Is Military Retirement Pay Nonqualified?

by Jason Van Steenwyk ; Updated July 27, 2017
Military retirement pay is not covered by ERISA regulations.

The term "qualified retirement plan" applies to plans covered by the Employee Retirement Income Security Act, or ERISA. The law does not cover public sector pensions, however, including federal government plans such as the military retirement system. Military pensions are therefore considered nonqualified plans.

Background

To be considered a qualified plan, a retirement plan must meet a number of requirements under ERISA, including a vesting schedule, nonforfeitable rights to qualified employees, a fiduciary responsibility on the part of pension sponsors, nondiscrimination requirements and many others.

ERISA Exceptions

Because ERISA only covers private sector retirement plans, public sector plans are exempt and are therefore nonqualified plans.The military pension system is one of these, as are state and local pensions and Section 457 deferred compensation plans.

Application to the Military Retirement System

The military is a public sector retirement plan. It does not offer a vesting schedule for early retirees, though the military may occasionally announce an "early out" program to limit its pension responsibilities. There is no requirement for membership in the Pension Benefit Guaranty Corp., which acts as an insurance backstop for failed pension plans. Military pensions are therefore considered nonqualified retirement plans.

About the Author

Jason Van Steenwyk has been writing professionally since 1998. A former staff reporter for "Mutual Funds Magazine," he has been published in "Wealth and Retirement Planner," "Annuity Selling Guide," "Registered Rep." "Bankrate.com" and "Senior Market Advisor." He holds a Bachelor of Arts in humanities from the University of Southern California.

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