Think of the Survivor Benefit Plan (SBP) as an insurance policy, focused on protecting a survivor's income flow from the military retirement if the retiree dies first. It has a premium, and a payout in the form of a monthly payment from DFAS.
Without SBP, if the retiree dies, the military retirement stops as well. However, to protect a surviving former spouse's share of military retirement, family courts can require a service member to elect former spouse SBP coverage.
As the retiree can only have one primary beneficiary, one effect of court-ordered SBP coverage for a former spouse is that if the service member remarries, the new spouse or children are precluded from coverage.
In the event of the military member's death, the former spouse receives a monthly payment of 55% of the designated base amount. This designated base amount is an amount not greater than the servicemember's full gross retired pay, and not less than $300 per month. If married at the time of retirement, spousal consent or a court order is required to elect less than maximum coverage. 10 U.S. Code § 1448(a)(3)(A).
Previously, there was a coverage reduction to 35% upon the survivor's 62nd birthday. However, that reduction was phased out over several years, and fully eliminated as of April 1, 2008.
So how do you calculate the base amount necessary to provide sufficient coverage? This takes a little math.
Assume the former spouse share of the retirement comes to $650/mo in the year of the retirement. That $650 is 55% of the necessary base amount.
Formula: $650 / 0.55 = $1181.82. That's the base amount necessary to provide $650 coverage.
The coverage is indexed to inflation, so increases annually with a COLA.
Pursuant to 10 U.S.C. § 1447(7,8), a retiree may elect his/her spouse or former spouse as beneficiary, as long as they:
When child coverage is added to former spouse coverage, only children resulting from the marriage to that former spouse are covered, including natural born, adopted, or stepchildren. If the former spouse is alive and eligible, he/she receives the annuity instead of the children.
A child is entitled to receive the annuity as long as the child is unmarried, and either:
Eligible children divide the annuity in equal shares, and in the event of a child's death or loss of eligibility, the remaining eligible children divide that child’s benefit equally.
The additional premium for the children's portion, a fairly nominal amount (as low as a few dollars a month), is calculated based upon the ages of the servicemember, the former spouse, and the youngest child.
A 2016 change to the law (contained in the 2016 National Defense Authorization Act) finally allows a retiree with SBP coverage for a former spouse to transfer that coverage to his/her new spouse if the former spouse dies.
Previously, the law was ambiguous, but DFAS had taken the position that if the former spouse died first, SBP coverage simply expired, and with it, all of the thousands of dollars in accumulated premium payments.
Now, the retiree has two options:
Prior to retirement, a member is required to complete a DD Form 2656, Data for Payment of Retired Personnel, which also includes the Survivor Benefit Plan election. If married, the servicemember is required to obtain his/her spouse's notarized signature to elect less than full coverage. If divorced, the form has a place to select former spouse coverage, but the former spouse's signature is not required for this form.
The deadline for applying for SBP is:
To convert an existing SBP spouse coverage election into former spouse coverage, the retiree and former spouse must complete a DD Form 2656-1, Survivor Benefit Plan (SBP) Election Statement for Former Spouse Coverage, and indicate whether the election is being made pursuant to a court order, a written agreement, or voluntarily. This distinction is significant, as it affects whether the retiree can unilaterally change the former spouse coverage.
The DD Form 2656-1 to convert the coverage from spouse to former spouse must be submitted within one year of the court order requiring coverage! A needless-sounding bit of bureaucracy, but an important one - unless this is done, the former spouse will not be covered.
Finally, 10 U.S. Code § 1448(b)(3) is the statutory authority to convert spouse coverage into former spouse coverage for a retiree already participating in the plan. It states that a person participating in SBP “may. elect to provide an annuity to that former spouse.” This does not, on its face, limit the coverage to the same dollar amount already in effect. However, DFAS takes the position that the benefit level may not be changed upon the election - it is either for the same amount, or zero, but not a lesser amount of coverage.
The DD Form 2656 does not require a former spouse's signature. To prevent that former spouse from being at the mercy of a retiring member who omits electing former spouse coverage, 10 U.S.Code § 1450(f)(3) authorizes the former spouse directly to elect former spouse coverage.
