Navigating the Survivor Benefit Plan

Who Is the Beneficiary?

The SM’s current spouse is automatically designated upon retirement. In order to opt out of the designation, the SM’s current spouse must consent to not be the designated beneficiary. That is except where the SM has a former spouse who was already elected as the beneficiary in their divorce. The former spouse must request coverage at the time of divorce and before the SM’s retirement. For a former spouse to be the beneficiary, the SM must agree to elect their former spouse, or it must be ordered in the divorce that the former spouse be designated as the beneficiary. Both former and current spouses cannot be designated. It can only be one of them. Beneficiary elections are codified under 10 U.S.C. § 1448.

An SBP Illustration

The best way to explain the intricacies of the SBP is to look at it by way of example. Service Member, John Doe, entered the service on June 1, 1991. Hoping for an anniversary date he would remember, John got married on June 1, 2001, to his future former spouse, Jane Doe. In 2009, their first and only child, Joe Doe, was born. They remained a happy family until 2012, when Jane came home early and found John in bed with their neighbor, Daisy. Thereafter, their marriage began to crumble. Finally, on June 1, 2016, the Does get a divorce. Jane hired a competent attorney familiar with military pension division and the SBP. Her attorney establishes that Jane is interested not only in her share of John’s pension, but also in SBP Coverage. Her attorney lists SBP coverage on the joint statement of marital property as a separate asset from the pension. This is because upon John’s death with the SBP, Jane no longer receives her marital share of John’s military retired pay. Jane’s marital share of John’s retired pay is determined to be 30% of what John’s retired pay would be if he were retired at his rank as of the date of divorce. Once John dies, however, she will receive the maximum benefit of the SBP, which is 55% of John’s actual retired pay. The judge orders that John shall elect Jane as his beneficiary under the Survivor Benefit Plan. Her lawyer submits a separate military pension division order after the divorce decree is issued. Jane’s lawyer reminds her to submit the DD FORM 2656-10, along with the divorce decree and pension division order, to the Defense Finance and Accounting Service (DFAS). Her lawyer warns her that this must be done not later than June 1, 2017, one year from the date of her divorce.

A week after the divorce from Jane was final, John and Daisy get married. In 2018, John and Daisy have their first child together Florence (“Flo”) Doe. On June 1, 2021, John retires with exactly 30 years of service.

Jane should be the SBP beneficiary. However, Jane ignored her lawyer’s reminder and failed to submit the DD FORM 2656-10 within a year of the divorce. Now Daisy becomes the primary beneficiary automatically at retirement, since the election of Jane was not established with DFAS. Daisy’s eligibility to be the beneficiary as new spouse began a year from John’s remarriage. Jane has nothing to worry about, however, because she would have lost it anyway. Jane found her happily ever after and married her new husband at the age of 53. As a former spouse beneficiary, she loses the benefit if she remarries before 55.

Who Else Can Be Covered?

Dependent children can be beneficiaries under the SBP if they are unmarried and under the age of 18, or 22, if enrolled in a higher education program as a full-time student. Only a dependent child can be covered if it is the child of the spouse or former spouse, whoever is the beneficiary. In our example, with Daisy as the beneficiary, Flo Doe can be a beneficiary until she is no longer a dependent. DoD Financial Management Regulation Vol. 7B, Ch. 44, May 2021, 440103. Unfortunately, that means a “no-go” for Joe Doe. Had Jane submitted the DD FORM 2656-10, he would be a beneficiary until emancipation and Flo could not. Id. at 440104.

A child of a SM who is not self-supporting due to a disability, existing at the time of emancipation, would also qualify as a beneficiary. In 2015, a new rule was implemented to allow for SBP payments for special needs children to be paid to a special needs trust, rather than to the child directly. National Defense Authorization Act for Fiscal Year 2015 (FY15 NDAA), Public Law 113-291, amended Title 10, U.S. Code, §§ 1448, 1450, and 1455. Payment to a special needs trust, rather than directly to the disabled child, may prevent the disabled child from being disqualified from receiving other government benefits. DoD Financial Management Regulation Vol. 7B, Ch. 44, May 2021, 440105.

If there is no otherwise eligible spouse or dependent child beneficiary, a Natural Person with Insurable Interest (NIP) may be named as the beneficiary. This is a person who has a reasonable and lawful expectation of pecuniary benefit from the continued life of the member. It can be a relative that is more closely related than a cousin, such as a child that doesn’t qualify as a dependent, a stepchild, a sibling, or a parent of the SM. Unlike the other beneficiaries, an SM can terminate NIP coverage at any time and the election can only be made at the time of retirement. Defense Finance and Accounting Service.

How Much Does It Cost?

