Military Update: Congress nixes Survivor Benefit Plan changes
March 29, 2003
House and Senate Budget Committees have rejected as too costly a major initiative this year to improve the military Survivor Benefits Plan.
Two groups of associations — The Military Coalition and the National Military/Veterans Alliance — had sought to persuade these committees to set aside enough budget authority in 2004 budget resolutions to allow Congress to end a sharp drop in SBP annuities that occurs when survivors turn 62.
Military Officers Association of America, formerly The Retired Officers Association, led the "SBP Fix" campaign for the coalition, advising retirees and survivors to bombard budget committee members with phone calls, letters and e-mails urging support for improved survivor benefits.
Bills to implement the SBP fix — H.R.548 introduced by Rep. Jeff Miller, R-Fla., and S.451 from Olympia Snowe, R-Maine — are still in play but prospects for passage this year are now dim. MOAA officials said the key to passing the proposal was to have budget committees earmark the necessary budget authority for the armed services committee to have to execute SBP reform.
That didn't happen. On March 26, the Senate, like the House a week earlier, passed a budget blueprint with no mention of an SBP fix. Both chambers decided the cost, estimated by the Congressional Budget Office at $7.5 billion over 10 years, was too high.
Under SBP, retirees buy annuity protection for their survivors by forfeiting a portion retired pay each month in the form of premiums. Upon a retiree's death, the widow receives 55 percent of covered retired pay. At age 62, however, payments drop. The size of the drop is variable if an SBP recipient signed up under an earlier plan. But the sharpest and most common drop is from 55 percent down to 35 percent of the covered amount.
The Military Survivor Benefits Improvement Act of 2003, sponsored by Miller and Snowe, would phase out the drop in benefits, which many retirees and survivors complain they knew nothing about when they elected SBP. Effective Oct. 1, 2004, the reduction at age 62 would fall not to 35 percent but only to 40 percent. A year later it would be 45 percent and so on, until by October 2008, SBP for all would be 55 percent of covered retired pay. The dip at age 62 would be gone.
The bill also would phase out the SBP supplemental annuity. Retirees buy such coverage now at a fairly high cost to avoid the step down at 62.
Finally, the bill would allow a year-long "open season" to allow retirees who turned down coverage earlier, perhaps because of the step down in benefits, to enroll in the improved plan.
MOAA and other service associations argue that these improvements are overdue and justified by declines over the years in the government's SBP subsidy. When the program began more than 30 years ago, premiums were set so retirees paid 60 percent of the cost and the government 40 percent. Because retirees are living longer, SBP payouts have been lower than expected and premiums continue years longer than actuaries estimated. That government's subsidy of 40 percent a year is down to 17 percent.
The shrunken-subsidy argument could still sway the House and Senate Armed Services Committees to act on the bills. What makes that unlikely is a requirement to stay under budget ceilings. The cost of improving SBP now would have to be paid for by offsets in spending elsewhere. The defense budget already is strapped by wars in Iraq and against worldwide terrorism.
Concurrent Receipt — The Senate's budget resolution does hold a different surprise, for military retirees with service connected disabilities. It includes language from Sen. Harry Reid, D-Nev., to phase out the ban on concurrent receipt, of both military retired pay and VA disability compensation, for service-related injuries or illnesses rated 60 percent or higher. The Reid initiative is identical to a partial concurrent receipt formula passed by the House last year but killed by a veto threat from President Bush. This year, senators found budget authority for partial concurrent — $12 billion over 10 years — from money made available after slashing in half Bush's $700 billion tax cut package.
Disabled retirees shouldn't get excited, however. The Bush administration still opposes concurrent receipt, whether it involves full repeal, as pushed by Reid last year, or the limited, phase-in plan now before the Senate.
The House budget resolution is silent on concurrent receipt.
"We made considerable strides last year with $6 billion in additional benefits over 10 years," said a committee source, referring to the new Combat-Related Special Compensation (CRSC). "Let's wait at least a year or two to digest that, and [then] see where we are."
CRSC — Defense officials expect initial payments under this program to begin July 1. Application forms should be mailed to all retirees by early May. Monthly CRCS will go to those who served 20 or more years' active service and have "combat related" disabilities. Qualifying disabilities will be those for which members received the Purple Heart or disabilities rated 60 percent or higher by VA and linked to combat, combat training, hazardous duty or exposure to "instrumentalities of war," which could include Agent Orange.
CRSC is designed to replace any retired pay lost to the dollar-for-dollar offset required under the "concurrent receipt" ban when retirees begin drawing VA disability compensation. Retirees who believe they are eligible for CRSC will have to apply. An estimated 35,000 are expected to quality. Payments will range from a few hundred dollars to more than $2,000 a month.
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