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Military Retirement Benefits

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The United States Armed Forces Retirement System provides generous pensions to its members after retirement. These pensions are funded by tax revenues without separate pension funds in trust. The benefits paid are in the nature of a defined benefit plan. However, the benefits do not vest until retirement with at least 20 years of creditable service. For participants in the military reserves and the National Guard, benefits do not vest until retirement with at least 20 years of creditable service and benefit commencement is deferred until age 60. Since the passage of the Uniformed Services Former Spouses Protection Act (USFSPA) state courts now treat military pensions as they treat other pensions. Because of the U. S. Supreme decision in Mansell v. Forbes (May 30, 1989) however, courts may only divide a service member's Disposable Retired Pay.


Survivor Benefit Plan (SBP)

Survivor Benefit Plan (SBP) coverage is an important part of military retired pay. SBP provides for a continued benefit to designated beneficiaries after the death of the retiree. SBP is funded by premium payments as a reduction of a retiree's Gross Retired Pay. A former spouse loses eligibility as an SBP beneficiary upon divorce. A provision in PL 99-661 (Nov. 14, 1986) allows a court to require a member to elect the SBP for a former spouse or both a former spouse and child. The former spouse's SPB will be discontinued if he/she remarries before age 55. However, if the second marriage ends because of death or divorce, benefits will be resumed.


Election of SBP coverage is a financial decision. There are advantages and disadvantages when compared to the purchase of a similar insurance policy:

  1. SBP benefits are paid as an annuity in monthly installments. Insurance benefits are paid in a lump-sum.
  2. Amounts withheld for SBP are not included in taxable income. Premiums for life insurance are paid after tax.
  3. The cost of SBP will generally be lower. No physical qualification for SBP when insurability is in question.
  4. SBP is subject to COLAs. Earnings on lump-sum insurance benefits could exceed COLAs.
  5. Lump-sum from insurance benefits can be passed to a beneficiary. SBP terminates upon the death of the former spouse.
  6. Before making a decision regarding the SBP, a former spouse should consult with an insurance agent, financial planner or tax accountant.


Gross Retired Pay (GRP) vs. Disposable Retired Pay (DRP)

GRP can be defined as the total monthly retired or retainer pay to which a member is entitled, without regard to any reductions that are required by law or elections made by a member. DRP is defined as the total monthly retired or retainer pay to which a member is entitled less amounts which (a) are owed by that member to the United States for previous overpayments of retired pay and for recoupments required by law resulting from entitlement to retired pay, (b) deducted from the retired pay of such member as the result of forfeitures of retired pay ordered by a court martial or as a result of a waiver of retired pay required by law in order to receive compensation under title 5 or title 38, (3) in the case of a member entitled to retired pay under chapter 61, are equal to the amount of retired pay of the member under that chapter computed using the percentage of the member's disability on the date when member was retired (or the date on which the member's name was placed on the temporary disability retired list and (4) are deducted because of an election under chapter 73 to provide an annuity to a spouse or former spouse to whom payment of a portion of such member's retired or retainer pay is being made pursuant to a court order.

Unlike qualified plan survivor benefits and federal government survivor benefits, the SBP cannot be allocated between beneficiaries. Only one spouse can be a SBP beneficiary. The question arises as to who should pay for the SBP costs. Since courts can only award a portion of DRP, the differences between GRP and DRP become important. One of the differences between GRP and DRP is that DRP is arrived at by reducing GRP for the cost of providing SBP coverage.

If the member's GRP is marital property, but only a portion of DRP can be awarded to former spouse, and, if the member is required to provide SBP coverage to a former spouse, the member ends up paying for a portion of the SBP coverage, even though the member is not able to name a beneficiary.

One way to correct the problem of the member paying for a portion of the SBP is to adjust the amount of the DRP awarded to the former spouse so that the former spouse pays for the entire cost of the SBP.

Consider the following:
A member has retired after 20 years of service at the age of 40 and elected SBP coverage for his spouse. The Member's GRP is $1,458.00 and his DRP is $1,363.00. The court has awarded the former spouse 50% of the member's Gross Retired Pay, awarded the former spouse the SBP coverage and assessed the cost of the SBP to the former spouse, 6.5% of GRP. What percentage of the member's DRP is equivalent to 50% of the GRP where the former spouse pays for the cost of the SBP?

The formula for converting GRP to DRP for the above stated purpose is the following:
(A - B) / (1 x (1 - B))
A = Percentage of Gross Retired Pay awarded to former spouse
B = SBP cost as a percentage of Gross Retired Pay

By way of example using the above described member:
(50% - 6.5%) / (1 x (1 - 6.5%)) = 46.52% of DRP

Economic Benefit to Member:

What is the economic benefit to a member of shifting the cost of the SBP to a former spouse? 
The above described member would realize a savings of one-half of the cost of the SBP. In this case the SBP cost is equal to $95.00 per month, one half being $47.50 per month. Over a 30 year period, the savings would be equal to $17,200.00.