Military Survivor Benefit Plan: Background and Issues for Congress
Released: 2018-10-01T00:00:00

Introduction

The Survivor Benefit Plan (SBP), enacted in 1972, provides cash benefits to a surviving spouse or other eligible recipient(s) of a retiree or deceased member of the uniformed services. The original intent of the SBP (and its antecedents) was to "ensure that the surviving dependents of military personnel who die in retirement or after becoming eligible for retirement will continue to have a reasonable level of income." Coverage was later expanded to those who die while on active service. Under the SBP, a military retiree can have a portion of his or her monthly retired pay withheld in order to provide a beneficiary with a monthly survivor benefit. The cost of this protection is shared by the retiree (in the form of reductions from monthly military retired pay after retirement), the government, and sometimes the beneficiary (under certain types of coverage).

This report describes the categories of beneficiaries eligible for survivor benefits under the military Survivor Benefit Plan (SBP), the formulas used in computing the income level (including the integration of SBP benefits with other federal benefits), and the costs of SBP participation incurred by the retiree and/or the beneficiary. While this report focuses primarily on SBP, survivors of military members may be eligible for other benefits, including life insurance, TRICARE health benefits, Annuity for Certain Military Surviving Spouses (ACMSS), the Minimum Income Widow Annuity, Department of Defense (DOD) death gratuity, commissary and exchange privileges, and other federal benefits, such as Social Security.

Program Size and Participation

For fiscal year 2017 (FY2017) there were 276,820 survivors receiving SBP annuity payments for total DOD expenditures of $3.7 billion. Of those receiving SBP payments, the number whose sponsor died on active duty was 10,295, which includes 3,377 spouses and 6,918 children (see Table 1 ). There are an additional 5,045 survivors who are receiving benefits through an older program called the Retired Serviceman's Family Protection Plan (see " Prior Plans: the Retired Serviceman's Family Protection Plan (RSFPP) ").

Approximately 1.1 million military retirees are enrolled in SBP. Members in active service do not need to be enrolled to be eligible for benefits. Participation rates have increased as the benefit has become more generous; rates have risen from 58% of all members retiring in 1993 to 78% of those retiring in 2017. Among nondisabled retirees in the regular component, 58% of enlisted and 74% of officers participate in SBP. Participation rates among Reserve Component retirees are higher, at 91% and 90% respectively (see Table 2 ).

SBP Assessment

In the National Defense Authorization Act for Fiscal Year 2017, Congress asked for an independent assessment of the SBP program, in particular to "(1) describe the purposes of SBP and how it interacts with other federal programs to provide financial stability and resources for survivors, (2) compare benefits under SBP with benefits available to government and private-sector employees, (3) evaluate the effectiveness of SBP in providing survivors with intended benefits, and (4) assess the feasibility and advisability of providing survivor benefits through alternative insurance products commercially available for similar purposes."

The study, published in 2018, found that for military widows (i.e., widows for whom SBP is the main source of survivor benefits), the SBP benefit accounts for 34%-48% of their total income (depending on whether Social Security benefits are also received). In general the amount of the SBP benefit was found to be comparable to other federal benefits and more generous than similar private-sector plans. The study also found that on average, military widows receiving survivor benefits have similar average total income, poverty rates, and participation in public assistance programs as those widows receiving private-sector survivor benefits from companies and unions. On the other hand, nonmilitary widows receiving survivor benefits from federal, state, or local government pension plans had higher average total income, lower poverty rates, and lower participation in public assistance programs relative to military widows.

Prior Plans: the Retired Serviceman's Family Protection Plan (RSFPP)

When SBP was enacted in 1972, it replaced the Retired Serviceman's Family Protection Plan (RSFPP), which also provided benefits to dependents of deceased retirees. The RSFPP had a number of unpopular features. First, it was intended to be actuarially neutral in terms of costs—in other words, the cost of this program was fully paid for by its participants. As a result, it could be expensive for the retiree. In addition, the decision to elect RSFPP coverage had to be made by the prospective military retiree before his or her 18 th year of military service. As such, the methods used in computing the RSFPP's cost and benefit could change between the time at which the servicemember elected to provide coverage and the time at which the member actually retired. Therefore, the costs and benefits remained an unknown quantity, limiting the ability of the retiree to make future financial plans.

