Survivor Benefit Plan (SBP)

The Survivor Benefit Plan, almost always called SBP, is the annuity program at 10 U.S.C. 1447 through 1455 under which a military retiree gives up part of their monthly retired pay in exchange for a continuing monthly payment to a surviving spouse, former spouse, child, or person with an insurable interest after the retiree dies. Section 1447(1) defines "Plan" simply as "the Survivor Benefit Plan established by this subchapter". It exists because military retired pay is a life annuity on the retiree's own life and ends at death, so without an election a surviving spouse receives nothing from it.

Two features make SBP unusual among the things a retiree buys. The first is that it is opt-out rather than opt-in for a married member, and opting out requires the spouse's agreement. The second is that it is inflation-adjusted: because the annuity is a percentage of a base amount that rises with retired pay's annual cost-of-living adjustments, its purchasing power does not erode the way a fixed private annuity's does.

The default is in, not out. Section 1448(a)(2)(A) makes a person who is eligible for the Plan and who is married or has a dependent child when they become entitled to retired pay a participant automatically, "unless he elects (with his spouse's concurrence, if required under paragraph (3)) not to participate in the Plan before the first day for which he is eligible for that pay." Paragraph (3)(A) then spells out what needs the spouse's concurrence: an election not to participate at all, an election to cover the spouse at less than the maximum level, and an election to cover a dependent child but not the spouse. There is an exception at (3)(C) where the spouse cannot be found or, in the Secretary's judgment, seeking consent would be inappropriate. Subparagraph (4)(A) makes the election irrevocable once retired pay begins.

The base amount is the number everything hangs on. Under 1447(6) the base amount is normally the full monthly retired pay the person was entitled to when they became eligible for it. The retiree may instead designate a reduced base amount, with the spouse's concurrence, provided it is not less than the $300 floor written into 1447(6)(C). Choosing a reduced base amount lowers both the premium and the annuity in the same proportion, which is the only dial the retiree really controls.

What it pays. Section 1451(a)(1)(A) sets the standard annuity at "55 percent of the base amount" where the beneficiary is under 62 or is a dependent child. The old two-tier design that dropped the annuity when a surviving spouse reached 62 is gone: 1451(a)(1)(B)(i) contains a schedule ending in subclause (V), "For months after March 2008, the applicable percent is 55 percent." So 55 percent is the answer at any beneficiary age. One qualification: 55 percent is the figure for the standard annuity, the one a retiree drawing retired pay elects. A reserve-component annuity, the coverage a reservist may elect at the 20-year notification and which pays if they die before reaching 60, is set under 1451(a)(2) and (f) at a percentage below 55, determined by regulation from the member's age, the age gap to the beneficiary and when the annuity is set to start. Section 1451(h)(1) then increases the base amount whenever retired pay is increased under 1401a, which is why the annuity keeps pace with inflation.

What it costs. Section 1452(a)(1)(A)(iii) sets the reduction in retired pay at "6½ percent of the base amount" for a person who first became a member of a uniformed service on or after March 1, 1990. Someone who joined before that date, and someone retiring for disability or from non-regular service, gets "whichever of the alternative reduction amounts is more favorable", the alternatives being the flat 6.5 percent and an older two-tier formula charging 2.5 percent on a first dollar tier and 10 percent on the rest. That first tier is adjusted over time under 1452(a)(4), so no current dollar figure for it belongs on a page like this.

When it stops costing. Section 1452(j), captioned "Coverage Paid Up at 30 Years and Age 70", provides that no reduction may be made "for any month after the later of" the 360th month for which retired pay was reduced and the month in which the participant turns 70. The word doing the work is "later". Both conditions must be satisfied, so a member whose retired pay starts before age 40 reaches the 360th month before turning 70 and keeps paying until 70, while a member whose retired pay starts after 40 pays the full 360 months even though that runs past 70.

The one exit. Section 1448a allows a participant to elect to discontinue participation "at any time during the one-year period beginning on the second anniversary of the date on which payment of retired pay to the participant commences." A married participant needs the spouse's written concurrence, and section 1448(b)(1)(E) applies, meaning no benefits are payable in connection with the earlier participation and no premiums are refunded. Outside that window and the specific circumstances in 1450(f), the election stands.

