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10 U.S. Code § 1370 - Regular commissioned officers
www.law.cornell.edu
If he chooses to investigate, SECDEF can make the change. Congress and the President only get notified for actions concerning retired O-9 and O-10 officers.
Note that they've already talked about investigating Miley and taking a star away from him.
Looks like you are right, surprised someone can be demoted at that grade without assent from Congress (Senate) when it is needed for promotion. At least in the case of General Miley there is this provision:
(4)Notice and limitation.—If a final determination of the retired grade of an officer is reopened in accordance with paragraph (2), the applicable Secretary—
(A) shall notify the officer of the reopening; and
(B) may not make an adverse determination on the retired grade of the officer until the officer has had a reasonable opportunity to respond regarding the basis for the reopening of the officer’s retired grade.