Did you see the Defense Finance and Accounting Service (DFAS) notification that Survivor Benefit Plan (SBP) premiums are now deducted from Combat-Related Special Compensation (CRSC) payments?  Written into the 2017 National Defense Authorization Act and first announced by DFAS last fall, this change notification was released again this year because the first deductions were about to start April 1. This deduction will not result in any loss of total compensation for combat-injured veterans. What it will do, is “clean-up” what I would call an accounting issue.  

How did this “accounting issue” come about?  

For some retirees, the “VA Waiver” (see note below) subsumes some or all of their retired pay — such that there isn’t enough left for DFAS to deduct SBP premiums. In this case, DFAS works with the VA to have SBP premiums deducted from the veteran’s VA tax-free disability compensation. This way there is no tax implication for the veteran; this upcoming change will not impact veterans. Their SBP premiums will still be deducted by the VA and sent to DFAS to cover SBP premiums.

Note: when total VA disability rating is 40% or less, or if in receipt of CRSC, the “VA Waiver” is the dollar amount equal to VA disability compensation that is deducted from military retirement pay.   

However, retirees receiving CRSC, whose “VA waiver” was subsuming retirement pay, had to remit SBP premiums (meaning they wrote a check) directly to DFAS. Some of these veterans didn’t always remember to send their SBP premium payments to DFAS, putting them in a debt status. To “clean-up” the possibility of debt, DFAS was ordered to institute a fix. Since these retirees don’t have enough funds to pay their SBP premiums from pre-tax retirement pay but receive tax-free CRSC, the fix is to deduct SBP premiums from tax-free CRSC payments. This new accounting action not only prevents a possible debt, but also eliminates additional paperwork for both DFAS and the veteran. These retirees will have a smaller CRSC check, but they won’t have to write a check for their SBP premiums from post-tax funds. It also prevents the possibility of severely disabled veterans falling behind on their SBP premiums, and potentially leaving the surviving spouse with a liability when the veteran passes.  

Deductions from CRSC payments to cover SBP premiums began April 1, covering the month of March 2018. Few, if any, MOAA members should have been impacted by this change — but we felt a more comprehensive explanation of why this change was implemented was in order.