DFAS begins recouping separation pay soon

Courtesy of Air Force Retiree News Service from a DFAS release

CLEVELAND — Recouping military retirees’ voluntary separation incentive special separation benefit and other separation payments by the Defense Finance and Accounting Service will resume in August.

Separation payments and others, such as severance pay, were offered to active-duty servicemembers to reduce manpower in certain career fields, primarily during the 1990s.

Because federal law prohibits servicemembers from receiving both separation and retirement payments for the same period of service, provisions of these programs included repayment if members join the ready Reserve or return to active duty and earn status as a military retiree.

DFAS officials temporarily stopped deducting these repayments from retirement pay June 1, 2009, in response to retirees’ concerns, while the DOD conducted a formal review of the recoupment program.

Before the review, the federal statutes governing these programs didn’t allow the DOD or DFAS to alter repayment rates or provide alternative repayment plans regardless of the financial hardships a retiree may be experiencing.

The DOD review is complete and Congress has amended statues to help limit the financial strain on military retirees as they repay their outstanding balances.

The new statutes allow DFAS more flexibility to accommodate for financial hardship and modify payment plans. As a result, DFAS has reduced the maximum recoupment rate from 90 percent to 40 percent. DFAS will also consider more lenient repayment plans for retirees who are experiencing financial hardship.

Affected retirees will receive notification letters at least 90 days before recoupments resume. If they feel the rate of recoupment will create a financial hardship, they may request a more lenient repayment plan by providing financial information on the financial statement of debtor form enclosed with the notification letter.

Monthly recoupment may also affect former spouses who receive Uniformed Services Former Spouse Protection Act payments from such retirees. Former spouses affected by this recoupment also will receive a notification letter before the resumption of recoupments.