To amend title 10, United States Code, to limit recoupments of separation pay, special separation benefits, and voluntary separation incentive from members of the Armed Forces subsequently receiving retired or retainer pay.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Military Retired Pay Fairness Act of 
2009''.

SEC. 2. LIMITATIONS ON RECOUPMENT OF SEPARATION PAY, SPECIAL SEPARATION 
              BENEFITS, AND VOLUNTARY SEPARATION INCENTIVE FROM MEMBERS 
              SUBSEQUENTLY RECEIVING RETIRED OR RETAINER PAY.

    (a) Separation Pay and Special Separation Benefits.--Section 
1174(h)(1) of title 10, United States Code, is amended--
            (1) by inserting ``(A)'' after ``(1)'';
            (2) in subparagraph (A), as so designated, by striking ``so 
        much of such pay as is based on the service for which he 
        received separation pay under this section or separation pay, 
        severance pay, or readjustment pay under any other provision of 
        law'' and inserting ``an amount, in such schedule of monthly 
        installments as the Secretary of Defense shall specify taking 
        into account the financial ability of the member to pay and 
        avoiding the imposition of undue financial hardship on the 
        member and member's dependents,''; and
            (3) by adding at the end the following new subparagraphs:
    ``(B) The amount deducted under subparagraph (A) from a payment of 
retired or retainer pay may not exceed 25 percent of the amount of the 
member's retired or retainer pay for that month unless the member 
requests or consents to deductions at an accelerated rate. The 
Secretary of Defense shall consult with the member regarding the 
repayment rate to be imposed, taking into account the financial ability 
of the member to pay and avoiding the imposition of an undue hardship 
on the member and the member's dependents.
    ``(C) The deduction of amounts from the retired or retainer pay of 
a member under this paragraph may not commence until the date that is 
90 days after the date on which the Secretary of Defense notifies the 
member of the deduction of such amounts under this paragraph. Any 
notice under this subparagraph shall be designed to provide clear and 
comprehensive information on the deduction of amounts under this 
paragraph, including information on the determination of the amount and 
period of installments under this paragraph.
    ``(D) The Secretary of Defense may waive the deduction of amounts 
from the retired or retainer pay of a member under this paragraph if 
the Secretary determines that deduction of such amounts would result in 
a financial hardship for the member.''.
    (b) Voluntary Separation Incentive.--Section 1175(e)(3) of such 
title is amended--
            (1) in subparagraph (A), by striking ``so much of such pay 
        as is based on the service for which he received the voluntary 
        separation incentive'' and inserting ``an amount, in such 
        schedule of monthly installments as the Secretary of Defense or 
        the Secretary of Homeland Security, as applicable, shall 
        specify taking into account the financial ability of the member 
        to pay and avoiding the imposition of undue financial hardship 
        on the member and member's dependents,'';
            (2) by redesignating subparagraph (B) as subparagraph (C);
            (3) by inserting after subparagraph (A) the following new 
        subparagraph:
    ``(B) The amount deducted under subparagraph (A) from a payment of 
retired or retainer pay may not exceed 25 percent of the amount of the 
member's retired or retainer pay for that month unless the member 
requests or consents to deductions at an accelerated rate. The 
Secretary of Defense or the Secretary of Homeland Security, as 
applicable, shall consult with the member regarding the repayment rate 
to be imposed, taking into account the financial ability of the member 
to pay and avoiding the imposition of an undue hardship on the member 
and the member's dependents.''; and
            (4) by adding at the end the following new subparagraphs:
    ``(D) The deduction of amounts from the retired or retainer pay of 
a member under this paragraph may not commence until the date that is 
90 days after the date on which the Secretary of Defense or the 
Secretary of Homeland Security, as applicable, notifies the member of 
the deduction of such amounts under this paragraph. Any notice under 
this subparagraph shall be designed to provide clear and comprehensive 
information on the deduction of amounts under this paragraph, including 
information on the determination of the amount and period of 
installments under this paragraph.
    ``(E) The Secretary of Defense or the Secretary of Homeland 
Security, as applicable, may waive the deduction of amounts from the 
retired or retainer pay of a member under this paragraph if the 
Secretary determines that deduction of such amounts would result in a 
financial hardship for the member.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the first day of the first month beginning on or after the 
date of the enactment of this Act and apply to deductions made from the 
retired or retainer pay of members of the uniformed services for that 
month and subsequent months.

Summary: Military Retired Pay Fairness Act of 2009 - Provides limitations on the recoupment of separation pay, special separation benefits, and voluntary separation incentive payments from members of the Armed Forces subsequently receiving military retired or retainer pay. Authorizes the Secretary of Defense or Homeland Security, as applicable, to waive such recoupments in cases of financial hardship.