The National Defense Authorization Act of FY-00 (Public Law 106-65 or FY-00 NDAA) dated 5 OCT 99 reformed the retirement system for personnel with a date of initial entry to military/uniformed service (DIEMS) on or after 1 August 1986. The military retirement reform act of 1986 (known as REDUX) provided affected members a retirement system with a reduced retirement check or multiplier until age 62 and a reduced lifetime cost-of-living adjustment (COLA) with a one-time catch up at age 62. The FY-00 NDAA places all personnel under the High-3 retirement program unless they elect to receive a one-time lump sum cash-out payment i.e. Career Status Bonus (CSB) of $30,000 on the 15th year of their active duty service. Electing the CSB requires the member to remain on active duty until they’ve completed 20 years of active service and to accept REDUX retirement. Section 620 of the FY-02 NDAA dated 28 DEC 01, CSB allows those members who elected to receive CSB to receive the bonus in annual payments over a period of up to five years. If installment payments are elected, the second and subsequent installments are paid on 15 January of each succeeding calendar year. This allows the total bonus to be deposited in the member's thrift savings plan account without exceeding the internal revenue limit on annual contributions. Unfortunately, members who elect CSB and REDUX retirement shall receive considerably less per month in retirement pay than if they did not elect to receive CSB and remained under the High-3 retirement program.
This decision to elect CSB or not is a very important one which will affect a service member’s financial future and should not be taken lightly or made without first conducting some research and planning. The Center for Naval Analysis (CNA) compares CSB to an early cash-out "loan" to be paid back later by a smaller retirement paycheck. The $30,000 CSB cash-out is more than paid for over the course of a Sailor’s retirement. For example, a retiring E-6 who had elected CSB and REDUX (i.e. 40% vice 50% retirement check) after completing 20 years of active service loses approximately $289,000 in retirement pay over the course of 40 years. For a retiring Chief, the outlook is financially worse as they lose more than $330,000 over the next 40 years. “The sailor pays nothing until retirement, pays quite a bit from the beginning of retirement until age 62, and then continues to pay back smaller amounts over the rest of his or her life”, reads the CNA study available at http://www.cna.org/documents/Retirement%20Choice%202008%20D0017379.A1.pdf. The study's comparison to a loan shows that a sailor could end up paying back the money at a 9 to 10 percent interest rate. Moreover, the term of the loan is based on how long someone lives. Choosing CSB and REDUX reduces income in retirement.
Bottom line: Check the facts. Look and plan forward; ask questions and make an informed decision. Use your chain of command to ask for guidance and information. If you do the math, you end up paying back infinitely more than you had originally “cashed out,” when you elected CSB. Command career counselors, command financial advisors, administrative officers, and fleet and family service centers are standing by to assist in one of the most important decisions of anyone's financial life. Eligible members are highly encouraged to seek out information on the program from their Command Career Counselors and advice of financial specialists. Additional information can be found in the related NAVADMIN(s) and links on this page.
Points of Contact
For technical and procedural assistance, CCCs may contact the NPC CSB Desk, at Comm: 901-874-3347 DSN: 882-3347 or Email: firstname.lastname@example.org For questions regarding the CSB policy you can contact the CSB Program Manager at Comm: 703-604-4763