Intro to Reserve Component Retirement — Calculation and Valuation

You may look at the current US Reserve Forces Retirement System as a fragmented house of cards rife with inequities. Or you may feel it’s run exactly as it should be. But of a certainty, if you are a retirement planner, actuary or a lawyer representing a client who is under the system, or the spouse of a member under the system, you better dig deep to understand the strange and somewhat bizarre workings of the system.

• First we should define what I mean by Reserve Forces: The generally accepted definition is a member of the Reserves of one of the military departments … Army, Air Force, Navy, Marines or US Coast Guard Reserve. The Reserve Componet also includes members of any of the US state’s National Guards plus the National Guard’s of Guam and Puerto Rico.
• Basic Reserve Retirement: An individual enlists or is appointed to a Reserve Forces position. There are many ways for that individual to participate … more than I want to go into here, but the results are the same. The individual participates in authorized activities and earns “points”. “Points” are very much the crux of our discussion here because, in general terms a “point” is the equivalent of a day’s active duty pay. A given number of points accumulated within a 12 month period counts for a “good year”. After a sufficient number of good years the individual is entitled to Reserve Retirement.
• Points: A “point” for reserve retirement is equivalent to a day of active reserve duty. A ‘day” normally means 24 hours of duty, as a day of active duty for a regular military member is defined. However, from long reserve forces tradition certain activities, such as weekly, bi-weekly or monthly training meetings (Unit Training Assemblies or UTA’s) count a 4 hour training sessions as a day of duty … so reserve forces in many categories of participation may earn two points for a nominally eight hour training day, four points for a complete weekend of training. There are a few other ways a reserve forces participant may earn points as well.
• Good Year: Normally, any points earned by a reserve forces member count toward his or her retirement. However, there are cases where some points don’t count. To have a year that counts toward reserve retirement a member must meet minimum participation standards. Some definitions:

• Fiscal Year (FY) is between 01 October and 30 September. It is during FY that funding is provided to pay for the member’s training requirements.

• Anniversary Year (AY) is defined as the date the member entered into active service or into active status in a Reserve component. This date changes only if the member has a break-in-service.

• “Good Year” – A year of satisfactory federal service is any anniversary year during which a reservist earned a minimum of 50 retirement points. The accumulation of 20 such years is required for retirement with pay.

• FY Participation Standards – Members are required to complete 90% of scheduled IDT drills (usually equaling 43) and 12 days of ADT every FY.

• AY Participation Standards – Members are required to earn 50 retirement points.

• Possible Retirement Point Totals based on FY (100% Completion):

• 
  

• IDT

  ADT

  Membership

  Total

• 48

  12

  15

  75

  
  

• Note that a reserve forces member who completes normal retirement earns 75 points, but needs only 50 for a good year. The 15 “Membership Points” (also called “Gratuitous Points”) available are essentially a “fudge factor”. If a member does all his or her drills and active duty s/he will earn 60 points. The Gratuitous Points are thrown away … only the points accumulated for active participation activities are counted toward retirement. But the membership Points can be used to fill-in for a certain amount of active duty participation missed.
• A member who earns 49 or less points in a given AY, however, is a member who just participated significantly but doesn’t get a year closer to retirement.
• A last comment on this (sometimes very complicated subject), a member can earn much more than 75 points in an AY. In fact, if he or she is performing active duty functions the whole year, s/he can earn up to 360 points. (the formulas all still use the antiquated banking convention of calculating years as consisting of 12 30 day months). It’s clear that anyone trying to calculate income or retirement eligibility for a reserve forces member had better know a lot of arcane and almost conflicting rules.

• Reserve retirement: Ahh, we got here at last. But don’t worry, it’s still not simple. A reserve forces member is authorized retirement upon the date that he or she completes 20 “Good Years”. His or her retirement annuity will then be based on two factors .,.. highest grade held and points accumulated.

• Highest Grade: In general the member will retire at the highest grade satisfactorily held. In many cases this means that perhaps amid-level NCO who held a commission in the past might retire as say a major or lieutenant colonel. There are a number of ‘twists and traps” inherent in that statement “highest grade satisfactorily held” but never let it escape your consciousness if what a member makes as an annuity is important to you … a retiring member’s grade may not always be as it seems.
• Accumulate Points: Once you know with certainty a retiree’s grade, calculating pay becomes an exercise in multiplying points times grade times the numerical quarter of the moon’s current phase plus Brittany Spear’s hat size …. no, wait, I think I got part of that wrong. Instead, use this claculator: