Fighting for Fairness
Military survivors like Dottie Welch lose one-third of their Survivor Benefit Plan (SBP) annuities at age 62. Military SBP isn't the deal Congress intended and enrollees were promised - and it's less than the government provides federal civilian survivors. IT'S TIME TO FIX THIS INEQUITY.
By Col. Lee Lange II, USMC-Ret., and Col. Steve Strobridge, USAF-Ret.

When Lt. Col. Roger Welch, USA-Ret., signed up for the military Survivor Benefit Plan (SBP) years ago, he was told that, in the event of his death, SBP would pay his wife, Dottie, 55 percent of his retired pay for the rest of her life. When he signed an irrevocable agreement to pay annually increasing SBP premiums for the rest of his life, he didn't know that his wife's future SBP benefit actually would be one-third less than they were led to believe.

When Roger died in June 2002, Dottie was dismayed to learn there would be an offset, based on her husband's Social Security-covered military earnings, that would reduce her SBP benefits. With Social Security survivor benefits and the reduced SBP annuity, her total income is $384 a month less than she and Roger thought she would have to live on.

"I think the Social Security offset is just plain wrong," says Dottie. "No one will tell me why it's there and why it's so large - Roger only had five years of military service covered by Social Security."

Dottie Welch's case highlights one significant inequity of the military SBP and the reason why so many retirees and survivors are upset about it.

Unfortunately, this is only the first of several ways that uniformed services survivor benefits, relative to premiums paid, fall far short of what retirees and survivors were promised and what is afforded survivors of other federal retirees.

There are three major SBP inequities:

• Thousands of people who bought SBP coverage weren't briefed that most survivors' SBP annuities would be reduced substantially after age 62.
• The 40 percent government subsidy envisioned by Congress - and touted by the services to encourage retiree participation - has plunged to 17 percent.
• The government provides federal civilian survivors a substantially higher share of retired pay for life, with no benefit reduction at any age.

The impact of these inequities is devastating to many survivors, because SBP isn't exactly a king's ransom at 55 percent of retired pay. At 35 percent, SBP provides only a poverty-level - or lower - annuity for most survivors, even those of relatively senior officers (see chart at right).

The following provides more specifics on how the military SBP program isn't providing the level of protection military survivors need and deserve - and why Congress needs to act now to fix it.

Issue 1: The Benefit Reduction Shock

Many are incredulous that such an important feature of SBP - the reduced age-62 annuity that applies to the vast majority of military survivors - wasn't explained to retirees being asked to sign up for the program in the 1970s and early 1980s.

But it's true.

The following page shows a copy of the actual form signed by a retired member in 1982. In two different places, it specifies that SBP will pay the survivor 55 percent of the member's retired pay. Nowhere, even in the fine print, does it mention any lower figure.

One can speculate about how or why this key fact was omitted, but it hardly matters now to those who were misled by the forms and briefings.

Certainly, the offset was extremely complicated for retirement counselors to explain, and it was almost impossible to tell any particular retiree at that point what SBP amount his or her survivor actually would receive after attaining age 62.

For members who attained retirement eligibility before 1985, the offset represented the amount of the survivor's Social Security benefit that was attributable to the member's Social Security-covered military earnings. Because the military only came under Social Security in 1957, that amount varied widely for different retirees. And the rules for the calculation of Social Security benefits due to military versus civilian employment are arcane at best.

When they first learned of the age-62 benefit reduction years (sometimes decades) after they purchased SBP, many older retirees and survivors expressed outrage in the mistaken belief that Congress had changed the law on them after the fact.

Not so. The age-62 reduction was part of the initial SBP law enacted in 1972. But this critical piece of information didn't find its way into most military-retirement briefings and SBP election forms until many years later, after complaints started to roll in.

Understandably, large numbers of retirees and survivors feel betrayed by what they perceive as a bait and switch, under which they were asked to sign an irrevocable contract to pay lifetime SBP premiums without being told what annuity level they actually were buying.

Marion Charles is very much aware of the impact of the Social Security offset. Her husband, Navy Chief Petty Officer Edward Charles, was a Navy hard-hat diver during World War II, then an electronics technician on nuclear submarines until his retirement in 1966. When he died in May 2002, his widow had no idea she would be hit by the offset.

"I was so shocked, I almost fell out of the chair and wondered why God hadn't taken me too, when he took Ed," she says today.

In the grief that followed her husband's death, the 78-year-old Marion also faced numerous family bills and health problems. When her SBP annuity started, she was stunned to find it was one-third less than she had expected.

Faced with $21,000 in bills, she was advised to declare bankruptcy and feared she would lose her home trying to pay her debts. Her financial struggles eventually led her to the Navy-Marine Corps Relief Society for a grant to help her get back on her feet financially.

"Neither my husband nor I realized there would be an offset - no one ever told us. I find myself under a lot of stress getting over his death and trying to do something with the large bills facing me," she says.

In an attempt to reduce this kind of confusion, in 1985 Congress established a two-tier SBP system, not linked to Social Security, that provides an SBP survivor 55 percent of retired pay until age 62 and 35 percent after that age.

