Survivor Benefit Plan – The Basics
What is SBP? SBP is an annuity plan that, after the death of a retired servicemember, pays a monthly sum to a beneficiary designated by the servicemember. SBP payments begin at the death of the retired servicemember, when the servicemember’s retired pay would normally cease. SBP coverage therefore permits a servicemember to continue to provide income to a named beneficiary upon the servicemember’s death. SBP coverage is analogous to life insurance in that it provides servicemembers security that their dependents will be cared for when they are gone.
The Defense Finance and Accounting Services (DFAS) automatically deducts the monthly premiums for SBP coverage from the servicemember’s retired pay. The payments are deducted “off the top,” before taxes, meaning the premiums are paid out of the servicemember’s pre-tax income at a substantial tax savings compared to commercial life insurance.
SBP payments to beneficiaries regularly increase in accordance with cost-of-living adjustments, and, in the event there is spouse or former spouse coverage, continue for the beneficiary’s life unless the beneficiary remarries before age 55. In the event there is child coverage, SBP payments continue so long as the youngest child is unmarried and under the age of 18 or, if the child is still in school, 22.
There is no physical exam required for SBP coverage, and servicemembers do not have to worry about coverage lapsing because of changes in their physical health or life expectancy.
In fact, SBP coverage is relatively inflexible. Generally, once SBP coverage is elected, it cannot be canceled. Active duty servicemembers who are entitled to retired pay are automatically enrolled in SBP at the maximum level of coverage, and, if he or she is married, then the spouse’s consent is required before declining SBP. For the active duty servicemember, the SBP election must be made at or before retirement, except in the event of a divorce. Upon a divorce, any election to provide coverage for former spouses must be made within within one year of the divorce, or else the former spouse’s coverage will be forfeited. SBP can only go to one spouse at a time and cannot be apportioned between spouses. For example, if a servicemember elects to provide SBP coverage to a former spouse pursuant to a court order, such as a divorce decree, and the servicemember remarries, he or she cannot elect to provide SBP coverage to the new spouse.
The size of the monthly SBP annuity payment depends on the level of coverage selected by the servicemember– it is equal to 55% of the “base amount” selected by the servicemember. The base amount ranges from $300 per month to the full amount of monthly retired pay. The cost of the monthly SBP premium also depends on the level of coverage, and, for spousal coverage, is equal to 6.5% of the base amount selected by the servicemember.
Example. Assume a servicemember is entitled to receive retired pay in the amount of $2,000 per month and elects SBP spousal coverage on the full “base amount” of $2,000. The monthly premiums will thus be $130 (6.5% of $2,000), which DFAS will deduct “off the top,” reducing the servicemember’s retired pay to $1,870 per month. Then, in the event the servicemember predeceases the spouse, the spouse will receive $1,100 (55% of $2,000) per month.
More information about the cost of SBP coverage can be obtained from the Defense Department website.
Survivor Benefit Plan – Virginia Divorce
The authority of the courts of Virginia to order SBP coverage for a former spouse is set forth in Virginia’s equitable distribution statute, which provides that:
To the extent permitted by federal or other applicable law, the court may order a party to designate a spouse or former spouse as irrevocable beneficiary during the lifetime of the beneficiary of all or a portion of any survivor benefit or annuity plan of whatsoever nature, but not to include a life insurance policy. The court, in its discretion, shall determine as between the parties, who shall bear the costs of maintaining such plan.
Va. Code § 20-107.3(G)(2) (emphasis added). As SBP is a survivor benefit or annuity plan, it falls within the scope of the statute. The statute is consistent with federal law, which acknowledges that
incident to a proceeding of divorce, dissolution, or annulment, [a servicemember may be] required by a court order to elect under [10 USC § 1448(b)] to provide an annuity to a former spouse (or to both a former spouse and child).
10 USC § 1450(f)(2)(A). In deciding to require coverage, the Court must consider the statutory factors for equitable distribution set forth in Va. Code § 20-107.3(E)(1).
When should coverage under SBP be an issue at trial? SBP can become a contested issue in any divorce involving a servicemember. However, as a practical matter, SBP should be limited to cases in which the retired pay is at least partly marital. (Retired pay is marital to the extent there is an overlap between the period of military service and the period of the parties’ marriage before their final separation. Review our military divorce page for more information on the distribution of retired pay upon divorce.) Because SBP exists to replace the servicemember’s retired pay, it would rarely make sense for a court to order SBP coverage where the spouse has no right to any portion of the retired pay in the first place. SBP is more likely to be awarded in an individual case if a significant share of retired pay is marital.
Spouses seeking SBP coverage should be aware of the strict requirements of federal law. If a spouse successfully obtains a court order requiring SBP coverage, he or she is not automatically enrolled in SBP. The servicemember must notify DFAS and supply DFAS with a copy of the order. If the servicemember nonetheless fails or refuses to elect coverage for the former spouse, then the spouse must submit to DFAS a written request for SBP coverage along with a copy of the court order requiring coverage. If the former spouse fails to make the request within one year of the court order, then coverage is forfeited, and the spouse has no remedy under state or federal law.
The military divorce lawyers at Livesay & Myers, P.C. have extensive experience with the unique issues that arise in military divorce cases, including issues pertaining to Survivor Benefit Plan coverage. From our five convenient office locations, we represent clients across Northern Virginia. Contact us to schedule a consultation today.