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Topic 1.21 SBP (Survivor Benefit Plan)


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Topic 1.21 SBP (Survivor Benefit Plan)

  1. 1. Career Development Training Course Survivor Benefit Plan 1
  2. 2. Survivor Benefit PlanEnabling ObjectivesUpon successful completion of this topic, the trainee will be able to: IDENTIFY the purposes of the Survivor Benefit Plan (SBP). IDENTIFY the benefits of the SBP. IDENTIFY the SBP basic mechanics. LIST the SBP eligibility requirements. LIST the categories of SBP coverage. 2
  3. 3. Survivor Benefit PlanEnabling Objectives (cont.) IDENTIFY the features of each category of SBP coverage. IDENTIFY the steps to calculate the SBP premium. IDENTIFY the steps to calculate the SBP annuity. LIST the online source that estimates the SBP annuity. IDENTIFY the Dependency and Indemnity Compensation (DIC) offset process. 3
  4. 4. Survivor Benefit PlanEnabling Objectives (cont.) STATE the advantages of COLA adjustments to the SBP annuity. STATE the tax implications of the SBP premiums and annuities. IDENTIFY the features of the Reserve Component SBP. IDENTIFY the SBP election procedure. 4
  5. 5. Survivor Benefit PlanReference Publications BUPERSINST 1750.11, Survivor Benefit Plan (SBP) NAVADMIN 065/03, When Active Duty Member Dies DOD 7000.14-R, DOD Financial Management Regulations, Volume 7B, Chapters 42-58 DOD Instruction 1332.42, Survivor Annuity Program Administration DOD Directive 1332.27, Survivor Annuity Programs for the Uniformed Services 5
  6. 6. Survivor Benefit PlanReference Publications (cont.) Department of Veterans Affairs website: Air Force Personnel Center website: Office of the Actuary website: http:// 6
  8. 8. Survivor Benefit PlanPurpose of SBP When a military retiree dies, retirement pay stops. The Survivor Benefit Plan (SBP) is a voluntary program that allows a military retiree to provide an annuity of up to 55% of gross retired pay to eligible designated beneficiaries. 8
  9. 9. Survivor Benefit PlanBenefits of SBP SBP is the only means by which a portion of retired pay can be continued for eligible survivors. The premiums are tax-free and the annuity is COLA-adjusted to protect future buying power. Eligibility is not dependent on risk factors such as age or health. 9
  10. 10. Survivor Benefit PlanBenefits of SBP (cont.) There are no hidden costs or extra fees. The annuity continues for the life of the beneficiary as long as they remain eligible. 10
  11. 11. Survivor Benefit PlanBasic Mechanics of SBP The “base amount,” which is the dollar amount upon which the annuity will be based, is elected by the retiree at retirement. This amount may range from $300 up to retiree’s full gross retired pay. The monthly payable annuity and 11
  12. 12. Survivor Benefit PlanService Member Eligibility Upon retirement Upon transfer to Fleet Reserve Sailor placed on Temporary Disability Retirement List (TDRL) Death of Sailor on active duty 12
  13. 13. Survivor Benefit PlanService Member Eligibility (cont.) Sailors currently on active duty are automatically covered by SBP at the maximum level (NAVADMIN 065/03). The Reserve Component Survivor Benefit Plan (RCSBP), is available for members of the Naval Reserve. 13
  14. 14. Survivor Benefit PlanCategories of Coverage Spouse Only Spouse and Child(ren) Former Spouse Former Spouse and Child(ren) Child(ren) Only Natural Person with Insurable Interest (NIP) 14
  15. 15. Survivor Benefit PlanSpouse Only Coverage Must be married at time of retirement. If married after retirement, must have been married for one year. If Sailor loses spouse and remarries, new spouse is automatically eligible after one year unless retiree declines coverage. Decision to resume coverage must be made in first year of marriage. 15
  16. 16. Survivor Benefit PlanSpouse Only Coverage (cont.) Receives annuity for life or until remarriage, if prior to age 55. If remarriage later ends (i.e. death, or divorce), entitlement may be restored. Remarriage after 55 does not terminate entitlement. 16