But making the age-62 reduction clearer for post-1985 retirees didn't make it any fairer. And it didn't change the fact that thousands upon thousands of earlier participants hadn't been told of the age-62 annuity reduction.

Also in 1985, Congress shocked the survivor community by repealing 1984 legislation that would have barred any SBP Social Security offset for survivors who earned their Social Security benefits from their own work history (rather than the military retirees', as assumed under the original offset law). This only further highlighted the unfairness of the offset to thousands of survivors who had pursued their own military or civilian careers.

Issue 2: The Broken Promise

When SBP was enacted in 1972, Congress set the premium formula in law with the intent that retirees' monthly premium payments would cover 60 percent of the long-term cost of the survivor benefits, with the government paying the remaining 40 percent. The formula was based on program cost assumptions prepared by Department of Defense (DoD) actuaries concerning future inflation rates, pay raises, longevity of retirees and survivors, etcetera.

But actual experience in later years proved the actuaries' original estimates had been far too conservative, as inflation was lower than predicted and retirees lived (and paid premiums) longer than anticipated.

Because retiree premiums were locked in law and covered a greater portion of program costs than had been projected, the government reaped an economic windfall and found its share of the cost for the SBP program was much lower than expected.

By 1988, retiree premiums covered 77 percent of SBP costs, and DoD's share had dropped to 23 percent. To its credit, Congress acted in 1990 to restore the intended 60/40 balance by reducing retiree premiums to 6.5 percent of retired pay.

But the overconservative actuarial assumptions have continued to work against retirees for the last decade, with the result that the federal subsidy for SBP has continued to decline. As of 2003, the government's share has dropped to 17 percent - leaving retirees once more paying a higher-than-intended share of the benefit.

The only fair way to restore the proper cost-share balance between retirees and the government is to reduce the premium or to increase the SBP benefit. The former benefits primarily retirees, while the latter benefits the survivors.

Since retiree premiums were reduced to restore the 60/40 balance in 1990, MOAA and the other 32 military and veterans' organizations of The Military Coalition believe Congress should restore the government's intended 40 percent cost share in 2003 by raising the benefit for survivors.

Issue 3: The Military-Civilian Inequity

No less compelling than the misleading of enrollees and the decline in the intended subsidy is the stunning disparity in benefits and subsidy levels the government offers military versus federal civilian survivors.

In contrast to the military SBP subsidy of 17 percent, the SBP for federal civilian employees under the post-1984 Federal Employees Retirement System (fers) provides a 33 percent subsidy. For those under the pre-1984 Civil Service Retirement System (csrs), the subsidy (at 48 percent) is nearly three times as high as the military's.

Even more important, fers survivors receive 50 percent of retired pay - and csrs survivors 55 percent - for life, with no benefit reduction at age 62. Although federal civilian premiums are higher (up to 10 percent of retired pay compared to 6.5 percent for military retirees), military retirees pay SBP premiums for far longer than most civilians because they are required to retire at a younger age. Because their mortality rates aren't much different, this means federal civilian retirees have a far more advantageous benefit-to-premium ratio, as indicated in the chart below.

The Fix

To keep faith with older retirees and survivors, to restore the intended 40 percent federal subsidy, and to put SBP on an equal footing with its federal civilian equivalent, Congress needs to take action to raise the age-62 SBP coverage to 55 percent of the military member's retired pay.

MOAA and the other 32 military and veterans' associations of The Military Coalition endorse H.R. 548 and S. 451, which were introduced by Rep. Jeff Miller (R-Fla.) and Sen. Olympia Snowe (R-Maine), respectively.

This proposed legislation would balance equity and cost considerations by phasing out the SBP age-62 benefit reduction over five years, as indicated in the chart below. The legislation would offset part of the cost of the benefit increase by authorizing an open-season provision in the legislation that would allow more retirees to participate, generating SBP program savings and significantly reducing outlays.

The Outlook

In the 108th Congress, the key to success will be winning budget "headroom" in the FY 2004 budget resolution (due in March-April 2003). If the budget resolution provides the money, the Armed Services committees will authorize the benefit upgrade.

A final challenge may be winning administration support - or at least convincing the administration not to oppose this long-overdue fix.

Congress already has acknowledged the need. The FY 2001 Defense Authorization Act included a provision asserting the "sense of Congress that there should be enacted legislation … to reduce (and eventually eliminate) the different levels of [SBP] annuities … for surviving spouses who are under age 62 and those who are 62 and older." But Congress has failed to follow through on that commitment for the last two years.

Military widows and widowers have waited long enough in their fight for fairness. This is the year for Congress to step up and enact relief for the aging survivors of our "Greatest Generation" World War II and Korean War retirees and for the following generations of retirees and survivors who deserve no less than the SBP deal they were promised - and the one the government already provides for other federal survivors.

Timetable For Action

March-April
House and Senate Budget committee action

April-May
House and Senate Armed Services committee action

June
House and Senate floor votes

July-September
House/Senate Authorization Bill conference

October?
Final congressional approval and president's signature