Military Update: Sailors, Marines missing out on SBP enrollment
A typical officer retiring today who declines to enroll in the Survivor Benefit Plan lets the government off the hook for a subsidy worth $50,100 in “net present value,” say Department of Defense actuaries.
The typical enlisted retiree who chooses not to enroll in SBP is turning down a subsidy having a net present value of $22,300.
Net present value is the dollar amount a new retiree would have to invest at time of retirement so that, when combined with monthly premiums, it would build an annuity for the surviving spouse of equal in value to SBP.
This is yardstick to measure the value of SBP. Here’s another:
A 40-year-old retiree with a 38-year-old wife who elects full SBP coverage on a $2,000 monthly retirement could expect to pay $62,000 in total premiums if he died at age 65. If his widow were to live just seven more years, until she reaches 70, she would receive $401,897 in SBP.
Anita Hattiangadi and Lauren Malone, scientific analysts for think tank CNA, used this last example in a Sept. 30 memorandum to the Marine Corps’ deputy commandant. The memo suggested that too many retiring Marines are opting out of SBP and likely won’t get another chance to sign up.
SBP is a great deal, say pay officials. That’s been particularly true since Congress eliminated a sharp reduction in plan annuities that occurred at age 62 when surviving spouses became eligible for Social Security.
Despite the plan’s recent improvements, including a premium “paid-up rule” after 30 years and attainment of age 70, many retirees, with consent of their spouses as the law requires, turn down SBP coverage. The take rate is particularly disappointing among new retirees from the sea services.
Sign-up rates in fiscal 2008, the latest data available, show that only 68 percent of married Navy members and 70 percent of married Marines elected SBP coverage as they retired. By contrast, 85 percent of new Army retirees and 82 percent of new Air Force are buying coverage.
The results suggest that the sea services aren’t doing enough to educate their retiring members and spouses on the SBP plan.
Why is it such a good deal? For starters, the government subsidizes 47 percent of the cost, said Gary McGee, assistant director for military pay policy in the Office of the Secretary of Defense. Commercial life insurance plans aren’t subsidized. Indeed, insurance companies set their rates at least high enough to make a profit.
McGee calls SBP a “great” benefit. Enrollees pay premiums equal to 6.5 percent of monthly retired pay. These are “before tax” dollars which already is an advantage over premiums paid for commercial insurance which are after-tax dollars. “This can make a significant difference,” McGee said.
Each service runs its own SBP program, McGee added.
“In terms of explaining it to their folks, I’d say the Army is very effective,” McGee said.
Widows winUp to 700 widows who remarried after age 57 and draw VA Dependency and Indemnity Compensation (DIC) will see full SBP restored, plus back payments worth thousands of dollars, in the wake of a recent appeals court victory brought by three military widows.
The U.S. Court of Appeals for the Federal Circuit ruled Aug. 26 in Sharp v. United States that Defense officials erred in January 2004 after passage of the Veterans Benefits Act of 2003, which restored eligibility for DIC to surviving spouses who remarry after age 57. The DOD began reducing SBP again for these widows by the amount of DIC restored.
The appeals court upheld a lower court decision that this violated the plain language of the law that made these widows the first survivors eligible for concurrent receipt of both SBP, which their husbands paid for in premiums, and DIC. Defense officials said they won’t appeal the ruling.
The Defense Finance and Accounting Service will begin notifying eligible surviving spouses that full SBP is being restored and retroactive payments will be calculated back to Jan. 1, 2004, or date of remarriage after 57, whichever is later. Back payments could total more than $9 million.
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