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Second Chance for Military Retirees: Should You Enroll in the Survivor Benefit Plan?

Married military couple dancing.

A new rule was recently announced as part of the 2023 National Defense Authorization Act that provides Veterans a rare financial opportunity. Military retirees who initially opted out of the Survivor Benefit Plan (SBP) when they left active duty will have a second chance to enroll.

What is the Survivor Benefit Plan?

According to the Defense Finance and Accounting Service (DFAS), the SBP “provides financial support to military spouses and/or children when a military member dies while on duty or after retirement.” Eligible beneficiaries under the SBP are typically spouses or children (referred to as annuitants) who receive a monthly annuity payment upon the passing of the retiree. The SBP pays beneficiaries up to 55% of the servicemember’s retirement pay for as long as the surviving spouse lives, or until the qualified dependent child reaches a certain age.

The SBP is akin to a life insurance policy with no cap, but is not automatically granted upon military retirement. In fact, retirees have the ability to opt out of this benefit, but require the consent of their spouse to do so.

Opting Out Because of "The Widow's Tax"

Many retirees opted out of SBP because of a long-standing Federal law officially known as Special Survivor Indemnity Allowance (SSIA), but commonly referred to as “the widow’s tax.” It was nicknamed as such because it reduced the amount of financial support for select surviving spouses. This tax was designed to offset the SBP and negatively impacted surviving spouses who qualified for both SBP payments and Dependency and Indemnity Compensation (DIC). The latter is an allowance from the Department of Veterans Affairs, specifically for survivors whose spouses died while serving on active duty or from illnesses or injury that directly resulted from military service. The idea behind “the widow’s tax” was to keep surviving spouses from receiving two separate federal payouts for the same reason.

Thanks to the 2020 National Defense Authorization Act, this Federal law and SBP offset will disappear as of February 1, 2023, and big changes are occurring.

Enrollment in SBP: A Second Chance

Traditionally, retirees only had one chance to enroll in SBP as they were leaving active duty. Currently, open enrollment for SBP runs through January 1, 2024 and is available to retirees who currently receive retirement pay, or to those who are eligible, but are not yet 60 years old.  The 2023 open season enrollment is only for those eligible members who were NOT enrolled in SBP as of December 22, 2022. 

Please keep in mind that if you are taking advantage of this “second chance” opportunity, you will be responsible for missed premiums plus interest since retiring. You may also be subject to other fees as indicated by the Defense Department’s retirement fund.

If you currently are enrolled in the SBP and wish to opt out, you can do so during the open season. Open enrollment is not available to those who have made an SBP election and want to change it. Please be aware that previously paid premiums will not be refunded.

Your Next Steps

Not sure what's right for you? Here's what you need to do to enroll. A financial plan can provide clarity and help determine if open enrollment is beneficial. To connect with an AAFMAA Wealth Management & Trust Relationship Manager to map out your financial strategy, contact us today, or give us a call at 910-307-3500. To learn more about the Survivor Benefit Program, please visit the official SBP page from the Department of Defense.

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