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Pacific edition, Saturday, September 6 2008

The value of the military Survivor Benefit Plan has climbed sharply over the last three years as a steep drop in SBP annuities, which had hit surviving spouses at age 62, was phased down and then eliminated last April.

SBP participation for newly-minted retirees, however, has risen only modestly. The sign-up rates raise concerns that too many careerists, particularly sailors and Marines, aren’t briefed well on the bargain SBP represents for protecting spouses, dependent children or even ex-spouses from financial hardship after retirees die.

Last fiscal year, 33 percent of sailors entering retirement with spouses or children declined to enroll in SBP. The turndown rate was 31 percent among retiring Marines. By contrast, only 16 percent of retiring soldiers and 18 percent of retiring airmen rejected survivor benefits.

The rejection rates were only 2 to 4 percentage points lower than in 2005, even though Congress has ended the plan’s most unpopular feature, the “Social Security offset,” and has approved a “paid-up premium” rule to benefit long-time participants. That will take effect Oct. 1.

Brad Snyder, president emeritus of the Armed Forces Services Corporation, has conducted perhaps 4,000 briefings and counseling sessions for retiring members on SBP since the plan began in 1972. Like many benefit experts, Snyder believes SBP can’t be matched by alternatives being pitched to retiring careerists by insurance companies and investment firms.

In 2004, service associations were complaining that the government subsidy had fallen below 20 percent of SBP costs and premiums covered the remaining 80 percent or more. By October, Defense officials say, the subsidy will average 50 percent, delivering significantly more savings to participants.

Snyder said the hefty subsidy is one of three features that make SBP incomparable to other investment options. Another is that retirees pay SBP premiums with pre-tax dollars, creating a tax advantage that lowers premium costs. Also, SBP annuities are adjusted annually to match inflation.

“Nothing in private sector does that,” Snyder said.

Snyder was asked if, during recent briefings on SBP, members nearing retirement were wide-eyed over plan improvements. Not really, he said.

“What surprised me the most is that their eyes didn’t open wide,” Snyder said. “They didn’t seem to sense that somebody had just given them the winning lottery ticket. That’s how I would have looked at it.”

Under SBP, a retiree forfeits 6.5 percent of “covered” retired pay each month in premiums. In return, when the retiree dies, the surviving spouse or designated beneficiary will get an annuity equal to 55 percent of covered retired pay. Until the offset was phased out, surviving spouses who reached age 62 saw annuities fall to as low as 35 percent of retired pay.

This change alone, said Snyder, added $150,000 to $250,000 to the lifetime value of SBP for a typical officer retiree. The added value range will be lower than that for a typical enlisted retiree but it is still a richer benefit.

Snyder, 68, was wounded in Vietnam and medically retired in 1966 at age 26. He went to work for the Army Mutual Aid Association which evolved into Army and Air Force Mutual Aid Association. Snyder followed SBP as it took shape and suspects he was the first retiree to apply for coverage

“I had a friend at the Rose Garden who witnessed Richard Nixon’s signature. It was about 1:30 on the 21st of September, 1972. He called and said, ‘Brad he did it.’ I had a letter we were supposed to use; they had no forms. I ‘certified’ mailed it at 2 o’clock” to a surprised finance center office. “They didn’t even know what my letter was referring to,” he chuckled.

Snyder became an SBP and insurance expert, giving briefings throughout the military. In 2000, the AAFMAA spun off a new company, the Armed Forces Services Corporation, to be able to offer benefit advice to all branches of service and to compete for government service contracts.

Snyder needs only a few seconds to gut any debating point raised by insurance or investment firms for rejecting SBP in favor company products. For example:

Insurance plan premiums won’t be increased like SBP. True, Snyder explained, but policy values also won’t change and will lose ground to inflation over time. SBP premiums rise annually but the increases are tied to rising retired pay, and a proportional rise in SBP coverage.

SBP gives no money back if spouse dies first. “You can’t have money come back when your benefit is subsidized and you’re not paying the full amount in the first place,” Snyder said. “Second, if you drive an automobile and don’t have an accident this year, you’re not going to get your money back. Here, you bought SBP coverage in case you died that year.”

What an insurance company wants retirees to do, said Snyder, “is to buy a whole life policy and pay much more in the premiums. If your wife dies you can cash it in. But you get your own money back plus interest.”

SBP provides no residual estate for children. That’s not a primary mission of SBP, said Snyder. “I have six children. My residual estate to my children will be a financially independent mother…Fifty-five percent of my retired pay will meet her basic needs, and the other part of my estate she will not have to live on. Therefore the children will be better off.”

SBP is subject to revision. So far, those revisions have been very good to beneficiaries, said Snyder. SBP has seen about 35 changes. The score so far: “It’s 35 us, government 0,” said Snyder.

Members nearing retirement need better information, Snyder said.

“My two nemeses are the carpool and the 19th hole,” he said. “That’s when all the negative rumors on SBP start. And they believe them because their friend is telling them. What they don’t understand is that their friend doesn’t know what he’s talking about.”

To comment, e-mail, write to Military Update, P.O. Box 231111, Centreville, VA, 20120-1111 or visit:

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