The former spouse may do this deemed election within one year of the order requiring former spouse SBP coverage by completing a DD Form 2656-10, Survivor Benefit Plan (SBP) / Reserve Component (RC) SBP Request For Deemed Election, and sending it along with a certified copy of the order to the appropriate address listed on the first page of the form.
If the election is not done within one year of the order, or if the member fails to elect former spouse coverage upon retirement, SBP could be irretrievably lost despite the divorce court's order. Therefore, for his/her protection, the former spouse should always do a deemed election, and not depend upon the servicemember to make a timely election of former spouse coverage.
Retirees pay a monthly premium for SBP coverage. The federal government subsidizes part of the program costs (theoretically 40%), and premiums are deducted from the military retirement before disbursal, so are not taxable.
The normal premium for participants is 6.5% of the designated base amount for a surviving spouse or former spouse. For more information, see the DoD Financial Management Regulation Volume 7B, Chapter 45.
The premium is considered "paid up" once the service member has paid SBP premiums for 30 years (or 360 months), providing that the maximum SBP coverage was elected.
DFAS deducts the SBP premiums directly from the retired pay, prior to distribution. This has two consequences: (1) the premium is paid with pretax money, which reduces net cost of the SBP to the participant, and (2) absent a reimbursement mechanism, the parties are effectively splitting the SBP costs in accordance with the percentage of retirement each receives.
Despite the DFAS distribution, state courts are permitted to allocate the SBP premiums as they deem appropriate. In Colorado, SBP is not a property interest, but an equitable means of preserving the former spouse's right to military retirement. In re: Marriage of Payne, 897 P.2d 888 (Colo. App. 1995). That's legalese for saying that a Colorado divorce court has the authority to (and almost always does) order the servicemember to pay some or all of the SBP costs, even though only the former spouse benefits from the SBP.
In El Paso County, family law judges typically order the spouses to divide the SBP premium costs equally. The theory is that if the former spouse dies, the military retiree gains by receiving the entire military retirement, including the former spouse's share, at no cost to the retiree, so it is not fair to make the surviving former spouse alone pay for a benefit which is not even as generous.
If a court orders one spouse to pay all, or a disproportionate share, of the SBP premium, when DFAS pays the former spouse directly the decree should contain a reimbursement mechanism to compensate the spouse who was not ordered to pay a proportional share of the premium.
Example: After a 12-year marriage, a court divides a military retirement with 70% to the military member and 30% to the former spouse, but orders the spouses to share the SBP premium costs equally. The member is effectively paying 70% of the premium because it is deducted from the retirement prior to receiving his/her share. If one assumes the total premium is $200 per month, the service member's share of the retirement is reduced by $140, versus the $100 it should be if the costs were split equally. So the former spouse owes the servicemember the excess $40 per month paid by the member.
If a member is receiving a Chapter 61 disability retirement and has under 20 years of service, the disability retired pay is waived in return receiving a VA disability payment, even if the disability rating is 50% or higher. That often results in the disability retirement being waived completely, and there being no funds from which to pay the SBP premium. In such cases, the government will deduct the SBP premium from Combat-Related Special Compensation (CRSC), if any. If there is no CRSC< then the retiree must pay DFAS directly for the premium, or have it deducted from the VA disability payments.
For more information on premium options when there is insufficient disability retired pay, see the DFAS page Paying for SBP.
Coverage for a former spouse is suspended if he/she remarries while under 55, during the period of the remarriage. The premiums are also suspended, effective the first day of the month after remarriage, as long as DFAS is provided with written notification and a copy of the former spouse's marriage certificate.
If the former spouse's remarriage ends by death or divorce, the coverage and premiums resume the first day of the month after the marriage ends. The servicemember must provide DFAS with written notification and a copy of the divorce decree or death certificate terminating the former spouse's remarriage.
Remarriage by a former spouse over 55 does not affect coverage or premiums.
DFAS can change former spouse coverage only under following circumstances:
SBP Financial Analysis Tools, from the Office of the Actuary, Department of Defense. Information and tools to calculate SBP premiums, compare to term life policies, etc.
