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New Settlement FAQs:
(Frequently Asked Questions)

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Settlement FAQs

1. Q. Is a settlement payment taxable income?
   1. Settlement lump sum money is taxed as ordinary income in the year that you receive it. Similarly, if you elect the board option and are successful, any back pay you receive will be taxable income in the year that you receive it. However, we are not tax experts and you are encouraged to discuss tax consequences with your tax advisor.

2. Q. How does potential recoupment of separation pay relate to the settlement?
   1. The lump sum payment is unrelated to the separation pay you previously received. Recoupment of separation pay becomes an issue for individuals who, for any reason, someday become eligible for a military retirement under Title 10 of the United States Code. Such a payback of separation pay will come from retired pay when the individual begins to receive it. However, you should also note, if you elect the board option and are successful, that will have the effect of undoing your previous separation. In that event, the separation pay will not only be an offset against back pay, but, if your subsequent offsetting earnings exceed the back pay, you may have to pay back the separation pay because the board option removed your eligibility for it.

3. Q. How does potential consideration for promotion play out under the board option with particular regard to those of us who continued service in a reserve capacity?
   1. If you elect the board option, your records will be reviewed as they were in 1992. If you are selected for retention, then you would be eligible for special selection board promotion consideration for any active duty promotion board(s) you missed. If selected for promotion by any such board, you would receive the backdated date of rank for that promotion. If you are currently in an active duty status, such as a reserve officer activated for the current build up, your current grade and status are unrelated to how this plays out. If not selected for promotion by the special selection board(s), you could take the back pay and constructive credit (if retained under the board option) and retain any reserve status. The potential advantage is that will put you that much closer to a 20 year active duty retirement. If your reserve status is not full time active duty, the constructive credit for active duty since 1 January 1993 will count as full time active duty for purposes of calculating your retired pay at age 60. You will not be able to get double credit for active duty for the same period. To see when you might become eligible for a 20 year active duty retirement if selected under the board option for retention, add your active duty time as of December 31, 1992 to the period of January 1, 1993 through November 1, 2003 (a rough estimate of when this process might come together if the Court expeditiously approves the settlement) and subtract that from 20 years. A problem for some will be any effort to convert a reserve component promotion to an active duty promotion with no loss of date of rank. However, the settlement includes a provision that no one will be placed in a less advantageous position than they were in without the board.

4. Q. I have a higher reserve grade now than when I was RIFed. Will that increase the amount of back pay I could become eligible for under the board option?
   1. The increased back pay for your higher grade would only be paid if you were selected for earlier promotion by the special selection board(s) that would consider the missed promotion opportunities. There are no automatic promotions or payments for promotion.

5. Q. If I select the board option, am retained and selected for promotion to Major, will I be considered for promotion to Lieutenant Colonel?
   1. To be eligible for promotion to Lt Col under the terms of the settlement, you would have to:
      1. Elect the board option.
      2. Be selected for retention.
      3. Be selected for promotion to major by a special selection board that considers you based on the missed promotion opportunity, assuming there ere one or more missed promotion opportunities.
      4. Have missed a Lt Col board, based on your corrected date of rank as a major under c above.
      5. Be selected for promotion to Lt Col by a special selection board that considers you based on the missed promotion opportunity to Lt Col.

   Obviously, the relative strength of your file is critical in evaluating the odds of favorable consideration. But getting through all of these gates would be very tough. For each missed board, the reconsideration process will consider your file as it existed on the date that the missed board convened. That means that if you are selected for retention and for major, the Lt Col board will have nothing substantive in your file in the grade of major to review, (unless there are already such reports based on active duty selection or reserve selection to major unrelated to this case).

6. Q. If my primary hope is to achieve a military retirement, shouldn't I opt out of the settlement?
   1. No one now knows how the Christian appeal will be resolved. If the government loses that appeal and the appellate court renders a ruling that a harmless error test is inapplicable to unconstitutional consideration of race and gender classifications by selection boards, there is a significant likelihood that individuals who opt out of the settlement will become eligible for retirement, if constructive service coupled with active service totals twenty years. If the government wins the appeal and is allowed to apply a harmless error test, it is possible most or even all individuals who opt out of the settlement will recover nothing. Because of these unknowns, you will have to decide whether to risk the board process created by the settlement agreement or risk the outcome of the Christian harmless error appeal.

7. Q. I'm planning on selecting the board option. I haven't kept copies of my old tax returns. How can I get them from the IRS?
   1. The IRS has a webpage with specific information on how to do this.

      Check out: "Need a Copy of Your Tax Return Information? Call the IRS"

8. Q. I selected the Board option. Included in the documents that I must submit is an executed DD Form 2058. Where can I locate DD Form 2058?
   1. Class members who select the board option will have sixty days after Court approval of the settlement to submit to class counsel the information required by Annex 2 of the Agreement. Although the Court has not yet approved the Settlement, we recommend that those requesting the board option begin assembly of the necessary information.

      In that regard, a copy of DD Form 2058, the State of Legal Residence Certificate, may be downloaded at http://www.dior.whs.mil/forms/DD2058.PDF *

      * The PDF file above requires Adobe Acrobat Reader^® for viewing (free software).

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