The value of the military Survivor Benefit Plan has climbed sharply over the last three years, but participation for newly minted retirees has risen only modestly.
The sign-up rates raise concerns that too many careerists, particularly sailors and Marines, aren’t well briefed on the bargain that the benefits represent for protecting spouses, dependent children or even former spouses from financial hardship after retirees die.
Last fiscal year, 33 percent of sailors entering retirement with spouses or children declined to enroll. The turndown rate was 31 percent among retiring Marines. By contrast, only 16 percent of retiring soldiers and 18 percent of retiring airmen rejected survivor benefits.
The rejection rates were only 2 to 4 percentage points lower than in 2005, even though Congress has ended the plan’s most unpopular feature, a Social Security offset, and has approved a paid-up premium rule to benefit longtime participants.
That will take effect Oct. 1.
Brad Snyder, president emeritus of the Armed Forces Services Corp., has conducted perhaps 4,000 briefings and counseling sessions for retiring members since the plan began in 1972. Like many benefit experts, Snyder believes the survivor plan can’t be matched by alternatives being pitched to retiring careerists by insurance companies and investment firms.
In 2004, the government subsidized 24 percent of overall costs, with retiree premiums covering 76 percent. By October, Defense officials say, the subsidy will average 50 percent, delivering significantly more savings to participants.
Snyder said the hefty subsidy is one of three features that make survivor benefits incomparable to other investment options. Another is that retirees pay premiums with pre-tax dollars, creating a tax advantage that lowers premium costs. Also, the program’s annuities are adjusted annually to match inflation.
“Nothing in private sector does that,” Snyder said.
Snyder was asked if, during recent briefings, members nearing retirement were wide-eyed over plan improvements. Not really, he said.
“What surprised me the most is that their eyes didn’t open wide,” Snyder said. “They didn’t seem to sense that somebody had just given them the winning lottery ticket. That’s how I would have looked at it.”
Under the program, a retiree forfeits 6.5 percent of covered retired pay each month in premiums. In return, when the retiree dies, the surviving spouse or designated beneficiary will get an annuity equal to 55 percent of covered retired pay. Until the offset was phased out, surviving spouses who reached age 62 saw annuities fall to as low as 35 percent of retired pay.
This change alone, said Snyder, added $150,000 to $250,000 to the lifetime value for a typical officer retiree. The added value range will be lower than that for a typical enlisted retiree but it is still a richer benefit.
Snyder, 68, was wounded in Vietnam and medically retired in 1966 at age 26. He went to work for the Army Mutual Aid Association, which evolved into Army and Air Force Mutual Aid Association. Snyder followed the survivor plan as it took shape and suspects he was the first retiree to apply for coverage.
Snyder needs only a few seconds to gut any debating point raised by insurance or investment firms for rejecting the program in favor of company products. For example:
Insurance plan premiums won’t be increased like the program costs. True, Snyder explained, but policy values also won’t change and will lose ground to inflation over time. Premiums rise annually but the increases are tied to rising retired pay, and a proportional rise in coverage.
Critics also suggest that the plan is bad because it is subject to revision. So far, those revisions have been very good to beneficiaries, said Snyder. The program has seen about 35 changes. The score so far: “It’s 35 us, government 0,” he said.
Members nearing retirement need better information, Snyder said.
“My two nemeses are the carpool and the 19th hole,” he said. “That’s when all the negative rumors start. And they believe them because their friend is telling them. What they don’t understand is that their friend doesn’t know what he’s talking about.”
To comment, e-mail milupdate@aol.com, write to Military Update, P.O. Box 231111, Centreville, VA 20120-1111 or visit militaryupdate.com.
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