SURVIVOR BENEFIT
PLAN (SBP)
Presented by
Dan McCullough
USAF Academy
Survivor Benefit Plan Counselor
333-2129
AVERAGE LIFE EXPECTANCY
• Life expectancy in the USA
• Average is 78.0 years
• Males – 75.15 years
• Females – 80.97 years
• Average number of years female spouses outlive male
military retirees
• 30% of female spouses - 15 years
• 20% of female spouses - 29 years
• 10% of female spouses - 34 years
** Life expectancy averages taken from U.S. Census Bureau, International Data
Base as of 7/16/2007
PURPOSE OF SBP
• Retired pay stops the date of the retiree’s death!
•
•
• Even if there’s a surviving spouse/children
SBP is the only way survivors can receive a portion
of deceased member’s retired pay
SBP provides surviving spouses with a continuing,
inflation-protected, lifetime income
AUTOMATIC COVERAGE
PROVISION
• All retirees must complete a DD Form 2656 before
retirement date
• Provides DFAS-CL data required to properly
establish your retired pay account
• Federal and state income tax
• Arrears of retired pay beneficiary(ies)
• Properly establishes SBP coverage
AUTOMATIC COVERAGE
PROVISION
• Spouse concurrence required on the DD Form 2656
•
•
when married member does not elect full spouse
coverage
DD Form 2656 must be completed, dated, and
properly witnessed by SBP counselor
If DFAS-CL does not receive the DD Form 2656
with a valid SBP election (and spouse concurrence,
if required) before retirement date, the law requires
maximum SBP coverage be established (even for a
single person!)
SBP BENEFICIARY CATEGORY
OPTIONS
• Each retiring member must elect a category of SBP
beneficiary:
• Spouse
• Child(ren)
• Spouse and Child(ren)
• Former Spouse
• Former Spouse and Child(ren)
• Insurable Interest
• Decline
LEVEL OF COVERAGE
AVAILABLE
• Each retiring member must elect a level of coverage:
• By selecting a “base amount”
• Base amount determines the cost
• Cost also determined by category of beneficiary
elected
• Base amount determines the annuity payable
• Base amount can be any $$ figure between $300 and the
member’s full (gross) retired pay
• Cost-of-living adjustments (COLAs) are applied to the
base amount at the same time and rate as retired pay
increases
SPOUSE ONLY OPTION
• A spouse, married to member on date of retirement, is
•
immediately eligible
• No length of marriage requirement
A member, who is not married on the date of
retirement, may cover a future spouse
• Member must send written request to DFAS prior to
1st anniversary of first marriage after retiring and
include a copy of the marriage certificate/license
SPOUSE ONLY OPTION
• New spouse becomes an eligible beneficiary the
earlier of:
• 1st anniversary of marriage
• Upon birth of a child if before the 1st anniversary of
marriage
• Exception: Immediately if retired member
remarries the spouse covered at retirement and
member elects to resume spouse coverage
SPOUSE ONLY OPTION
• SBP coverage and premiums are suspended if spouse
loses eligibility:
• Death
• Divorce (may change election to Former Spouse
coverage following divorce)
SPOUSE ONLY OPTION
• Remarriage options for members with suspended
spouse SBP coverage
• Member must send written request to DFAS prior to
first anniversary of marriage to:
• Resume prior level of coverage for new spouse,
OR
• Increase prior level of coverage for new spouse,
• Member must repay difference with interest
before 1st anniversary of marriage
OR
• Decline coverage for new spouse
SPOUSE ONLY OPTION
• If a member with suspended spouse coverage does
NOTHING prior to the 1st anniversary of marriage:
• Coverage is automatically established by operation of
law for new spouse on 1st anniversary of marriage
• For the same level of coverage previously in effect
• If DFAS is not promptly notified of marriage, debt of
premiums will accrue
SPOUSE ONLY OPTION
• Provides spouse an annuity of 55% of the elected base
amount for life
• Remarriage before age 55 suspends annuity
• Annuity can be reinstated if remarriage ends
• Due to death or divorce
•
•
• Annuity continues if remarriage occurs at age 55 or
older
Annuity increases with retiree COLAs
