By Heather Tenney for VT
Unfortunately, military retirement pay stops after the death of the retiree. What this means is that a military veteran could devote their entire career and life to their service, and their family would not have sufficient support should the service member die prematurely. One option to prevent this is the Survivor Benefit Plan (SBP). The SBP is an annuity that a retiring service member can elect to ensure that their beneficiary receives a portion of the retired pay after they die.
There are advantages and disadvantages to the SBP, and while it is similar to life insurance, it is not the same as the premiums and benefits differ. Enrollment in an annuity plan is not automatic, and there are costs. There are many financial and personal considerations that a service member and his or her family may want to discuss with a financial planner when deciding whether to elect the SBP.
But service members, their dependents, and even their former spouses need to be aware that there are pitfalls in the election process and thereafter that could lead to the Defense Finance and Accounting Service (DFAS) or other agencies refusing to pay the benefits to the beneficiary after the service member’s death. Knowing how to avoid these pitfalls in the election process can be the difference between a service member providing for one’s family and beneficiaries and having their retirement pay cut short.
When do you Enroll in a SBP? Who can be a Beneficiary?
SBP is a specific benefit which the retiree must elect, generally at the time of retirement from active duty or immediately upon receiving the 20-year letter as a Reservist, for a spouse, child, or anyone with insurable interest in the retiree. While some service members choose to forgo enrolling in the SBP plan because they have no eligible beneficiaries, they might later get married or have a child that is eligible for benefits and want to change their election status. The SBP election service members make at the time of their retirement is hard to edit, considering the circumstances for changing one’s coverage are few and far between. In such an instance, a service member would have one year from the date of initial eligibility (i.e., marriage, childbirth, etc.) to declare their intent to have their beneficiary covered.
There are many things to consider when it comes to service members ending their current marriage and how that might impact their SBP coverage.
SBP election may be contemplated during divorce proceedings that occur long before a service member becomes eligible for retirement. In order to protect any future interests, a service member should file a document with DFAS called a deemed election. This deemed election must be filed within 1 year of the divorce or order granting the former spouse the SBP. The purpose is to put DFAS on notice that the former spouse will be the beneficiary. Without the deemed election, if the retiring service member fails to elect anyone or elects a new spouse, the former spouse will not be paid by DFAS as the beneficiary.
Additionally, if the divorce decree does not contain any language ordering a service member to elect Former Spouse coverage, then they would have the ability to either remove the former spouse from the plan or choose to continue that coverage by their own free will. However, if the parties were married at the time of retirement, and the spouse was named as the SBP beneficiary, it is critical that DFAS is informed that there has been a change, even if the parties agree that coverage will continue.
The only remedy if the deemed election is not timely submitted, and the former spouse was not named (or deliberately changed from spouse to former spouse) by the retiring service member is to seek relief through the Board for the Correction of Military/Naval Records.
When it comes to remarriage, if a service member was married at the time of retirement and had a plan in place before the termination of their marriage, the coverage elected for the first spouse will resume at the same level as originally elected on the first anniversary of the new marriage.
Should a service member want to increase the amount of coverage granted to their new partner, they would have to elect for an increase in coverage within the first year of their marriage. Additionally, they will have to pay the difference in premiums with interest between the two coverage levels for the time they had elected for a lesser coverage. This option is very costly but does offer a way for service members to change their coverage levels in the event they take a new spouse.
In a similar situation, service members may also choose to decline coverage for their new spouse and must notify DFAS within the first year of their new marriage. Service members will not have any premium deductions from their retirement pay should they choose to not resume coverage for their new spouse.
There is another issue regarding a spouse or former spouse who remarries. If the spouse or former spouse is named as beneficiary, but they remarry before the age of 55, their SBP annuity is suspended unless and until the new marriage ends by either death or divorce. Remarriage after age 55 has no effect on their SBP benefits.
Never too Early to Plan Your Future
As seen, the SBP is often a complicated issue, and there is never a bad time for a service member or their family to think about their retirement. The SBP offers a different way for service members to protect their families and survivors. By knowing the advantages, election process, and what pitfalls to avoid when establishing SBP benefits, a service member can guarantee the best future for their family and beneficiaries.
Heather Tenney, Esq. is a Partner in Tully Rinckey PLLC’s military and national security law and the federal employment law practice groups, where her experience as a litigation and advocacy attorney with the U.S. Army add to the number of qualified attorneys within the firm’s practice. Heather possesses years of experience representing officers and enlisted service members in complex legal matters, including courts-martial, adverse command actions against troops such as administrative separations, Article 15 matters, and other forms of non-judicial punishments. She can be reached at (518) 218-7100 or at [email protected].