The Survivor Benefit Plan
A service member's right to receive military retirement pay terminates upon his or her death.
The Survivor Benefit Plan ("SBP"), the Reserve Component Survivor Benefit Plan ("RC-SBP"), and the Retired Serviceman's Family Protection Plan ("RSFPP") provide service members with the opportunity to purchase an annuity that pays a defined benefit to certain eligible beneficiaries upon the death of the service member. The annuity pays a percentage of the service member's retirement pay on a monthly basis for the lifetime of the beneficiary.
The annuity is a form of insurance that provides coverage in the event that the service member predeceases the beneficiary. This coverage can provide an eligible beneficiary with up to 55% of the service member's monthly military retirement pay.
Although there is no cost associated with SBP during active duty service, SBP coverage comes at a premium after retirement. SBP coverage for a retirement pay annuity can cost as much as 6.5% of the service member's gross retired pay. (Fortunately, the SBP premium is deducted from retirement pay on a pre-tax basis. In other words, the service member is not taxed on the portion of his or her income used to pay the SBP premium.)
Once a beneficiary starts receiving SBP annuity payments, the payments are adjusted each year based on the Consumer Price Index. This is known as a Cost of Living Adjustment or "COLA."
Subject to certain exceptions, the service member must elect SBP coverage at the time of retirement. This is done using DD Form 2656, Data for Payment of Retired Personnel, which includes the SBP election. Although the service member's SBP election is frequently irrevocable, there are circumstances where a service member can change his or her SBP election.
If you are a military service member going through a divorce, chances are that your former spouse will demand a share of your military retirement. And, chances are the former spouse will also demand that you make an SBP election with the former spouse as the exclusive beneficiary.
Unfortunately, the Survivor Benefit Plan is not always the best means to insure a spouse's interest in the service member's military retirement. This is because a former spouse who remarries before reaching age 55 is not an eligible beneficiary under the Survivor Benefit Plan.
Absent a reimbursement mechanism, the cost of SBP coverage is necessarily shared on a pro-rata basis between the service member and former spouse. This is because the former spouse only has a right to receive a share of the service member's disposable retired pay. Ironically, the benefit of this expensive insurance may go to the service member's new spouse if the former spouse remarries.
A competent military divorce attorney should ask the spouse whether he or she is likely to remarry or has plans to remarry (some spouses have already selected their new partner before the divorce is even finalized). If the spouse has plans to remarry, then a life insurance policy is probably a much better option than SBP coverage.
If you are a former spouse and the court orders that the service member insure your interest in the retirement using SBP, make sure that you file the appropriate forms with DFAS to make a deemed SBP election. An experienced military divorce attorney representing a service member's spouse will always advise the spouse to file the SBP Request for Deemed Election with DFAS. Do not trust the service member to do this. If the former spouse does not make this election within one year of the date of the court order dividing the military retirement, the right to SBP coverage may be forever waived.