Fix This Inequity: Undue Sacrifice
Conflicting military Survivor Benefit Plan (SBP) laws cut SBP annuities by up to $1,000  a month for service-caused deaths and impose a 34 percent  “greatest  generation  tax” on older military retirees.

By Col. Lee F. Lange II, USMC-Ret., and Col. Steve Strobridge, USAF-Ret.

Jennifer McCollum was four months pregnant when her husband was killed in Pakistan supporting the war on terror in 2002. Only later did she learn that survivor improvements Congress enacted in 2001 for active duty deaths were largely offset by other conflicting laws. And a 2003 law authorizing temporary higher benefits didn’t apply retroactively for her.

Mary Craven, whose husband retired from the Air Force after being wounded in Vietnam and died of service-connected causes in 1978, was shocked to find that her Dependency and Indemnity Compensation (DIC) annuity from the VA is deducted from the military Survivor Benefit Plan (SBP) coverage her husband had purchased.

Lt. Col. Leroy Norem, USA-Ret., who has paid military survivor benefit premiums since retiring in 1967, was pleased when he heard a 1998 law change authorized paid-up SBP coverage for retirees who have attained age 70 and paid SBP premiums for 30 years. Then he found out Congress had penalized “greatest generation” retirees like him by delaying the effective date until 2008.

ISSUE 1: The SBP-DIC Benefit Offset

Active Duty Deaths: Before Sept. 11, 2001, survivors of servicemembers who died on active duty were not covered under the military SBP unless the servicemember had served 20 years or more. They were eligible only for DIC from the VA (currently $993 a month, regardless of grade, with modest additional amounts for each dependent child).

That day’s mass casualties led Congress to extend SBP eligibility to survivors of all servicemembers who die on active duty. However, that effort wasn’t entirely fruitful, because another law deducts any DIC payment from the SBP annuity. For servicemembers below grade E-6 (the vast majority of active duty deaths), this virtually wipes out any SBP payment, leaving survivors with less than $12,000 a year in DIC. Survivors of more senior servicemembers receive any SBP remainder.

Congress recently changed the law to let surviving spouses in active duty death cases assign the SBP annuity to their children, if any. Such spouses have a short-term financial incentive to do that, even though any remaining SBP eligibility will be lost entirely when the children attain their majority — leaving the survivor with less than $12,000 a year in DIC (see charts at left).

This starkly contrasts annuities provided to survivors of most major-city police and firefighters killed in the line of duty, which typically continue 100 percent of pay.

“I thought military and veterans’ benefits were supposed to complement each other,” says McCollum. “That doesn’t happen because DIC offsets SBP. That needs to be rectified. I hope we can make things better for those unfortunate ones who will follow.”

Survivors of servicemembers killed on active duty deserve more, and new survivors should not have to accept a lifetime annuity of only $993 a month as the price of increasing their family income for the short term.

Retiree Deaths: Retired servicemembers with disabilities caused by military service (as determined by the VA) often have limited options to purchase life insurance at a reasonable cost. They can participate in SBP on the same basis as every other retired servicemember—paying 6.5 percent of their monthly retired pay to provide a survivor annuity equal to 55 percent of their retired pay.

Should the servicemember die of the service-caused condition (as determined by the VA), the survivor will be eligible to receive DIC. But the SBP annuity the servicemember paid for will be reduced by the DIC amount. In many cases, this wipes out most or all of the SBP annuity. In such cases, the survivor receives a proportional refund of the retiree-paid SBP premiums. But the government pays no interest on what might have been many years of premium payments, and the only net DIC benefit to many retired survivors is a modest tax advantage.

“Why have two programs if one wipes out the other?” asks Craven. “Getting the premiums back doesn’t replace the coverage my husband paid for. The service caused his death, and should pay extra for that, rather than canceling part of the insurance he bought for me. It’s as if they’re saying it was his own fault he died.”

DIC still is deducted from retiree-purchased SBP when retirees die of service-caused reasons. DIC payments should be added to SBP, not substituted for it.

MOAA thinks the DIC for a service-caused death should be added to SBP purchased by the retiree, not substituted for it. No survivors of civilian retirees who also are veterans and die of a service-connected cause forfeit any of their purchased survivor benefits to receive DIC. Retired military survivors shouldn’t either.

Action Needed: Repeal the law that deducts DIC payments from retiree-purchased SBP annuities.

Issue 2: The SBP “Greatest Generation Tax”

When Norem retired in 1967 after 27 years of service, he signed up for the Retired Servicemen’s Family Protection Plan (RSFPP) to provide his spouse a portion of his retired pay if he died. That program converted to SBP in 1972, and his premiums took almost 10 percent of his retired pay. Eighteen years later in 1990, SBP premiums were reduced to 6.5 percent of retired pay.

When Congress approved legislation in 1998 to authorize paid-up SBP coverage after 30 years of premium payments, the intent was to protect older retirees against paying a disproportional share of coverage cost. But in delaying the effective date until Oct. 1, 2008, to save money, Congress inadvertently imposed a significant greatest generation tax on older military retirees like Norem.

Servicemembers who retired after 1978 enjoy 30-year, paid-up SBP coverage. But Norem and his contemporaries, in addition to years of premium payments for the old RSFPP, will have to pay up to 36 years of SBP premiums to attain paid-up status in 2008.

“Those of us in our 80s and who have paid the longest—and who also paid much higher premiums for all those years before 1990—get hardly any benefit out of a program that was supposed to help older retirees,” says Norem. “[Many] of us won’t even be around in 2008. I guess they were counting on that to save money.”

By fall 2005, a 1972 retiree already will have paid 18 percent more for SBP than a similar 1978 retiree ever will pay. If the 2008 paid-up SBP effective date isn’t moved up, 1972 retirees will pay a 34 percent greatest generation tax.

Through the end of FY 2005, Norem already will have paid almost 20 percent more SBP premiums (without even counting all the premiums he paid for RSFPP before 1972) than a similar officer who retired in 1978 will ever have to pay. If the law is not changed, he and his contemporaries will end up paying 34 percent more for the same SBP coverage (see charts above).

Action Needed: Accelerate the effective date of the paid-up SBP provision to Oct. 1, 2005.

The Fix

Sens. Bill Nelson (D-Fla.) and Jon Corzine (D-N.J.) have joined forces to introduce S. 185, a combined bill that would repeal the SBP-DIC offset, effective Oct. 1, 2005, and move up the effective date of paid-up SBP to Oct. 1, 2005.

In the House, Rep. Henry Brown (R-S.C.) has reintroduced his longstanding initiative (H.R. 808) that would repeal the SBP-DIC offset, also as of Oct. 1, 2005. Rep. Jim Saxton (R-N.J.) has reintroduced legislation (H.R. 968) that would accelerate the paid-up SBP effective date to Oct. 1, 2005.

MOAA and The Military Coalition strongly support these important initiatives to restore equity for greatest generation SBP enrollees and for the survivors of members whose military careers ultimately cost them their lives.

The objective is to include authority for these initiatives in the FY 2006 Budget Resolution and the FY 2006 National Defense Authorization Act.