WHAT VETERANS SHOULD KNOW TO NAVIGATE THE SURVIVOR BENEFIT PLAN OPEN SEASON
Are you enrolled in the Survivor Benefit Plan (SBP)? It’s a decision you may have made many years ago—when you retired from the military. Thanks to an open season period authorized by Congress in 2023, the opportunity to change your decision occurred, helping many families’ long-term financial needs.
What's New With the Survivor Benefit Plan?
Before we get into the open season, let’s review what brought us here. Since 2020, Congress has been phasing out the “Widow’s Tax.” Spouses of Veterans who died of service-connected illnesses receive a tax-free benefit from the Department of Veterans Affairs (VA) called Dependency and Indemnity Compensation (DIC). However, those surviving spouses previously saw an SBP-DIC offset in which their SBP annuity payment was reduced by the amount of the DIC payment – today it's usually around $1,653.07 per month.
As of 1 January 2023, the Widow’s Tax has been eliminated and no longer reduces survivors’ benefits. Until 2023, Veterans faced an irrevocable decision to enroll or not enroll in SBP at the time of retirement. If you’re among the estimated 68% of military retirees currently enrolled in the SBP, that means your retired pay is reduced by a monthly 6.5% SBP premium.
When you die, your surviving spouse will receive an annuity equal to 55% of the amount of your retired pay that you covered (up to 100%). If your spouse dies before you do, everything you paid into SBP is forfeited, which is why some retirees don’t choose SBP.
The Widow’s Tax also deterred many Veterans who expected to qualify for DIC payments from enrolling. With the repeal of the Widow’s Tax, SBP has become much more valuable to service members and their families. For that reason, Congress created the 2023 open season, a unique and historic opportunity for retirees to reassess their financial situation and potentially change their SBP decision.
Making a Decision About the Survivor Benefit Plan
Military pensions can be very generous, but they don’t continue after the retiree dies. This is why benefits like life insurance or SBP are essential. Payments made during retirement help ensure greater peace of mind and financial security for your loved ones after your death.
If you are among those who elected not to enroll in SBP at retirement, you can submit a request to the Defense Finance and Accounting Service (DFAS) to help you make the decision. They’ll calculate your cost to enroll, which is based on several factors unique to your military pay situation.
To “buy in” during open season, you’ll need to pay all previous payments since retirement with interest. You can pay these back premiums in installments over a 12-month period or as a lump sum. After you pay your “buy-in” back premiums, you’ll also begin paying the 6.5% premium on your retired pay until you’ve paid in for 30 years.
If you started trying to do the math in your head, you might’ve realized that the back payments and cost to “buy in” to the SBP now could be quite significant! As you weigh the decision, consult financial advisors and review information provided by DFAS. It's important to consider how significant the costs and the benefits could be for your family, especially if your family or financial situation has changed since you retired.
If you retired decades ago, the lump sum required to cover your back payments and interest could be well over $150,000. However, if your spouse outlives you by several years, it is possible for your spouse to receive much more than the buy-in cost to re-enroll in SBP. The SBP annuity will also keep pace with inflation with annual COLA increases. If you’ve retired more recently, your buy-in costs will naturally be lower, potentially making it an even more lucrative option.
During the open season, it’s also possible to disenroll from the SBP. But that decision normally requires concurrence from your spouse or other beneficiaries. Disenrolling means you forfeit all funds already paid in, and your beneficiary will not receive an annuity when you die.
Major health, financial, and lifestyle changes can come at any age. If your circumstances have changed since retirement, now is an ideal time to reassess your SBP decision and consult a financial professional who can guide you through the nuances of changing benefits. Making an informed choice now will ensure your spouse and family receive the benefits and support they need for years to come.
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BY BG MICHAEL J. MEESE, USA, RET.
Guest Contributor
Mike Meese is an Army Veteran and serves as President of Armed Forces Mutual. He is a leader in military and Veterans issues, including chairing the 2016-17 Transition Team for the Department of Veterans Affairs. Mike retired from the United States Army as a Brigadier General, having concluded his...
Mike Meese is an Army Veteran and serves as President of Armed Forces Mutual. He is a leader in military and Veterans issues, including chairing the 2016-17 Transition Team for the Department of Veterans Affairs. Mike retired from the United States Army as a Brigadier General, having concluded his...
