rules regarding collection of SSB/VSI will immediately reflect this change, since payment was designed as a retainer, requiring recipients to be subject to involuntary recall. The SSB/VSI program NEVER disclosed the retirement offset imposed for service and in essence any recall, mobilization or deployment penalizes the member into financial garnishment of retired pay. Program serves to dissuade service. Any collection already made of those who have retired will end immediately and reimbursement of retired funds repaid.