  17. 17. Survivor Benefit PlanFormer Spouse Coverage Retiree’s may voluntarily elect SBP coverage for former spouses. State courts are permitted to order Sailors to provide former spouse coverage for court orders issued on or after 14 November 1986. Former spouses are also ineligible if they remarry prior to age 55. 17
  18. 18. Survivor Benefit PlanFormer Spouse Coverage (cont.) If a Sailor divorces after retirement, the marriage must have lasted at least one year to establish eligibility. Former spouse elections are permanent and irrevocable, with a few exceptions (e.g., retiree obtains a new court order allowing coverage of the new spouse). Always consult a competent attorney. 18
  19. 19. Survivor Benefit PlanFormer Spouse Coverage (cont.) SBP premiums are calculated using the same method as spouse only coverage. 19
  20. 20. Survivor Benefit PlanChildren Only Coverage Annuity goes to eligible child(ren) if elected. If married, spouse concurrence with the “child(ren) only” election is required. Child(ren) remain eligible until age 18, or 22 if full-time unmarried students. Child(ren) incapable of support are eligible as long as incapacitation exists or until marriage. 20
  21. 21. Survivor Benefit PlanChildren Only Coverage (cont.) An incapacitated child who loses eligibility due to marriage can regain eligibility if marriage is later annulled. Divorce would not restore eligibility! 21
  22. 22. Survivor Benefit PlanChildren Only Coverage (cont.) Annuities are 55% of retiree’s “base amount” as long as eligible:  Is not reduced because of concurrent government benefits.  Is equally divided among eligible children.  Is paid to parent or guardian until age 18 or age of maturity. 22
  23. 23. Survivor Benefit PlanChildren Only Coverage (cont.) A retiree with no dependent children at retirement may add children later, but they must be added within one year of birth or adoption. SBP premiums are based on the base amount times an actuarial factor (based on Sailor’s age and youngest child). 23
  24. 24. Survivor Benefit PlanSpouse/Former Spouse and ChildrenCoverage Eligibility requirements are the same as spouse/former spouse. Children coverage same as child(ren) only coverage with one exception:  Only children acquired during marriage to former spouse can be covered. Children cannot be added after the divorce. 24
  25. 25. Survivor Benefit PlanSpouse/Former Spouse and ChildrenCoverage (cont.) SBP premiums calculated by adding the spouse/former spouse premium and a small charge based on the age of Sailor, spouse, and youngest child. Children only receive benefit if spouse loses eligibility or dies. 25
  26. 26. Survivor Benefit PlanNatural Person with Insurable Interest(NIP) Allows retirees without a spouse or dependent child(ren) to elect coverage for a person who has a bona fide financial interest:  Need not be a dependent.  May be a close relative, a child, or a close business associate. 26
  27. 27. Survivor Benefit PlanPremium Calculation Automatically deducted from retirement pay Basic formula BA x .065 = Premium Sailors who entered active duty on or after 1 March 1990: The premium is 6.5% of the elected base amount. Sailors who entered active duty before 1 March 1990: The premium is either:  6.5% of the elected base amount OR  2.5% of the first $675 of the base amount, plus 10% of the remaining base amount, if the base amount is less than $1,275. 27
  28. 28. Survivor Benefit PlanInsurable Interest Premiums Premiums are 10% of the retiree’s gross retired pay, plus an additional 5% for each five full years the annuitant is younger than the retiree. Premium costs cannot exceed 40% of the Sailor’s gross retired pay. 28
  29. 29. Survivor Benefit PlanAnnuity Estimates Online 29
  30. 30. Survivor Benefit PlanAnnuity for Persons with InsurableInterest The payable annuity is 55% of retiree’s full retired pay after the premium cost is deducted. Sailors are not permitted to elect reduced base amount. There is no offset for other Government benefits to which the annuitant is entitled. A retiree may terminate insurable interest coverage at any time. If retiree marries, they may elect to enroll a new spouse and/or children. 30
