Not your Mother’s SBP
by Gary Port /
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May 23, 2008
I’ve never been a big fan of the Suvivor’s Benefit Plan (SBP). As you may know, military retired pay ends on the dead of the retiree. Unlike a 401K or IRA, there is no bank account with money in it. Once the retiree dies, the payments from DFAS cease. The spouse or former spouse, gets nothing on the retiree’s death, unless there is SBP.
The SBP is a program created by Congress to provide an annuity for the surviving spouse (and/or children). The program also provides automatic coverage for any servicemember who dies in the line of duty. It is available to all members of the military to include the Coast Guard, the National Health Service and the National Oceanic and Atmospheric Administration. And yes, it covers us second class citizens in the Reserves.
Under the Former Spouses Protection Act, the coverage is automatic. In other words, the spouse has to actively refuse coverage. This provision was placed in the law to protect a spouse who after twenty years of marriage gets dumped by the servicemember upon retirement. A servicemember can opt out. But, the spouse must sign a waiver. This election must be made prior to the first day the member become eligible to receive the retired pay.
A reservist must make an election within 90 days of receiving the 20 year letter: (1) decline to make an election until age 60; (2) elect coverage to begin on the servicemember’s death or upon the date the servicemember would have been eligible to receive the retired pay, whichever is later; or (3) elect coverage to commence upon the servicemember’s death, regardless of the member’s age when death occurs. However, if the election is not made, then the servicemember is automatically enrolled in (3). A reserve servicemember who elects to forgo the SBP in the 90 day period can change his/her mind when he/she is eligible to receive retired pay.
A former spouse can receive SBP. A judge in a divorce can award SBP. The election to the former spouse must be made within one year of the judgment of divorce. Only one spouse or ex-spouse can receive SBP. This is no splitting or allocating. If ex-spouse is getting the SBP, the new spouse is locked out.
SBP used to have a “social security” offset. A spouse would receive 55% of the retiree’s pay until the spouse turned 62. Then the SBP payments would be reduced to 35% of the retired pay. In 2007, the rule changed, as of April 1, 2008 all spouses will received 55% regardless of their age. The social security offset is now gone. From April 1, 2007 to March 31, 2008, spouses over the age of 62 got 50% of the pay. On April 1, 2008, that went up to 55%.
This new law goes a long way to fixing some of the problems inherent with the program.