During its 19-year history, participation in the RSFPP never exceeded more than 15% of eligible military retirees. RSFPP continues to pay survivor annuities for spouses of covered servicemembers who retired before 1972 and who did not convert to the SBP. DOD obligations for the remaining 5,045 RSFPP survivors in FY2017 were $15 million. It was expected—and has largely been proven—that the SBP would be more popular than the RSFPP, due to lower costs to the retiree and broader benefits for the survivors. However, SBP also entails higher costs to taxpayers because the SBP costs are shared with the government in most cases.

SBP Coverage and Provisions

Coverage provisions and calculation of the benefit vary depending on the status of the member (i.e., active duty retiree, reserve retiree, or deceased on active duty), the member's dependents, and certain elections that the member makes at the time of retirement.

Level of Coverage

A retiree of the active or reserve component may elect to enroll in the SBP upon retirement. The member may elect the maximum coverage, reduced coverage, or may elect not to participate. In some cases a court may order the member to provide such benefits to a former spouse. The maximum SBP benefit is 55% of base amount of military retired pay at the time of the retiree's death. Reduced coverage consists of 55% of the base amount of retired pay when the retiree elects a base amount that is less than total retired pay. The reduced amount of base retired pay is subject to a $300 minimum.

If a retiree elects not to participate, or to participate at a reduced level of coverage, the retiree's spouse must be notified, and in the case of such an election made on or after March 1, 1986, the spouse must concur with the election for it to be effective. Any decision not to participate or to participate at a reduced level is usually irrevocable. However, under certain circumstances, a retiree who is unmarried at the time of his or her retirement and who elects not to participate in the SBP, but who marries after his or her retirement, may elect within one year of marriage to provide SBP benefits for the new spouse. This election takes effect only after a one-year waiting period. With the enactment of P.L. 99-145 (effective March 1, 1986), the spouse in a post-military-retirement marriage must be notified if the retiree does not elect to provide an SBP benefit, or elects to provide an SBP benefit at a reduced level.

Formulas for Withholding

SBP coverage is provided at no cost for those in active service. A military retiree who elects to participate will have a portion of his or her monthly retired pay withheld in order to provide SBP coverage. The costs of SBP protection and benefits are computed on the basis of retired pay rates at the time of retirement. All subsequent post-retirement changes are a result of cost-of-living adjustments to retired pay. The FY2017 NDAA ( P.L. 114-328 ) also authorized payment of SBP premiums from Combat Related Special Compensation (CRSC) payments.

The computational formula for determining the amount of retired pay withheld is based on the date the member entered the service and/or the type of retirement the servicemember is entitled to receive (see Table 3 ). The basic formulas are discussed below as the Original Computational Formula and the Flat Rate Formula . Military personnel who entered the service on or after March 1, 1990, and who are not entitled to retired pay under either Chapter 61 of Title 10 United States Code (Retirement or Separation for Physical Disability, also known as disability retired pay), or Chapter 1223 (Retired Pay for Non-Regular Service, also known as reserve retired pay), are to have their withholdings computed under the Flat-Rate method. For those military personnel who first became a member before March 1, 1990, or those who have their retired pay computed under either Chapter 61 or 1223 (regardless of the date of retirement), DFAS is to compute SBP withholdings under the formula (Original or Flat-Rate) that is more financially advantageous to the individual.

