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
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