Annuity is taxable
CHILD ONLY OPTION
• Children are eligible until age 18 (22 if unmarried
•
•
full-time students)
Children disabled and incapable of self-support
remain eligible for life or as long as disability causes
them to be incapable of self-support
• Be cautious if Social Security Disability benefits
are involved
However, child’s marriage at any age terminates
child’s eligibility
CHILD ONLY OPTION
• Covers all member’s children while they are eligible
•
•
• Cannot designate a particular child(ren) to receive
the annuity
Child cost based on ages of member and youngest
child
Child coverage and cost suspended when last child
loses eligibility
CHILD ONLY OPTION
• Future child(ren) (natural, adopted, step, grand) are
•
automatically covered if child coverage elected
• Future child(ren) covered on date of acquisition
• No change in cost if member is currently paying
premiums for child coverage
• If premiums had been suspended because last child
lost eligibility, new child costs recomputed based
upon current ages of member and new youngest
child
Member must notify DFAS-CL in writing with a copy
of the new child’s birth certificate
CHILD ONLY OPTION
• Member who has no eligible children at retirement may
cover a future child
• Member must send written request to DFAS within
one year of acquiring the first eligible child and
include copy of child’s birth certificate
• Child becomes covered on date of receipt of the
election request by DFAS-CL
• Costs begin 1st day of the following month
CHILD ONLY OPTION
• Provides eligible child(ren) an annuity of 55% of the
•
•
elected base amount
• Only one annuity is payable
• All eligible children receive equal shares of the
annuity (when over age 18)
Annuity paid to adult guardian on behalf of a minor
child
Don’t consider electing child only coverage as
replacement income for spouse because it can’t be
changed to spouse coverage when last child loses
eligibility
SPOUSE & CHILD OPTION
• Spouse is the primary beneficiary
•
•
• Spouse receives annuity until death or remarriage
prior to age 55
• Annuity reinstated if remarriage terminates
Eligible children are contingent beneficiaries
• Receive equal shares of the annuity if spouse dies or
remarries prior to age 55
Provides maximum family coverage
FORMER SPOUSE OPTION
• Only one former spouse may be covered
• Excludes current spouse (can’t split the annuity)
• Can suspend premiums if former spouse remarries prior to
age 55
• Must furnish copy of former spouse’s remarriage
certificate
• Does not terminate former spouse’s eligibility
• Just suspends former spouse’s eligibility to receive
the annuity while remarried
• Premiums reinstated if remarriage ends
FORMER SPOUSE OPTION
• Both DD Form 2656 and DD Form 2656-1 must be
completed prior to retiring
• Copy of complete divorce decree (including property
settlement, if applicable) must be attached
FORMER SPOUSE & CHILD
OPTION
• Former Spouse is the primary beneficiary
•
• Former Spouse receives annuity until death or
remarriage prior to age 55
• Annuity reinstated if remarriage terminates
Eligible children are contingent beneficiaries
• Only children from marriage to this former spouse
are eligible
• Excludes children of any other marriage
• Receive equal shares of the annuity if former
spouse dies or remarries prior to age 55
INSURABLE INTEREST
OPTION
• Unmarried members with no or only one dependent
child may elect this option
• If one dependent child, cannot bypass the
dependent child and elect insurable interest
coverage for someone else
• Can elect for one dependent child in lieu of child
only coverage, allowing child to receive life-long
payment regardless of age, martial or student
status
• Cost much more expensive than child only coverage
INSURABLE INTEREST
OPTION
• Can elect coverage for a person with a financial
interest in the continued life of the member
• Can be a relative or non-relative
• If related closer than cousin, no proof of
financial interest needed
• Others must prove financial interest connection
• Examples: Beneficiary of life insurance
policy, business partner, joint property
owner, etc.
