• Spouse only
• Spouse and dependent children
• Dependent children only
• Former spouse
• Former spouse and children
• Person with insurable interest

• Spouse. Surviving spouse who was married to a retiree at the time of his or her retirement; or if not married at the time of retirement, was married to the deceased retiree for at least a year prior to his or her death; or if not married at time of the time of retirement and not married for at least a year, was the parent of child of that union.
• Child. The unmarried adopted, step, foster or natural child (of the current or a prior union) who is: under age 18 or under age 22, if a full-time student. (A child physically or mentally incapacitated while in either category remains eligible for SBP payments for life or until marriage.)
• Former spouse. A former spouse who was not a member's former spouse on the date a member became eligible to participate in SBP must have been married to the member for at least one year in order to be named as an SBP former spouse beneficiary. (In other words, a former spouse acquired after retirement must have been an eligible spouse beneficiary.)
• Insurable interest. Persons with a bona fide financial interest in the continued life of the retiree. It is not available if the sponsor has a spouse or minor child.

Benefits paid to a spouse are suspended upon a remarriage before age 55. These will be resumed upon application to DFAS, Cleveland if the remarriage ends through death, divorce or annulment. If the spouse remarries before age 55 and there are eligible children, they will receive the SBP annuity payments until they are no longer eligible. If the spouse remarries after age 55, benefit payments are not affected.

Benefits paid to a spouse are no longer reduced when that person attains age 62 under P.L. 108-375, enacted on 28 Oct 2004. The surviving spouse may then begin the spousal Social Security benefits. The combined annuities of SBP and Social Security are paid concurrently. The change is being phased in over the next few years. Public Law 108-375 will raise the minimum SBP annuity for survivors age 62 and older to 40% of base amount covered as of Oct 1, 2005; to 45% of base amount covered as of Apr 1, 2006; to 50% of base amount covered as of Apr 1, 2007; and to 55% on Apr 1, 2008. The change applies to all current and future SBP recipients. The Law also ended the Supplemental SBP Option.

Under the insurable interest option (only available if there is no eligible spouse or child), you must use your total retirement pay as the base amount. The benefit payable is 55% of the adjusted base amount after the cost is deducted.

Cost formula

Effective 1 March 1990 the costing formula for SBP is 6.5% times any selected base amount.

Spouse Only Election. The initial cost is 6.5% of the base amount you elect. (Ages are not a factor). Example: Base Amount of $2000; 6.5 % x $2000 = $130 before taxes. Provides a monthly annuity of $1100 ($2000 x 55%) for life.

Spouse and Child(ren) Election. Your age and the ages of your spouse and youngest child at the time of retirement are a factor. Inclusion of your children into the SBP is a modest expense, which ends when the youngest is no longer an eligible beneficiary. Example: The sponsor is 44, the spouse is 41, the youngest child is 12 the initial cost is 6.5% of the base amount you elect. Example: Base Amount of $2000.00; 6.5 % x $2000 = $130.00 plus a family factor of .00037 x $2000 =$ .74 (Total Cost is $130.74 before taxes.)

Child(ren) Only Election. The age of the youngest child determines the cost factor. Example: The youngest child is 12, the retiree is 42 Example: Base Amount of $2000.00; Cost for Child Only is $2000 x 0.0044 = $8.80.

Use of old costing formula (allowed for all serving on active duty prior to 1 March 1990) The most favorable costing formula will be applied by DFAS for those eligible. The old cost formula is: 2.5% of the threshold amount + 10% of the difference between the base amount and the threshold. The SBP threshold amount is $616 in 2005.

Crossover point (base amount where new and old costing formulas are equal). If a base amount of $1,320 (eff 1 Jan 05) or less is selected, then the old costing formula will be used because it provides a lower cost.

Example: If the base amount selected were $1,000.00. Cost is (2.5% x $616) + [10.0% x (1,000 - 384)] = Total cost of $53.80 before taxes. This provides a monthly annuity of $1,000 X 55% = $550.00.

If you are considering a reduced election choice, please write or call us for more information. You owe it to your family.