The DIC offset is fully eliminated, and the statute reads as though it is not. Section 1450(c) is still captioned "Offset for Amount of Dependency and Indemnity Compensation" and paragraph (c)(1) is still captioned "Required offset". Reading only that far produces the wrong answer. The subparagraphs underneath are a three-year phase-out: during 2020 the annuity was reduced by the full DIC amount, during 2021 by two-thirds of it, during 2022 by one-third, and subparagraph (D) provides that "On and after January 1, 2023" the survivor receives "the full amount of the annuity under this section". What used to be called the widow's tax no longer operates. A related provision at 1450(k) readjusts an annuity that had been reduced under (c) where the survivor loses DIC by remarrying at age 55 or older, restoring the annuity to what it would have been had the offset never applied, subject to repaying amounts previously refunded.

One further coordination rule catches people who move from military service to federal civilian employment. Under 1450(d), where the retiree waived military retired pay in order to credit that service toward a civil service retirement annuity, no SBP annuity is payable unless the retiree notified the Office of Personnel Management that they did not want a civil service survivor annuity for the same spouse. Two survivor annuities cannot be stacked on one waiver.

1. The election happens at retirement, not later. A married member is a participant at the maximum level unless they elect otherwise before the first day they are eligible for retired pay.

2. The spouse must concur in writing to decline coverage, to reduce the base amount, or to cover a child instead of the spouse.

3. A base amount is fixed. It is full retired pay unless the couple elects a lower figure, subject to the statutory $300 floor.

4. The premium is deducted monthly. For members who first joined on or after March 1, 1990, that is 6.5 percent of the base amount, taken out of retired pay before it is paid.

5. The base amount grows. Every cost-of-living increase to retired pay raises the base amount, so both the premium and the eventual annuity rise with it.

6. Coverage becomes paid up after the later of 360 months of reductions and the retiree's 70th birthday, after which the annuity continues with no further premium.

7. On the retiree's death, the beneficiary receives 55 percent of the base amount monthly, for life in the case of a surviving spouse.

A hypothetical worked example. Master Sergeant Ellery retires with monthly retired pay of $3,000 and elects full coverage, so the base amount is $3,000. The premium is 6.5 percent of $3,000, which is $195 a month, and his retired pay net of the reduction is $2,805. If he dies, his spouse receives 55 percent of $3,000, or $1,650 a month.

Now the paid-up date. Ellery is 45 when retired pay starts. Three hundred and sixty months of reductions runs to age 75, and he turns 70 five years before that. Because 1452(j) uses the later of the two conditions, the reductions continue to 75, not 70. Reverse the ages and the other condition binds: a member whose retired pay begins at 38 completes 360 months at 68, but has not yet turned 70, so the reductions continue two more years to age 70.

Had the couple instead elected a reduced base amount of $1,500, the premium would be 6.5 percent of $1,500, or $97.50 a month, and the annuity would be 55 percent of $1,500, or $825 a month. Both halves scale together; there is no election that buys a full annuity at a partial price.

Pros

• The annuity is indexed. Because the base amount rises with each retired-pay cost-of-living adjustment, the survivor's payment holds its purchasing power in a way a fixed private annuity does not.
• There is no medical underwriting. A retiree in poor health is charged the same 6.5 percent as anyone else.
• The survivor cannot outlive it. A surviving spouse's annuity is a life payment.
• Coverage becomes paid up, so premiums are not charged forever.
• Since 2023 the annuity is paid in full alongside VA Dependency and Indemnity Compensation, which removes what had been the plan's largest planning problem.

Cons

• The election is effectively irrevocable. Apart from the one-year window that opens on the second anniversary of retired pay, and narrow former-spouse provisions, it cannot be undone.
• Premiums are not refunded. A retiree who withdraws, or whose beneficiary dies first, does not get back what was paid.
• The cost is real and continuing: 6.5 percent of the base amount, taken from income the household is already living on, and rising with each adjustment.
• The paid-up rule uses the later of two conditions, so a young retiree pays for a full 30 years.
• The annuity is 55 percent of the base amount, not of the retiree's full income, so a survivor's household income still falls substantially.