DFAS generally withhold premiums from retired pay in any month in which there is an eligible spouse (or former spouse) beneficiary. Reductions to retired pay (i.e., SBP premiums) are not considered taxable income. In 1999, Congress expanded the generosity of the SBP by enacting the so-called "paid-up" provision. Under this language, reductions in retired pay made to cover the retiree's share cease when two conditions are met: (1) the retiree reaches age 70, and (2) the retiree has participated in the SBP for 360 months. As enacted, these provisions became effective October 1, 2008.

Original Computational Formula

Under this method, the retiree's contribution to the total cost of providing the SBP benefit is computed as 2.5% of a threshold amount (indexed to inflation) of base retired pay plus 10% of the remaining base amount of retired pay. This contribution is withheld from the retiree's total monthly retired pay. For example, a hypothetical retiree who is eligible for the original formula receives a monthly base amount of military retired pay of $1,616 as an E-5 with 20 years of service. The cost of providing survivor protection for this retiree is $101. In other words, $101 is deducted from this hypothetical retiree's base amount of monthly retired pay of $1,616 to insure that upon the retiree's death, his or her surviving spouse will receive a monthly survivor benefit of 55% of his or her base amount of retired pay, or $888 per month. If the retiree received more than $1,616 per month in total military retired pay—say as an E-8 with 20 years of service, or $2,557—but elected to provide less than the maximum coverage (by using $1,616, rather than total retired pay, as the base amount), the computation of costs and benefits would remain the same. If an individual's retired pay increases as the result of cost-of-living adjustments (COLAs), the amount deducted from his or her retired pay and the potential SBP benefit to his or her designated survivor usually will increase proportionately as well.

Flat-Rate Formula

The National Defense Authorization Act for Fiscal Years 1990 and 1991 ( P.L. 101-189 ) revised and simplified the computational formula for determining SBP withholdings. Under this new formula, SBP withholdings are computed to be 6.5% of the base amount of retired pay. A retiree with $1,616 (E-5, 20 years of service) as his or her base amount of retired pay would have $105.00 ($1,616 x 0.065) withheld in order to provide the same level of protection under the Flat-Rate method.

The basic benefit is not affected by the type of computational formula used.

Effects of Lump Sum Retirement Payment on SBP

The FY2017 NDAA ( P.L. 114-92 ) established a new Blended Retirement System (BRS) for military members entering service on or after January 1, 2018. This legislation, for the first time, authorized a lump sum payment of a portion of the member's retired pay upon retirement. The lump sum may either be 25% or 50% of the discounted present value of retired pay entitlement for the time between the date of retirement and the date of social security eligibility. In addition, the retiree is to continue to receive a monthly annuity of the remaining percentage of retired pay (75% or 50%) to which they are otherwise entitled.

A participant in SBP who elects the lump sum payment is to have coverage at the full base amount unless the member elects to reduce the base amount. The full base amount will be equal to the amount of the retiree's unreduced monthly retired pay. As such, "SBP premiums for members who elect lump sums under BRS will be equivalent to what they would have been without the lump sum, and consequently, the survivors' annuities will be equivalent to what they would have been without the lump sum."

Premiums are to be deducted from the portion of retired pay that the member continues to receive after the lump sum payment. As an example, consider two retirees with base monthly retired pay of $1,616. In this example, both retirees have an SBP monthly premium of $101. If one of the retirees elects a 50% lump sum, he or she will receive an $808 monthly annuity, less the $101 premium payment for a total of $707 monthly. The retiree who does not elect the lump sum will have a monthly annuity of $1,515 ($1,616 with a deduction of $101). However, in both cases, a spouse survivor would receive a survivor annuity of $889 ($1,616 x 0.55). Because the SBP premium is a larger percentage of the monthly annuity for those who take part of their retirement as a lump sum, it may discourage some participation in the program.

Enrollment Changes and "Open Season"

SBP elections made at the time of retirement are generally irrevocable, with a few exceptions. Circumstances under which a member may voluntarily terminate participation in SBP include the following.