Pertinent points

• Everyone on active duty who has a spouse and/or a dependent child will be a participant to the maximum extent at the time of retirement unless a written request has been submitted before retirement to elect less than full participation or to decline participation, in which case the spouse must concur with the decision in writing to the appropriate Retirement Services Office.
  
• If you elect spouse coverage and subsequently lose your spouse through death or divorce, deductions from your retired pay are suspended.
  
• Coverage is resumed automatically effective 12 months after remarriage unless you declined SBP at retirement or if you notify the DFAS that you do not want SBP for your new spouse.
  
• The program is open to National Guard and Reserve Component personnel. RC/SBP election options must be made 90 days after receipt of the 20-year letter. If married, sponsor needs spousal concurrence if option A or B are elected or if a reduced base amount is desired. Otherwise option C at full retired pay becomes automatic coverage by default.
  
• If you do not have a spouse at retirement but marry subsequently, you may elect to participate in the SBP within one year following your marriage.
• Annuity payments to children are divided equally and are reapportioned as a child loses eligibility.
  
• If you decline coverage of eligible minor children at retirement, you cannot elect coverage for them or other children later.
  
• If you elected coverage of minor children and wish to include a later addition, advise DFAS, Cleveland and the child will be added with no change in the cost.
  
• If your spouse is found eligible for Dependency and Indemnity Compensation from the Department of Veterans Affairs because your death is determined to be service-connected, DIC payments will be deducted from the SBP annuity. DIC payments are tax free, and a proportionate refund of the SBP costs will be paid to your spouse.
  
• As cost-of-living increases in retirement pay occur, the base amount you selected and the corresponding cost to you will increase by the same percentage. This means that the annuity your spouse will receive will reflect interim increases in the cost-of-living. After your death, there will be automatic increases in the annuity as there are increases in retired pay for cost of living adjustments.
  
• The dollars you pay for your SBP normally are exempt from Federal Income Tax and most state income taxes. The SBP annuity is not normally an assumed asset in your Estate that will create an obligation for Federal Estate Tax purposes due to the unlimited marital deduction. (When the children option is elected, please consult your tax adviser.)
  
• Payments to your surviving spouse are subject to Federal Income Tax. State Inheritance and Income Tax liabilities must be researched at your place of residence.
  
• Retirees are provided an opportunity to disenroll from SBP during the one-year window between their second and third anniversary of retirement. There will be no refund of previously paid premiums and the decision to disenroll is an unrevocable decision (cannot reenter SBP in the future). No other changes may be made (i.e., beneficiary change, base amount change, new enrollment in the SBP program).
  
• PL 105-261, 17 Oct 98 authorized a paid-up provision to the SBP. Effective 1 Oct 2008, participants who have made at least 360 payments and have reached their 70th birthday will not have further reductions to their retired pay for SBP coverage. In other words, after 360 payments and attaining 70 years of age, SBP will be paid up. But, this does not go into effect until the year 2008. Some members who took SBP during the years 1972-78 may end up paying into SBP for more than the 360 payments.
  
• In the event of your death while on active duty your spouse (and children) are entitled to an SBP annuity of 55% of the retirement pay you would have drawn had you been 100% medically retired on the date of your death. If there is no spouse but children who are eligible beneficiaries, the children receive the benefit. That annuity is integrated with the VA Dependents Indemnity & Compensation (DIC) payment.

SBP - - - IN SUMMARY!

• SBP assures a lifetime annuity with significant protection against inflation.
• Your decision as to participation is not made until retirement is imminent. You have free coverage on active duty.
• If you have a spouse (or children) at retirement and decline the SBP for the spouse (or children), you cannot elect SBP for a subsequent spouse (or children).
• The amount of the prospective annuity increases as the cost-of-living increases. (Monthly costs increase.)
• If the survivor remarries after age 55, SBP benefits are still available. If the survivor remarries before age 55, SBP benefits are suspended. They can be reinstated however, if the second marriage terminates for any reason.
• Deductions from your retired pay are suspended when there is no eligible beneficiary.
• Amounts deducted for SBP costs are not subject to federal income taxation.
• Compensation payments to the spouse from the VA are deducted from the annuity. (SBP premium costs are refunded.)