The Survivor Benefit Plan (SBP) is a monthly benefit paid to the designated beneficiary of a retired servicemember who has passed away. Retired pay stops with the death of the servicemember; therefore SBP is one way to ensure a continued financial benefit for a servicemember's survivor.
SBP Election Options
Servicemembers have the option of enrolling in SBP when they retire.
There are six eligible beneficiary categories:
Spouse. An eligible spouse is the spouse you’re married to when you die. If you marry after retirement, the marriage must last at least one year or you must have had children born of that spouse. Benefits are paid until the spouse dies, but stop upon the spouse’s remarriage before age 55 (but can be resumed if the remarriage ends).
Spouse & Child(ren). The spouse is the primary beneficiary, with eligible children (to age 18, or 22 if full-time, unmarried college students) receiving the annuity only if the spouse dies or remarries before age 55. The 55% annuity is divided equally among the eligible children.
Child(ren) Only. Eligible children are the primary beneficiaries. If the retiree dies while a child is eligible, the 55% annuity continues until the child exceeds the age of eligibility. "Eligible children" are defined as adopted children, stepchildren, foster children and recognized natural children who live with the retiree in a regular parent-child relationship. Children of all marriages are eligible beneficiaries under this election. Child coverage offers excellent protection for incapacitated children, since the 55% annuity is payable to them for life. The mental or physical incapacity must have been incurred while in the age eligibility range.
Former Spouse. This option can be elected voluntarily or be required by a state court. Former spouse costs and benefits are identical to those for spouses. The same remarriage limitations apply. If a Former Spouse beneficiary dies prior to the Service retiree, the SBP Spouse beneficiary reverts back to the Service member.
Former Spouse & Child(ren). This is identical to the “spouse & children” option in costs and benefits, except that only children of the marriage to the former spouse are eligible beneficiaries.
Insurable Interest. If a retiree is unmarried with no children, this option may be selected. The “natural person” must be someone with a financial interest in your life. Examples are a close relative or a business partner. Note: This option may be cancelled at any time. Should you gain a spouse or child in the future, the insurable interest coverage may be changed to spouse or child or both, within one year of acquisition.
Servicemembers must choose a base amount for the annuity. The annuity benefit will be 55% of the base amount. The base amount can be anywhere from the full monthly retirement pay to a minimum of $300.
If a servicemember has an eligible beneficiary at the time of retirement and chooses not to enroll in SBP, he or she cannot enroll in SBP unless during an open season authorized by Congress- these open seasons are rare.
Also, if a servicemember is married at the time of retirement and elects not to cover his/her spouse or chooses a reduced benefit, then the servicemember must get spousal concurrence to deny coverage or reduce the survivor benefit. In addition, and they are prevented from ever covering a new child or spouse or increasing the benefit amount.
The cost for spouse-only SBP coverage is 6.5% of your base amount. The premiums will be automatically deducted by DFAS from your monthly retirement check.
There are additional costs for children. You can use the formula from the Office of the Actuary to determine real costs.
Premiums are deducted from retired pay pre-tax and subsidized by the federal government.
Once a retiree has made 360 payments (30 years) and reached age 70, he/she is considered paid-up, and no longer has to make payments.
When the servicemember passes away, the next of kin needs to notify DFAS to get the annuity started. It usually takes about 3-4 months after DFAS is notified for the SBP payments to begin. They will be retroactive to date of death.
The annuity is 55% of the base amount; therefore if the base amount was $1,000, the annuity will be $550 per month. SBP is taxable.
Receiving Social Security and/or a civil service/FERS annuity will not interfere with SBP, unless the servicemember waived a portion of his retired pay for a combined civil service annuity.
However, if the survivor receives Dependency and Indemnity Compensation (DIC) from the VA, there is currently a dollar-for-dollar offset between SBP and DIC. In other words, if you receive DIC, you have to subtract the full amount of DIC from your SBP payment. Because DIC is a tax-free payment and SBP is taxed, DIC tends to be a better benefit. Survivors who are denied SBP payments due to DIC are refunded the premium payments made by the military member. Survivors who are subject to the offset also receive Special Survival Indemnity Allowance (SSIA) which is an additional taxable benefit meant to partially make up for the compensation lost due to the offset.
Special Needs Trust. If your SBP beneficiary is your disabled, incapacitated child, you may have the annuity paid to a Special Needs Trust for the benefit of the child.
SBP Election Changes
SBP coverage can only be terminated during the second year after retirement. Once this window has closed, servicemembers cannot “disenroll” from SBP except as outlined below.
If the selected beneficiary passes away, the servicemember must alert DFAS in order to stop the premiums. No premiums will be refunded, and the servicemember's participation is “suspended,” pending the gain of another eligible beneficiary.
In the event of a divorce, the servicemember may also “suspend” SBP coverage, as long as Former Spouse coverage is not mandated in the divorce decree. The servicemember will need to contact DFAS within one year of the divorce.
If the servicemember remarries following their first spouse's death or divorce (assuming there is no Former Spouse coverage), the servicemember has three options to cover their new spouse:
- Resume identical coverage they had initially; cannot decrease level of coverage
- Increase level of coverage if they were not at maximum level initially
- Elect not to resume coverage. This decision is irrevocable and must be declared to DFAS within one year of the remarriage or the initial level of coverage obtained by member will resume automatically
A retiree may “withdraw” from SBP, with the consent of their spouse, if the retiree has a total and permanent service-connected disability (100%) for 10 continuous years, or at least 5 years at 100% if from the date of service separation. This option was established because the spouse would automatically be eligible for DIC (for 2016 at $1257.95 per month), which would still be subject to SBP-DIC offset. This withdrawal is irrevocable and previously paid premiums are not refunded. Two major considerations before employing this option: 1) MOAA is working diligently to repeal the SBP-DIC offset. We have made some headway over the past few years 2) DIC offset may not totally “deplete” the SBP annuity. SBP withdrawal may deny your beneficiary the opportunity for additional compensation at the time of your passing, or full SBP/DIC payments if the DIC offset is repealed. Consider each implication and impact, with respect to the surviving spouse’s supplemental income or lack thereof.