Upon request between the 25 th and the 36 th month of retirement (with spouse concurrence). Upon a VA rating of totally disabled. If an election was made while the member was deemed mentally incompetent and then subsequently determined to be mentally competent. Upon divorce from a designated beneficiary (depending on requirements imposed by a court-ordered decree).

Those who do not have eligible beneficiaries at the time of retirement, but later marry or have children may enroll within a year of initial eligibility.

There are rare situations when the SBP will have a limited open enrollment period, sometimes referred to as an open season . These are typically authorized by Congress along with significant benefit changes. When open enrollment does occur, it usually requires a buy-in equal to the amount of all premium payments since the time of retirement. This may be cost prohibitive for some participants, since the accumulated premium amounts for a given individual may be quite substantial. See the description of past open enrollment seasons in the text box below.

Eligible Beneficiaries

Six separate types of beneficiary coverage are available under the SBP for eligible members.

Spouse only. Spouse and child(ren). Child(ren) only. Persons with an insurable interest. Former spouse. Former spouse and child(ren).

Spouse Only Coverage

In order to be eligible for spouse only coverage, the intended SBP beneficiary must be a widow or widower who was (1) married to the retiree at the time of retirement, (2) married to the deceased retiree for at least one year prior to the retiree's death, or (3) the parent of a child born of a post-retirement marriage. For spouse-only coverage, withholding is calculated by the flat-rate or original formulas as discussed in the previous section.

Remarriage

A surviving spouse (or eligible former spouse) may become ineligible to receive SBP benefits if he or she remarries. Eligibility for SBP benefits when remarriage occurs depends on the age at remarriage and the date that such a remarriage occurs (see Table 5 ). A surviving spouse (or eligible former spouse) becomes ineligible to receive SBP benefits if he or she remarries prior to reaching age 60, if such a remarriage took place prior to November 14, 1986 (remarriage after age 60 does not affect receipt of an SBP benefit). A surviving spouse (or eligible former spouse) becomes ineligible to receive SBP benefits if he or she remarries prior to reaching age 55 if such a remarriage took place on or after November 14, 1986 (remarriage after age 55 for these beneficiaries does not affect receipt of SBP payments). If the second marriage is terminated by death, annulment, or divorce, the original SBP benefit may be reinstated subject to certain restrictions. The surviving spouse of two or more deceased military retirees (each a participant in the SBP) may select and receive the more financially advantageous benefit.

Spouse and Child(ren) Coverage32

Under spouse and child(ren) coverage, upon the retiree's death, SBP benefits are first paid to the surviving spouse. If the surviving spouse predeceases the retiree, dies after becoming eligible to receive SBP benefits, or becomes ineligible to receive SBP benefits (through remarriage, for example), the SBP benefits are then to be paid directly to the designated child or children. If there is more than one child, the SBP benefits are paid in equal shares to each child for as long as he or she remains eligible.

The cost of this coverage is additive to that of spouse-only coverage, and is determined on an actuarial basis, taking into account the age of the retiree, the spouse, and the youngest child. For example, a retiree who is 45 years old, with a spouse who is 40 years old (i.e., 5 full years younger than the retiree) and a child age 10, would have to pay a small additional amount of the base amount of retired pay to cover a child or children in addition to the amount paid for spouse only coverage. Since the cost of coverage is computed on an actuarial basis, it is subject to change.

A child becomes ineligible for an SBP benefit upon reaching age 18 (or 22, if a full-time student). A child who marries becomes ineligible to receive SBP benefits regardless of age. An eligible child who is or becomes incapacitated (either physically or mentally) may continue to receive SBP benefits for the duration of the incapacitation if the condition existed prior to the child's 18 th birthday.

