I think captured or missing officers should be treated just the same for seniority purposes. If you want to retire them that's fine, but I'm unaware of any military service that suspends seniority for captured officers. Quite a few notable people have been promoted while POWs.
They would be (treated the same for seniority purposes) - that's why I suggested that when they get repatriated they go back into the officer pool, presumably with their time-in-grade bonus intact.
I'm actually trying to emulate a "Missing, presumed lost" state, where you have no contact with the alien race and so you don't know that they're PoWs.
The difference between Aurora and the real world is that there are a fixed number of higher rank slots in Aurora which, as Steve said long ago, are not intended to represent the entire officer pool, just the "exceptional" officers (hence no officers with negative stats). The idea is, from the point of view of game mechanics, to move captured (or missing) officers out of exceptional status and into the regular officer pool. If the officers in question are repatriated, then they go back into the exceptional pool as before.
For known POWs (i.e. some level of diplomacy/communications has been opened with the capturing race) I could go either way; I'm inclined to leave them out of the exceptional pool (because they are not candidates for non-PoW command slots) but I could see leaving them in as well for the reasons you mention.
John