INSURABLE INTEREST
OPTION
• Lifetime coverage for beneficiary
•
•
•
• Not terminated by marriage, student status, or age
Beneficiary receives 55 % of retired pay after SBP
costs are deducted
Member may terminate coverage at any time
• Can’t name another insurable interest beneficiary
Member may change to coverage for new spouse
and/or child
• Must submit election change request to DFAS-CL
within one year of acquiring new spouse and/or
child
BRIEF THE FOLLOWING SLIDE IF
MEMBER IS RETIRING FOR
DISABILITY
INSURABLE INTEREST
OPTION
• Insurable Interest election will be vitiated (voided) if:
•
•
• Member retires for disability, and
• Member dies within one year of retiring, and
• Cause of death is related to the disability for which the
member is retired
If election is voided, premiums paid will be refunded to
the SBP beneficiary
Exception: An annuity is payable if the SBP beneficiary
is a dependent holding a valid military dependent ID card
with the member as the sponsor on the member’s date of
death
DECLINE COVERAGE
• Retired pay STOPS when retiree dies
• No payments made to anyone unless member is enrolled in
•
SBP
SBP beneficiary excluded at retirement can not arbitrarily
be covered in the future
• If member has an eligible spouse at retirement and
declines spouse coverage, cannot cover that spouse or a
later acquired spouse
• If member has an eligible child at retirement and declines
child coverage, cannot cover that child or a later acquired
child
SPOUSE PREMIUMS
• Cost is 6.5 percent of the base amount you elect; or
• If base amount is lower than $1,575, cost is 2.5 percent
•
•
of the first $735, plus 10 percent of the base amount in
excess of $735
• If you initially entered active service prior to 1 Mar
90 or are retiring for disability
Cost increases with retiree COLAs
Premiums are not taxable
• Provides a tax savings
• SBP cost lower than it appears
SBP Program Cost Factors
Thresholds to determine premiums
$300
$735/736
$1,574/1575
Minimum
Base Amount
$ 735
Dollar Amount
Between
$300 - 735
Maximum
Base Amount
$1,000
Dollar Amount
Between
$736 - $1,574
-$735
X
2.5 % _ Cost Factor
$ 18.37
= Premium
From Threshold 1
$1,800
Dollar Amount
Between $1,575 and
Maximum Base Amount
(Full Retired Pay)
= $265______ Difference
($1,800 base provides $990
month annuity)
X
_ Cost Factor
X
= Premium
$117.00
10 %
$26.50
$44.87 = Monthly Premium for $1,000.00 Base
Amount which provides $550 annuity
6.5 %
Cost Factor
= Premium
per
SBP Program Cost Factors
Threshold 1
$300
$735
$ 725
Dollar
Amount
Between
$300 - $735
X
2.5 % _ Cost Factor
$ 18.37
= Premium
Minimum Amount of retired pay which can be used
as a “Base Amount” is $300. Any dollar amount
between $300 and $735 makes up the 1st threshold.
The cost factor for any base amount in this
threshold is 2.5%.
If $300 is used as the base the cost is:
2.5% of $300 = $7.50 per month
Annuity payable is 55% of the base amount
- 55% of $300 = $165
If $735 is used as the base the cost is:
2.5% of $735 = $18.37 per month
Annuity payable is 55% of the base amount
SBP Program Cost Factors
Threshold 2
$736
$1,574
$1,000
Dollar
Amount
Between
$736 - $1,574
-$735
. From Threshold 1
= $265
. Difference
X
. Cost Factor
10 %
$26.50
= Premium
Cost computations for Threshold 2 are
computed using amounts of retired pay
between $736 and $1,574. You take your
chosen base amount (i.e. $1,000), subtract $735
from Threshold 1 ($1,000 - $735 = $265), take
10% of the remainder ($26.50) and add the
result to the cost amount in Threshold 1
($18.37).
In the example, we used $1,000 of retired pay
as the base amount. The final cost ends up
being $44.87 ($26.50 + $18.37) and the annuity
payable is 55% of $1,000 ($550 per month).
If $1,574 is used as the base amount, the cost is
$102.27 ($83.90 + $18.37) and the annuity is 55%
of $1,574 ($865 per month).
SBP Program Cost Factors
Threshold 3
$1,575
Full Retired Pay
$1,800
Dollar Amount
Between $1,575 and
Maximum Base Amount
(Full Retired Pay)
($1,800 base provides $990
month annuity)
X
6.5 %
$117.00
Cost Factor
= Premium
per
When you get to $1,575 of retired pay, it
becomes cheaper for the retiree to compute the
cost by simply using a flat 6.5% cost factor on
the entire amount.
In this example, we used $1,800 of pay as a base
amount. The cost comes out to $117.00 per
month and the annuity would be 55% of $1,800
($990 per month).