Child(ren) Only Coverage

Under child(ren)-only coverage, SBP benefits are paid directly to the surviving child(ren) of a deceased military retiree regardless of whether or not there is a surviving spouse. Eligibility under this coverage is subject to the same restrictions for a child, or children, under spouse and child(ren) coverage. (Under certain circumstances, spouse coverage can be restored if a spouse later becomes eligible.) The cost of this coverage is also computed on an actuarial basis (and therefore subject to modification). For example, a military retiree who is 45 years old, has a child age 10, and elects maximum coverage, would have approximately 2.5% of his or her base amount of retired pay withheld in order to provide, at the time of his or her death, an SBP survivor benefit for the surviving child. Child-only coverage is less expensive due to the limitation on the number of years—until age 18 or 22, under most circumstances—a beneficiary remains eligible to receive SBP benefits.

Persons with an Insurable Interest

Insurable interest coverage may be selected only if there is neither a spouse nor a dependent child at the time of retirement. Under this coverage a beneficiary is defined as "a natural person with an insurable interest" in the retiree. Included in this category are relatives of the retiree, such as a parent, sibling, or a child who may not qualify for SBP beneficiary status under spouse-only, spouse and child(ren), or child(ren)-only provisions. Nonrelatives, such as a business partner, may also be covered. Unlike other SBP options, insurable interest must be elected at the maximum level.

The cost of insurable interest coverage is (1) 10% of the base amount of military retired pay plus (2) 5% of total base amount of retired pay for each full five years that the named beneficiary is younger than the retiree. Insurable interest coverage is thus more expensive than other types of coverage. However, the total cost to the retiree cannot exceed 40% of total military retired pay. In other words, a retiree who seeks to provide insurable interest coverage to a person 30 or more years younger would have the maximum of 40% of the base amount of military retired pay withheld.

According to language contained in the National Defense Authorization Act for FY1995, insurable interest coverage could be voluntarily discontinued (except in those cases where a former spouse is being covered). Retirees discontinuing this coverage, who later remarry or acquire dependents, could again participate in the SBP under another allowable beneficiary category.

Former Spouse Coverage39

A military member may choose, or may be required by a court order, to provide SBP coverage for a former spouse, depending on when the divorce occurred. This election may occur as part of or incident to a divorce-related property settlement. For divorces occurring before November 14, 1986, federal law explicitly states that no court was authorized to order a member or retiree to provide SBP protection to a former spouse. If a retiree voluntarily decides, in writing , to provide benefits to a former spouse, this decision must be honored by the retiree. A retiree who elected spouse-only or spouse and child(ren) coverage, and was subsequently divorced before November 14, 1986, may switch to former spouse coverage for the (now) ex-spouse. This latter change in coverage must be elected within one year of the date the divorce decree becomes final.

If a divorce occurs on or after November 14, 1986, however, a court may order a member or retiree to provide SBP protection as part of, or incident to, a divorce. According to changes in law implemented by the FY1987 DOD Authorization Act ( P.L. 99-661 §641), "A court order may require a person to elect (or to enter into an agreement to elect) ... to provide an annuity to a former spouse (or to both a former spouse and child)." This language does not require courts to make such an order but gives them the freedom to do so.

The FY1986 DOD Authorization Act ( P.L. 99-145 ) included a change in former spouse coverage which provided that military retirees and "former spouses ... covered under the insurable interest category [could] ... elect jointly to switch to spouse coverage at the maximum level within one year [and it provided] current participants who had the option of electing former spouse coverage in the past and chose not to do so, the option of electing former spouse coverage." Those electing former spouse coverage after March 1, 1986, have the cost of this coverage and benefit amount computed in the same manner as in the case of spouse only coverage.

Because a retiree may provide only one type of SBP coverage for one category of beneficiary, election of coverage for a former spouse can have the effect of denying SBP protection to a second or future spouse. However, it is not clear whether courts have the authority to divide SBP benefits between a former spouse and a current or subsequent spouse. In other words, although the services will provide SBP benefits to only one category of beneficiary (former spouse, for example), it is not clear whether or not a court, as part of an equitable divorce property settlement, has the authority to divide SBP benefits between a former spouse (designated to receive them in this example) and a current or subsequent spouse.