  31. 31. Survivor Benefit PlanDependency and IndemnityCompensation (DIC) Offset DIC is paid to a widow by VA when a death is considered service-connected. When a surviving spouse is entitled to both SBP and DIC, the SBP annuity is reduced dollar for dollar by the amount of the DIC. DIC is not taxable. If a surviving spouse loses DIC eligibility, SBP may be paid provided the eligibility criterion is met. 31
  32. 32. Survivor Benefit PlanCost of Living (COLA) Adjustments SBP annuities and premiums are adjusted at the same time and the same percentage as retired pay. This benefit protects the purchasing power of the survivor’s annuity. 32
  33. 33. Survivor Benefit PlanTax Implications SBP premiums are not taxable income. This factor makes the actual cost for SBP even less expensive. The SBP annuity is taxable income for federal tax purposes, though some states exempt SBP annuities in whole or in part. 33
  34. 34. SBP’s Real Cost NO SBP* SBPRetired Pay $2,000 $2,000SBP Cost $ 0 $ 130Taxable Pay $2,000 $1,870Tax Paid (28%) $ 560 $ 524Annuity $ 0 $1,100* This non-participant actually “pays” $36/mo in the form of unrealized tax savings—survivor gets $0. 34
  35. 35. Survivor Benefit PlanReserve Component SBP Must have 20 years of qualifying service. Must make election within 90 days of receiving eligibility notice for retired pay. Three options:  Decline RC-SBP- Defer enrollment until eligible for SBP at age 60.  Elect annuity to begin at death or age 60, whichever occurs later.  Elect annuity to begin at death, regardless of age. 35
  36. 36. Survivor Benefit PlanReserve Component SBP (cont.) Premiums not paid until retired pay commences. Cost is same as SBP plus an actuarial charge. Beneficiary eligibility is same as SBP. Naval Reserve Personnel Center provides instruction booklet. 36
  37. 37. Survivor Benefit PlanSBP Elections Use DD Form 2656. Spousal concurrence required if election is anything less than full base amount. Witnessed by notary public. Completed NLT 45 days prior to date eligible to receive retainer/retirement pay. If no election made, automatically enrolled at full coverage. 37
  38. 38.  A “JOINT” Decision ForMarried Sailors Who . . . .  Decline coverage  Cover less than full retired pay  Elect “child only” It is the Sailor’s election:  The spouse can only concur or not concur. 38
  39. 39. Survivor Benefit PlanBenefits of SBP Recap SBP is the only means by which a portion of retired pay can be continued for eligible survivors. The premiums are tax-free. Eligibility is not dependent on risk factors such as age or health. There are no hidden costs or extra fees. The annuity continues for the life of the beneficiary as long as they remain eligible. 39
  40. 40. Survivor Benefit PlanSBP Recent ChangesDFAS Release 0308-002: Retirees who are at least 70 years old and have paid at least 360 months of premiums on 1 October 2008, will have their monthly payments terminated. If a retiree does not meet both of the above criteria, the premiums will stop when the retiree has met both criteria:  Reaches age 70.  Pays SBP premiums for 360 months. 40
  41. 41. Survivor Benefit PlanSBP Recent Changes (cont.)NAVADMIN 134/08, Death Gratuity Beneficiary Designation: Effective 1 July 2008. Sailors may designate 100% of the death gratuity in 10% increments to one or more beneficiaries. Should a married Sailor designate any person other than the spouse to receive any portion of the death gratuity, the spouse will be notified in writing. 41
  42. 42. Survivor Benefit PlanSBP Recent Changes (cont.)NAVADMIN 134/08 (cont.) If a Sailor does not designate a beneficiary or only designates a portion of death gratuity to a beneficiary, the portion not covered shall be paid in the following order: (1) Surviving spouse (2) Surviving children and the descendants of any deceased children (3) Surviving parents (4) Duty-appointed executor or administrator of the estate (5) Other next of kin entitled under the laws of the domicile of the Sailor at time of Sailor’s death 42
  43. 43. Survivor Benefit PlanSummary and Review What are the election options under SBP? When must you make your election to participate under SBP? What form must you use? How are premiums paid under SBP? What is the formula to compute an annuity for spouse coverage? A widow is eligible to receive an SBP annuity as long as he/she remains unmarried until what age? 43