DEPENDENCY AND INDEMNITY
COMPENSATION (DIC)
• DIC is a tax-free monthly payment awarded by the VA
• If member’s death is ruled service-connected by the
VA AND
• If member has been rated 100% VA disabled for:
• 10 or more years immediately preceding death
• 5 or more years immediately preceding death if awarded
100% VA disability rating at retirement
• 1 year immediately preceding death if member was a
former POW
DEPENDENCY AND INDEMNITY
COMPENSATION (DIC)
• DIC is paid to:
•
•
• Unmarried surviving spouse ($1,154 per month)
• Eligible children ($286 per month)
DIC reduces surviving spouse’s SBP annuity
dollar-for-dollar
• SBP premiums refunded for portion of the SBP
annuity not received
DIC does NOT reduce the SBP annuity paid to
child(ren)
WITHDRAW FROM SBP BECAUSE OF
VA DISABILITY RATING
• Retirees may withdraw from SBP because of VA
disability rating
• If member has been rated 100% disabled by the VA
for:
• 5 consecutive years immediately following
retirement
• 10 consecutive years if 100% disability rating
was not received immediately following
retirement
WITHDRAW FROM SBP BECAUSE OF
VA DISABILITY RATING
• Retiree sends signed letter of request to DFAS
• DFAS processes written request and:
• Sends member a fact sheet with pros and cons of
withdrawing
• Verifies rating with the VA
• Sends concurrence statement for spouse to sign
• All premiums terminated
• Premiums refunded to widow(er) following the
member’s death
DISCONTINUE
PARTICIPATION
• Member can discontinue ALL participation in the
SBP during a one-year period
• One-year period begins on 2nd anniversary of
retirement, ends on 3rd anniversary of retirement
(between member’s 25th and 36th month of
retirement)
• No refund of premiums
DISCONTINUE
PARTICIPATION
•
• ALL coverage stops (e.g., can’t keep coverage for a
child and stop the spouse’s portion if election is for
spouse and child coverage)
• Spouse concurrence required
On 3rd anniversary of retirement, election becomes
irrevocable as long as beneficiary remains eligible
CHANGE FROM SPOUSE TO
FORMER SPOUSE COVERAGE
• When a member who has spouse SBP coverage divorces,
•
that spouse’s SBP eligibility is terminated
• No longer the member’s “spouse”
Spouse coverage must be changed to former spouse
coverage in order to keep formerly covered spouse covered
as a former spouse
• Retiree may submit a DD Form 2656-1 to DFAS with a
copy of the divorce decree
• Former spouse may request ‘deemed’ election (if court
ordered or in written agreement)
• Either must be submitted within the first year of divorce
DIVORCE
AFTER RETIREMENT
• Court CANNOT:
•
• order retired member to elect former spouse SBP
coverage if the member does not already have spouse
coverage
• change the level of coverage (base amount) because
of the divorce
If former spouse coverage is elected, member cannot
arbitrarily stop the coverage
MISCELLANEOUS PROVISIONS
• Future Civil Service (CS) retirement
• If retiree waives AF retired pay and combines AF and
CS time, retiree may retain only one survivor annuity
plan (either AF or CS, not both)
• If military retiree does not combine AF and CS time,
retiree may participate in both AF and CS survivor
annuities plans (survivor can receive both annuities)
MISCELLANEOUS PROVISIONS
• Non-resident alien annuitant tax liability
• Flat 30 % income tax reduction
• Status of forces agreement (SOFA) may affect tax
liability
• Only applies to non-U.S. citizen spouses who
return to their home country
MISCELLANEOUS PROVISIONS
• Paid-up premiums
• Member must be at least age 70 AND must have
made 360 premium payments
• No further premium payments required
• Annuity remains payable to eligible beneficiary
• Continues to receive COLAs
UNIQUE FEATURES
• Premiums paid with pre-tax dollars:
•
•
• SBP premiums are deducted from member’s retired
pay before tax liability is assessed
• SBP cost is lower than it appears!!
• Reduces federal and state tax
SBP is government subsidized
COLAs are applied to the annuity even after member
is deceased
• Provides inflation protection for the future!!
UNIQUE FEATURES
• Premiums suspended if there is no eligible beneficiary
• Premiums are paid-up after member reaches age 70 and
•
•
•
•
has made 360 premium payments
Age, health, sex, lifestyle – not factors in cost or
eligibility to be in program
Surviving spouse cannot outlive annuity
SBP provides peace of mind
SBP makes other investments and assets more valuable
MEMBER’S
RESPONSIBILITIES
• Member and spouse must attend SBP briefing
• Complete a DD Form 2656
• Make SBP election
• Obtain spouse’s concurrence (if required) prior to
retirement
• As a reminder, the law requires DFAS establish
maximum SBP coverage if valid election/spouse
concurrence is not received before date of
retirement
MEMBER’S
RESPONSIBILITIES
• After retirement, promptly notify DFAS of changes
that affect SBP or your pay:
• Change in marital status
• Loss or addition of family member(s)
• Change of direct deposit financial institution
• Change in correspondence (residential) mailing
address
• Many can be done using myPay
Closing…
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Congratulations on your retirement!!