https://crsreports.congress.gov
Updated November 14, 2022
Defense Primer: Military Separation and Severance Pay
Congress has authorized separation or severance pay for
involuntarily and voluntarily discharged servicemembers
throughout most of the military’s history. The purposes for
these authorities has been three-fold: 1) to ease the
transition to civilian life for servicemembers with minor
physical disabilities; 2) to compensate servicemembers for
an unplanned (non-disability) end to their military career
before they are eligible to retire; and 3) to aid the
Department of Defense (DOD) in managing force size.
Disability Severance Pay
The Military Compensation Background Papers (8
th
Edition) describes disability severance pay (DSP) as,
[A] special lump-sum payment to be made to
members of the armed forces separated from active
military service because of minor physical
disabilities that, while substantial enough to
adversely affect their ability to perform the military
duties of their respective offices or grades, are not
so severe as to seriously impair their civilian
earning capacity, in order to assist such personnel
in their transitions back to civilian life.
While forms of disability severance for military veterans
have existed since the founding of the United States, the
modern system (codified under 10 U.S.C. §1212) was
adopted in the Career Compensation Act of 1949 (P.L. 81-
351, §403). This law standardized the benefit across all
services, components, and pay grades.
Servicemembers who develop a medical condition affecting
their fitness to serve may be referred to a medical
evaluation board (DOD Instruction 1332.18). If the board
determines that the disability is permanent, stable, and rated
at 30% or greater, then the member may receive a disability
retirement and is eligible for retired pay. Those with
temporary disabilities may be placed on the disability
retired list and later re-evaluated for fitness to serve. Those
with service-connected disabilities rated less than 30%, are
not eligible for disability retirement, but may be discharged
with DSP.
Amount of Disability Severance Pay
The amount of DSP is computed by multiplying the
member’s years of service (YOS) by two months of the
basic pay to which the member is entitled at the time of
separation or placement on the temporary disability retired
list. The member is credited with a minimum of three YOS
for this calculation. If the disability is combat-related the
member is credited with a minimum of six YOS. The
maximum creditable YOS is nineteen. DSP is distributed as
a one-time, lump-sum payment and is taxable, unless
related to a combat injury or the member is entitled to
disability compensation from the Department of Veterans
Affairs (VA).
Involuntary Separation Pay.
Involuntary Separation Pay (ISP, 10 U.S.C. §1174), was
authorized as part of the Defense Officer Personnel
Management Act (DOPMA) of 1980. DOPMA repealed
prior legislation authorizing “severance” or “readjustment”
pay for military officers involuntarily separated from
service. Among other changes to the officer personnel
system, DOPMA standardized what is often referred to as
an “up or out” policy for officers across all of the services.
Under this provision, an officer may be involuntarily
discharged for having twice failed in selection for
promotion. This had the potential to impose an unplanned
career end for that officer and factored into the design of
the involuntary separation benefit. According to the House
Armed Services Committee report to accompany the bill,
The separation pay is a contingency payment for an
officer who is career committed but to whom a full
military career may be denied. It is designed to
encourage him to pursue his service ambition,
knowing that if he is denied a full career under the
competitive system, he can count on an adequate
readjustment pay to ease his reentry into civilian
life. (H. Rpt. 96-1462, 1980)
In 1990, during a period of force drawdowns, Congress
expanded this authority to enlisted servicemembers (P.L.
101-510). Servicemembers involuntarily discharged under
honorable conditions after six years but before twenty years
of active service may be eligible to receive ISP as a lump
sum. A condition for ISP receipt is an agreement to serve a
minimum of three years in the Ready Reserve following
discharge or release from active duty.
Amount of Involuntary Separation Pay
10 U.S.C. §1174 authorizes two mechanisms to calculate
ISP: 1) full payment: 10% of the product of the YOS and 12
times the servicemember’s monthly pay at the time of
separation; or 2) half payment of the prior amount. Full
payment or half payment is at the discretion of the
Secretary of the Military Department concerned. DOD
policies prescribe half-payment under circumstances where
members are deemed not fully qualified for retention or
continuation (e.g., weight control failures, failure to meet
standards, or other conditions not constituting a disability).
(DODI 1332.29)
Voluntary Separation Pay
During the force drawdown in the 1990s, Congress
authorized two types of voluntary separation incentives, the
Special Separation Bonus (SSB, 10 U.S.C. §1174a) and
Voluntary Separation Incentive (VSI, 10 U.S.C. §1175).
These separation incentives were designed to help the
services reduce over-manning in certain active component
pay grades or occupational specialties.
