Survivor Benefit Plan - Need For Change

CONCERN:

  • Provisions of the FY1999 National Defense Authorization Act (NDAA) eliminated Survivor Benefit Plan (SBP) premiums for military retirees who reach the age of 70 and have paid into the program for 30 years. The effective date of this legislation was delayed until 1 October 2008, forcing thousands of military retirees who enrolled in the program as early as 1972 (when it was established) to pay premiums for up to 36 years.

FRA’s PROPOSED SOLUTION:

  • FRA seeks an amendment to the current law that would shift the effective date for paid-up coverage from 1 October 2008 to 1 October 2005. Bills have been introduced in the House (H.R. 968) and Senate (S. 185) that would provide relief for the nearly 135,000 older military retirees who already attained the age of 70 and have paid 30 or more years of SBP premiums.

RATIONALE:

  • Retirees pay monthly premiums (withheld from retirement pay) based on amount of covered retired pay. When SBP was established, congressional intent was that participants would cover 60% of the program’s cost, with the remaining 40% subsidized by the federal government. Current premiums prove that participants now pay more than 80% of the program’s cost, with the government’s share estimated at less than 20%. A change in the paid-up date from 2008 to 2005 will raise the government’s share to an estimated 35%.
  • The enactment of P.L. 108-375 directed that, over a three-and-one-half-year period, SBP annuities at age 62 will increase from 35% to 55% of covered retired pay. As a result, the government’s estimated share of the plan’s cost will rise to 53%, according to the 2004 HASC Total Force Subcommittee. FRA believes it is only right that the government’s share be increased to compensate for the many non-contributory beneficiary groups added to the plan since 1978. Congress has included a sizeable number of new beneficiaries (Including survivors of 1.37 million personnel killed on active duty and certain reservists), without any cost-sharing contribution required of the new additions. FRA has no objection to providing a benefit to these survivors, but believes it is unfair to expect premium-paying sponsors to carry the brunt of the increased federal costs.
  • In 2005, the estimated 135,000 military retirees who are over 70 and have paid 30 years of premiums will be paying 20% more for SBP coverage than those who will be eligible for paid-up status in 2008. By 2008, these retirees will be paying 34% more.
  • Although SBP is modeled after the Federal Employees’ survivor program, annuities for military survivors are less generous. While uniformed service members, on average, pay less than federal employees for coverage, the former pay into their plan over a longer period. The average military retiree pays SBP premiums for 34 years, while federal workers pay for an average of 19 years. Military annuitants receive a smaller return on investment (11% compared to 96% for CSRS and 50% for FERS annuitants), even though payments to survivors are made over a slightly longer period of time (7.6 years vs. 5.7 years).
  • Estimated FY 2006 cost of changing the date from 2008 to 2005 is $140 million; and over a 10-year period, $429 million.
  • SBP reform is necessary to balance cost and provide equity for military participants.

Fleet Reserve Association, Revised Apr 2005