SECTION 1. ELECTION TO RECEIVE RETIRED PAY FOR NON-REGULAR SERVICE UPON 
              RETIREMENT FOR SERVICE IN AN ACTIVE RESERVE STATUS 
              PERFORMED AFTER ATTAINING ELIGIBILITY FOR REGULAR 
              RETIREMENT.

    (a) Election Authority; Requirements.--Subsection (a) of section 
12741 of title 10, United States Code, is amended to read as follows:
    ``(a) Authority To Elect To Receive Reserve Retired Pay.--(1) A 
person may elect to receive retired pay under this chapter, instead of 
receiving retired or retainer pay under chapter 65, 367, 571, or 867 of 
this title, if--
            ``(A) the person satisfies the requirements specified in 
        paragraphs (1) and (2) of section 12731(a) of this title for 
        entitlement to retired pay under this chapter;
            ``(B) the person served in an active status in the Selected 
        Reserve of the Ready Reserve after becoming eligible for 
        retirement under chapter 65, 367, 571, or 867 of this title 
        (without regard to whether the person actually retired or 
        received retired or retainer pay under one of those chapters);
            ``(C) the person completed not less than two years of 
        service in such active status (excluding any period of active 
        service); and
            ``(D) the service of the person in such active status is 
        determined by the Secretary concerned to have been 
        satisfactory.
    ``(2) The Secretary concerned may reduce the two-year service 
requirement specified in paragraph (1)(C) in the case of a person who--
            ``(A) completed at least six months of service in a 
        position of adjutant general required under section 314 of 
        title 32 or in a position of assistant adjutant general 
        subordinate to such a position of adjutant general; and
            ``(B) failed to complete the minimum two years of service 
        solely because the appointment of the person to such position 
        was terminated or vacated as described in section 324(b) of 
        title 32.''.
    (b) Actions To Effectuate Election.--Subsection (b) of such section 
is amended by striking paragraph (1) and inserting the following new 
paragraph:
            ``(1) terminate the eligibility of the person to retire 
        under chapter 65, 367, 571, or 867 of this title, if the person 
        is not already retired under one of those chapters, and 
        terminate entitlement of the person to retired or retainer pay 
        under one of those chapters, if the person was already 
        receiving retired or retainer pay under one of those chapters; 
        and''.
    (c) Conforming Amendment To Reflect New Variable Age Requirement 
for Retirement.--Subsection (d) of such section is amended--
            (1) in paragraph (1), by striking ``attains 60 years of 
        age'' and inserting ``attains the eligibility age applicable to 
        the person under section 12731(f) of this title''; and
            (2) in paragraph (2)(A), by striking ``attains 60 years of 
        age'' and inserting ``attains the eligibility age applicable to 
        the person under such section''.
    (d) Repeal of Restriction on Election To Receive Reserve Retired 
Pay.--Section 12731(a) of such title is amended--
            (1) by inserting ``and'' at the end of paragraph (2);
            (2) by striking ``; and'' at the end of paragraph (3) and 
        inserting a period; and
            (3) by striking paragraph (4).
    (e) Clerical Amendments.--
            (1) Section heading.--The heading for section 12741 of such 
        title is amended to read as follows:
``Sec. 12741. Retirement for service in an active status performed in 
              the Selected Reserve of the Ready Reserve after 
              eligibility for regular retirement''.
            (2) Table of sections.--The table of sections at the 
        beginning of chapter 1223 of such title is amended by striking 
        the item relating to section 12741 and inserting the following 
        new item:

``12741. Retirement for service in an active status performed in the 
                            Selected Reserve of the Ready Reserve after 
                            eligibility for regular retirement.''.
    (f) Retroactive Applicability.--The amendments made by this section 
shall take effect as of January 1, 2008.

SEC. 2. RECOMPUTATION OF RETIRED PAY AND ADJUSTMENT OF RETIRED GRADE OF 
              RESERVE RETIREES TO REFLECT SERVICE AFTER RETIREMENT.

    (a) Recomputation.--Section 10145 of title 10, United States Code, 
is amended by adding at the end the following new subsection:
    ``(e)(1) If a member of the Retired Reserve is recalled to an 
active status under subsection (d) in the Selected Reserve of the Ready 
Reserve and completes not less than two years of service in such active 
status, the member is entitled to--
            ``(A) the recomputation of the retired pay of the member 
        determined under section 12739 of this title; and
            ``(B) in the case of a commissioned officer, an adjustment 
        in the retired grade of the member in the manner provided in 
        section 1370 of this title.
    ``(2) The Secretary concerned may reduce the two-year service 
requirement specified in paragraph (1) in the case of a member who--
            ``(A) is recalled to serve in a position of adjutant 
        general required under section 314 of title 32 or in a position 
        of assistant adjutant general subordinate to such a position of 
        adjutant general;
            ``(B) completes at least six months of service in such 
        position; and
            ``(C) fails to complete the minimum two years of service 
        solely because the appointment of the member to such position 
        is terminated or vacated as described in section 324(b) of 
        title 32.''.
    (b) Retroactive Applicability.--The amendment made by this section 
shall take effect as of January 1, 2008.
Authorizes reserve personnel who serve in an active reserve status in the Selected Reserve for at least two years after becoming eligible for active-duty retirement to elect a non-regular retirement for which they are qualified.

 Authorizes the Secretary of the military department concerned to reduce the two-year service requirement in certain cases.

Provides for the recomputation of retired pay and, if appropriate, the adjustment of the retired grade of reserve retirees to reflect the successful completion of at least two years of post-retirement service in an active reserve status.
A bill to amend title 10, United States Code, to modify certain retirement pay and grade authorities for service performed after eligibility for retirement, and for other purposes.