Retired and Annuitant Pay:Retired Pay Cap Lifted

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One of the more significant changes made by the National Defense Authorization Act for Fiscal Year 2007 (Public Law 109-364) was the lifting of the 75 percent cap used in the calculation of retired pay for members eligible for service retirements.

Effective January 1, 2007, anyone retiring due to service in excess of 30 years of total active service will receive credit for service over 30 years. For example, a member who served 32 years will receive 80 percent of their retired pay base and a member who has served 42 years will receive 105 percent of their retired pay base. In most cases, there is no longer a cap on the percentage multiplier to be utilized in the computation of retired pay.

There are two categories that have been excluded from the lifting of the percentage cap. The first is for a member retired by reason of disability. Such members are still capped at the 75 percent by law. A member with 30 or more years of service must be retired based on service, not disability, in order to have the retired pay computed using a percentage greater then 75 percent.

The second area is for Army and Air Force enlisted members who have been cited for Extraordinary Heroism (EH). The laws that provide the additional 10 percent of retired pay for extraordinary heroism for Army and Air Force members contains language that limits their computations to not exceed 75 percent. The new law did not change that language. Therefore, if their computation includes the additional 10 percent for the EH, they are limited to 75 percent. If the member has over 30 years of service, DFAS can compute their pay ignoring the EH, and then exceed the 75 percent.

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If you retired before 1 January 2007 the cap is still 75%. Please read below.

It applies to retirees who retired after December 31, 2006. Here is the text of the law:

SEC. 642. INAPPLICABILITY OF RETIRED PAY MULTIPLIER MAXIMUM PERCENTAGE TO CERTAIN SERVICE OF MEMBERS OF THE ARMED FORCES IN EXCESS OF 30 YEARS.
(a) In General.--Paragraph (3) of section 1409(b) of title 10, United States Code, is amended to read as follows:
``(3) 30 years of service.--
``(A) Retirement before january 1, 2007.--In the case of a member who retires before January 1, 2007, with more than 30 years of creditable service, the percentage to be used under subsection (a) is 75 percent.
``(B) Retirement after december 31, 2006.--In the case of a member who retires after December 31, 2006, with more than 30 years of creditable service, the percentage to be used under subsection (a) is the sum of--
``(i) 75 percent; and
``(ii) the product (stated as a percentage) of--
``(I) 2\1/2\; and
``(II) the member's years of creditable service (as defined in subsection (c)) in excess of 30 years of creditable service, under conditions authorized for purposes of this subparagraph during a period designated by the Secretary of Defense for purposes of this subparagraph.''.
(b) Retired Pay for Non-Regular Service.--Section 12739(c) of such title is amended--
(1) by striking ``The total amount'' and inserting ``(1) Except as provided in paragraph (2), the total amount''; and
(2) by adding at the end the following new paragraph: ``(2) In the case of a person who retires after December 31, 2006, with more than 30 years of service credited to that person under section 12733 of this title, the total amount of the monthly retired pay computed under subsections (a) and (b) may not exceed the sum of--
``(A) 75 percent of the retired pay base upon which the computation is based; and
``(B) the product of--
``(i) the retired pay base upon which the computation is based; and
``(ii) 2\1/2\ percent of the years of service credited to that person under section 12733 of
this title, for service under conditions authorized for purposes of this paragraph during a period designated by the Secretary of Defense for purposes of this paragraph.''.