A monthly premium is deducted from the SM’s retired pay while they are living. The premium is based on the base amount selected for coverage under the plan. The base amount can be designated at anywhere between $300.00 to the full amount of the SM’s monthly retired pay. The maximum amount that a beneficiary can get is 55% of the SM’s full monthly retired pay, which is also the default amount, if a lower base amount is not selected. Using a lower based amount will reduce the monthly premium. For active-duty service members, the SBP premium is 6.5% of the base amount selected. For Reservists, the cost is about 10%. Mark E. Sullivan, Military Divorce Handbook: A Practical Guide to Representing Military Personnel and their Families (3rd ed. 2019), 572–621.

Who Pays for It?

The premium is deducted before the SM’s monthly retired pay is divided between the SM and former spouse. So, if Jane is awarded 30% of John’s disposable retired pay (and in this example, she is the beneficiary) then John is paying 70% of the premium and Jane is paying 30%. DFAS will not accept any order shifting the premium to the beneficiary. The order or agreement should state that Jane shall reimburse John for his share of the premium directly, or Jane’s share should be recalculated to a set figure or percentage equivalent to her share reduced by the full cost of the premium. Id.

SBP Premium Shift to Former Spouse Example

Sample language:

Calculate the monetary amount due to the former spouse by multiplying her share times the “disposable retired pay.” Subtract from this the retiree’s percentage of the SBP premium (in dollars). Divide the remainder by the disposable retired pay to get her adjusted percentage of the pension, thus allocating the entire SBP premium to her.

Id.

In our illustration, let’s say John’s monthly disposable retired pay is $1,000 after the SBP premium of $65 is taken out. John gets 70% and Jane gets 30% of John’s disposable retired pay. John is paying $45.50 as his 70% of the premium. Jane’s share of the disposable retired pay is $300. When you subtract John’s share toward the premium from Jane’s $300 share, her share becomes $254.50, or a percentage of 25.45%, instead of 30%.

Representing the Servicemember

Silence is golden when you represent the SM. When your client has not yet retired, and the former spouse did not request the election in the divorce, then the former spouse loses their right to be a beneficiary upon the divorce being final. If your client is retired, they can submit the divorce decree and receive a refund of the premiums paid since the date of divorce. If the SM is married at the time of retirement, then the current spouse is automatically covered at the maximum level of coverage. If opposing counsel does request the former spouse be the elected beneficiary, make sure you address who pays the premium. Consider offering coverage under another life insurance plan as an alternative to the SBP that may cost less for equivalent coverage. Defense Finance and Accounting Service. Using a life insurance policy instead of the SBP allows for the SM to save the SBP for a future spouse.

Representing the Former Spouse

It’s important to be aware of timing and deadlines when representing the former spouse. The order awarding your client the SBP must be in effect prior to the retirement of the SM. Don’t let your client end up like Jane Doe. Make sure they submit the one year from the date of divorce to secure their deemed election coverage by properly submitting the DD FORM 2656-10. If your client does miss the one-year deadline, they may consider making an appeal to the appropriate Board of Military Records. Sullivan at 798–865. ake sure you hire an experience attorney to draft the military pension division order. DFAS is very particular about the specific language used. The order must specifically use the name the SBP. In assessing whether or not your client wants to be the beneficiary, consider how much they are losing out on versus how much they could stand to gain. If while the SM is living, their share of the retired pay is only 15%, then they may not want to miss out on receiving 55% upon the SM dying. Consider how much the premium is as well as how much it reduces their share of the retired pay, their likelihood of outliving the SM, and if they are under 55, the chances they get remarried before then. It may be more cost effective for both the former spouse and the SM to agree on a comparable life insurance plan instead of SBP coverage. To the benefit of the former spouse, their remarriage before 55 would not be an issue with a life insurance policy. Id.

Reserve Component Survivor Benefit Plan (RCSBP)

The RCSBP is available to members of the Army National Guard of the United States, the Army Reserve, the Navy Reserve, the Marine Corps Reserve, the Air National Guard of the United States, and the Air Force Reserve. The reservist first becomes eligible to participate in the RCSBP when they have reached 20 years of service. As a reservist, they are only eligible to receive retired pay once they reach the age of 60 and have 20 years of service. The reservist will have 90 days to elect a beneficiary upon attaining 20 years of service, otherwise their spouse is automatically covered. There are three options to be made at the time the reservist receives the letter confirming their 20 years of service. First, they can defer on opting into the SBP until they actually begin receiving retired pay. The second option is that the reservist can elect that RCSBP Coverage begins on what would have been their 60th birthday, if they pass before then. These first two options require the consent of the spouse at the time. The third option is for the RCSBP to start immediately on the reservist’s death. If no election is made within 90 days of their 20-year letter, then the default is receiving the RCSBP coverage beginning upon death at the maximum base amount. The RCSBP premium begins the first day of the month after the reservist has met the age and service requirements for retirement, or retroactive thereto, if the reservist chooses to defer retirement.