SBP: improved, but an expensive buy-in

The open enrollment period for the Survivor Benefit Plan (SBP) began October 1, 2005, and will last for one year. Non-enrolled retirees can elect to start coverage, and those currently enrolled can elect to increase coverage if below the maximum. SBP benefits have been improved, but late enrollment will not be inexpensive.

A year ago, the FY05 National Defense Authorization (NDAA) bill made corrections to the SBP offset with benefits payments for surviving spouses no longer being offset at age 62. These corrections are being phased in.

Beginning October 1, 2005, and ending March 31, 2008, the two-tier method of computing the annuity for a spouse annuitant age 62 and older is eliminated by increasing the amount of the annuity four times during the elimination period (see next page).

For an annuitant who is age 62 or older upon initial commencement of an SBP annuity, the annuity is computed using the percentage amount of annuity in effect for the month the annuity begins, as described in the chart. Rates will be increased as each new milestone date is passed.

An older surviving spouse who is entitled to have the SBP annuity computed using the Social Security offset method of computation receives the greater of the computation using the Social Security offset method or if computed under the two-tier method of computing.

The FY05 NDAA authorized an open enrollment period to allow retired members to participate in SBP or increase the level of their participation if they were not previously participating at the maximum allowed level. The open season will give non-enrolled retirees a chance to enroll and provide their spouses the significantly improved SBP benefits.

At last year's NDAA conference, Senate negotiators insisted on requiring open season enrollees to pay all back premiums from the date they were first eligible to sign up for SBP, plus interest and any added amount DoD deems "necessary to protect the actuarial soundness of the DoD retirement trust fund against any increased risk for the fund that is associated with the [open enrollment] election."

The implementing guidance published by DoD indicates that members who retired between 1 and 11 months ago will have to pay an up-front enrollment fee equal to 38 times their initial monthly premium. Those retired at least one year but fewer than two years must pay 48 times their initial premium. The chart gives a detailed breakdown over time. (Table 1 of the DoD memo)

Members can elect to cover lower amounts of retired pay to reduce the initial enrollment fee, or the enrollment fee can be paid in 24 equal monthly installments. A member can cancel an open enrollment election by notifying the finance center in writing within 30 days of notice of the effective date of election.

If a member dies within two years of the effective date of election, the SBP is void. All premiums will be refunded to the beneficiary.

PERIOD                                                  AMOUNT

For months before October 2005                          35 percent
October 2005 through March 2006                         40 percent
April 2006 through March 2007                           45 percent
April 2007 through March 2008                           50 percent
April 2008 and after                                    55 percent

Spouse &
Spouse/Child

   COMPLETED        LUMP SUM
  YEARS SINCE       MULTIPLE
   ORIGINAL         PER $1 OF
     "SBP            MONTHLY
   ELECTION"         PREMIUM

       0                38
       1                48
       2                57
       3                67
       4                74
       5                83
       6                93
       7               103
       8               119
       9               136
      10               153
      11               171
      12               189
      13               209
      14               228
      15               248
      16               269
      17               289
      18               311
      19               332
      20               355
      21               379
      22               404
      23               430
      24               456
      25               482
      26               506
      27               529
      28               552
      29               574
      30               597
      31               618
      32               639
      33               658

COPYRIGHT 2005 Reserve Officers Association of the United States
COPYRIGHT 2005 Gale Group