The FY2000 National Defense Authorization Act provided for the "effectuation of intended SBP annuity for [a] former spouse when not elected by reason of [the] untimely death of [the] retiree." This language pertains to any retiree who, on or after August 21, 1983, agreed to (or was required by a court to) provide SBP coverage to a former spouse, but who died within 21 days of making such an agreement (or being so required). Under this language, the former spouse of such a retiree is deemed to have been covered effective November 5, 1999.

Former Spouse and Child(ren) Coverage

Coverage for a former spouse and child(ren) became available on March 1, 1986. This coverage is provided on the same terms as spouse and child(ren) coverage described above.

Coverage for Military Members Retired from the Reserve Components

As with the Survivor Benefit Plan for active duty retirees, retirement eligible members of the reserves (Army Reserve, Naval Reserve, Marine Corps Reserve, Air Force Reserve and Coast Guard Reserve) and National Guard (Army National Guard and Air National Guard) may elect to provide SBP protection for their survivors. However, when the SBP was created, members of the Reserve Components were not eligible to receive Reserve Component retired pay until age 60, regardless of the age at which they actually would retire. Therefore the structure of the Reserve Component SBP (RC-SBP) is different from that applicable to active duty members.

Prior to 1978, Reserve Component personnel could not provide survivor protection for an eligible beneficiary until they were eligible to draw retired pay, then at age 60. In 2008, Congress modified the law to allow reservists on extended active duty to reduce the age at which they can begin to receive retired pay. This reduction was limited to no less than 50 years of age. Legislation passed in 1978 allows Reserve Component members to decide whether and how they will participate in the RC-SBP when they are notified of retirement eligibility (not yet eligible to receive retired pay)—in almost all cases, many years before reaching age 60 if based on active duty credit.

Reserve Component members who are not yet eligible to receive retired pay and who are retirement eligible (a.k.a., "gray area retirees") may elect to provide SBP protection under one of three options. The costs and amount of coverage available depend on the option selected and the category of beneficiary. A prospective Reserve Component retiree must select one of the following RC-SBP options within 90 days of being notified of retirement eligibility:

Option A . The retiree may decline RC-SBP protection. Should the retiree die before reaching eligibility to draw retired pay, no RC-SBP benefit will be paid. The retiree will again be offered the opportunity to participate in the SBP when they become eligible to receive retired pay.

Option B . The retiree may elect RC-SBP coverage such that survivor payments will begin on (1) the date of the retiree's death or (2) the date the retiree would have become eligible to receive retired pay, whichever is later.

Option C . The retiree may elect, under this option, to provide an RC-SBP benefit that would begin immediately following the death of the retiree, regardless of the retiree's age at the time of death.

Under option A, the costs and types of coverage available once the retiree becomes eligible to receive retired pay are the same as under the active duty SBP. Under options B and C, the cost of RC-SBP protection is shared by the retiree, the government, and the beneficiary. The retiree's portion is paid through deductions in retired pay when the retiree becomes eligible to receive retired pay. The beneficiary's or beneficiaries' share (the add-on premium ) is paid through a reduction in the annuity. The costs of the add-on premium under options B and C depend on the type of coverage (see active duty retirees), as well as the age of the retiree and selected beneficiary(ies).

Under certain circumstances, an RC-SBP benefit may be paid to the eligible surviving spouse, dependent child(ren), or former spouse of a member of the Reserve Components who dies

(1) before being notified that he or she had completed the years of service required to be eligible for Reserve Component retired pay; or

(2) during the 90-day period beginning on the date of notification that the member had completed the years of service required for eligibility for Reserve Component retired pay, if he or she had not already rejected participation in the RC-SBP.

The income payable is equal to 55% of retired pay that the member would have been entitled to receive had the member been retired and at least age 60 at the time of death.

Coverage for Military Members Serving on Active Duty

Under the original SBP, an SBP benefit was payable to an eligible spouse, dependent child(ren), eligible former spouse, or eligible former spouse and dependent child(ren) following the death of an active duty member. This benefit was paid if the deceased active duty servicemember, at the time of death,

(1) was eligible to receive retired pay; or

(2) was a commissioned officer, had completed 20 years of service, but was not yet eligible to retire as a commissioned officer.

The SBP benefit payable to the survivor of such a deceased active duty member is equal to 55% of the amount of retired pay that the deceased servicemember would have been eligible for had he or she elected maximum coverage and retired on the day of his or her death.

Legislation has expanded the coverage to the survivors of individuals who die while on active duty and who are not retirement-eligible, effective September 10, 2001. This annuity for an active duty (non-retirement-eligible member) is determined by assuming the individual would have been eligible to retire under Section 1201, Title 10 United States Code, with a total disability.

In 2003, Congress allowed for these benefits to be paid to the surviving children, if any, of an active member who dies. This provision was made effective November 23, 2003. As part of the National Defense Act for Fiscal Year 2007, Congress replaced the November 23, 2003 effective date with October 7, 2001. In FY2017 there were 10,295 survivors of active duty members who were receiving SBP benefits, 6,918 of which were surviving children.

Interaction between SBP and Dependency and Indemnity Compensation

When SBP was enacted in 1972, lawmakers sought to integrate the program within the existing system of federal benefits available to servicemembers and their families, namely, Social Security and VA-related benefits. Consequently, SBP serves a two-fold purpose: (1) to provide full survivors coverage in cases where no Social Security or VA-related benefits are payable and (2) to provide supplemental survivor coverage in cases where Social Security or VA-related benefits are insufficient to provide a reasonable level of support (generally 55% of the servicemember's retired pay).

When a surviving spouse (or surviving former spouse) is entitled to both SBP and VA Dependency and Indemnity Compensation (DIC), SBP law requires that the SBP benefit be reduced, dollar for dollar, by the amount of the DIC benefit. If the surviving spouse's DIC benefit is less than the SBP benefit, then the surviving spouse receives a reduced SBP benefit in an amount that, when combined with the DIC benefit, equals the unreduced SBP benefit. If the surviving spouse's DIC benefit is equal to or greater than the SBP benefit, then no SBP benefit is payable and the surviving spouse receives only the DIC benefit. The partial or full reduction in the SBP benefit due to receipt of DIC is commonly known as the SBP-DIC offset . In lieu of receiving full SBP benefits, surviving spouses and surviving former spouses subject to the SBP-DIC offset receive a refund of the deceased retiree's SBP premiums based on the amount of the offset.

There is no DIC offset for children who are designated as the SBP recipient. As such, younger surviving spouses of active duty personnel may designate their children, if any, as the recipient of the SBP benefit. Unlike retirees, active duty personnel do not designate a beneficiary. Unmarried children remain eligible to receive SBP until they reach age 18 or 22 (if a student); or for life if mentally or physically incapacitated and if the incapacitating condition existed prior to age 18. Eligibility terminates if the child marries.

The total of DIC and offset-SBP payments combined is, at least, equal to the full SBP benefit. Also, if DIC is paid to an SBP-eligible surviving spouse or former spouse, a percentage of the deceased retiree's original contributions to the SBP offset by DIC is to be returned to the surviving spouse or former spouse. In other words, if the SBP is offset by DIC, the proportion of deductions from the deceased retiree's retired pay that financed the offset portion of the SBP is to be refunded to the surviving spouse or former spouse.

SBP-DIC Offset and Remarriage

In general, a surviving spouse or former spouse who remarries loses his or her entitlement to DIC payments. Upon losing DIC, however, the remarried spouse or former spouse has his or her full SBP benefit restored, provided the remarriage—in accordance with SBP restrictions—occurs after age 55. SBP payments can be restored, if the beneficiary becomes ineligible for DIC and remains eligible for SBP, provided that any refunded SBP premiums are returned to the government. As a result of a 2009 court decision (sometimes referred to as the Sharp Decision) , surviving spouses who remarry after attaining the age of 57 are eligible to receive the full SBP and DIC benefit without an offset, provided any refunded SBP premiums are returned to the government.

Special Survivor Indemnity Allowance (SSIA)

Most un-remarried surviving spouses who receive both an annuity from DOD as a beneficiary of the SBP and from the VA's DIC have their SBP payments reduced by the amount of DIC. Effective 2009, Congress created the Special Survivor Indemnity Allowance or SSIA to offset that reduction. The original authorization provided an additional $50 per month to those subject to the offset. This amount was scheduled to be increased by $10 each year until 2014, when it would reach $100. The benefit was scheduled to sunset in 2016. During the 111 th Congress, SSIA was made more generous in that for the years 2014 through 2017, the amount would increase from $150, to $200, $275, and finally, $310, after which the benefit was to terminate on October 1, 2017. However, Section 621 of the NDAA for FY2018, P.L. 115-91 , permanently authorized the SSIA.

In 2018, the SSIA benefit was $310 per month and is to be adjusted to the COLA for each calendar year beginning in 2019. Both the SBP annuity and the SSIA are taxable while DIC is not taxable income. The amount received under SSIA may not be greater than the amount of the SBP offset. Table 7 shows hypothetical examples of how SSIA might apply to monthly payments to survivors.

Proposals to Eliminate the SBP-DIC Offset

Over the years, several bills have been introduced that would eliminate the SBP-DIC offset completely. Supporters of a full repeal refer to the offset as the "widow's tax" , and argue that the benefits are different types of compensation,

There are two different survivor benefits. The SBP is a purchased annuities benefit, or type of insurance benefit. This is purchased out-of-pocket by military retirees for their surviving spouses. The SBP is our service members' earned benefit, not an entitlement received from the DOD. The other benefit is DIC. DIC is an indemnity payment, received from the VA. DIC serves as an indemnity payment for death. Since death is the ultimate disability the surviving spouses should be entitled to concurrent receipt of both SBP and DIC.

In addition, military spouse advocates have argued that the inability for families to receive both benefits in full creates financial hardship. Lastly, changes in how the offset is applied based on the status of the beneficiary (i.e., age, remarriage age, or child v. spouse) has led to confusion and charges of inequitable treatment among eligible recipients.

On the other hand, some point to long-standing laws preventing receipt of two benefits from the government for the same period of service (also known as double-dipping ) . One argument is that because the federal government pays the full DIC cost and subsidizes the SBP coverage, allowing survivors to receive both SBP and DIC is inherently unfair to the taxpayer. Some contend that repealing the SBP-DIC offset would allow certain survivors to triple dip in that they could receive full SBP and DIC benefits as well as Social Security benefits from the federal government for the same period of employment.

The Military Compensation and Retirement Modernization Commission (MCRMC), established by Congress in the FY2013 NDAA, offered another option to address dissatisfaction with the SBP-DIC offset. The MCRMC recommended adding a new SBP option under which members would fully fund the SBP costs, but would no longer be subject to the offset. This option would have higher costs (premiums) for the servicemember, but would provide a greater overall benefit under certain circumstances. Under this option, the legacy, subsidized SBP would remain an option; however, the full SBP-DIC offset would apply.

Most recently, language in the House version of the FY2019 NDAA would have expressed a sense of Congress that (1) surviving spouses and dependent children will not be subject to a full offset of survivor benefit plan payments by dependency and indemnity compensation; and (2) Congress must work to eliminate the widows' tax entirely. In 2009, the Congressional Budget Office estimated the cost of eliminating this offset would be $7 billion over the 2010-2019 period.

Appendix A. Legislative History of the Survivors Benefit Plan Table