SURVIVOR BENEFIT PLAN (SBP) Presented by Dan McCullough USAF Academy Survivor Benefit Plan Counselor 333-2129 1

AVERAGE LIFE EXPECTANCY Life expectancy in the USA Average is 78.0 years Males – 75.15 years Females – 80.97 years Average number of years female spouses outlive male military retirees 30% of female spouses - 15 years 20% of female spouses - 29 years 10% of female spouses - 34 years ** Life expectancy averages taken from U.S. Census Bureau, International Data Base as of 7/16/2007

PURPOSE OF SBP Retired pay stops the date of the retiree’s death! Even if there’s a surviving spouse/children SBP is the only way survivors can receive a portion of deceased member’s retired pay SBP provides surviving spouses with a continuing, inflation-protected, lifetime income 3

AUTOMATIC COVERAGE PROVISION All retirees must complete a DD Form 2656 before retirement date Provides DFAS-CL data required to properly establish your retired pay account Federal and state income tax Arrears of retired pay beneficiary(ies) Properly establishes SBP coverage 4

AUTOMATIC COVERAGE PROVISION Spouse concurrence required on the DD Form 2656 when married member does not elect full spouse coverage DD Form 2656 must be completed, dated, and properly witnessed by SBP counselor If DFAS-CL does not receive the DD Form 2656 with a valid SBP election (and spouse concurrence, if required) before retirement date, the law requires maximum SBP coverage be established (even for a single person!) 5

SBP BENEFICIARY CATEGORY OPTIONS Each retiring member must elect a category of SBP beneficiary: Spouse Child(ren) Spouse and Child(ren) Former Spouse Former Spouse and Child(ren) Insurable Interest Decline

LEVEL OF COVERAGE AVAILABLE Each retiring member must elect a level of coverage: By selecting a “base amount” Base amount determines the cost Cost also determined by category of beneficiary elected Base amount determines the annuity payable Base amount can be any $$ figure between $300 and the member’s full (gross) retired pay Cost-of-living adjustments (COLAs) are applied to the base amount at the same time and rate as retired pay increases 7

SPOUSE ONLY OPTION A spouse, married to member on date of retirement, is immediately eligible No length of marriage requirement A member, who is not married on the date of retirement, may cover a future spouse Member must send written request to DFAS prior to 1st anniversary of first marriage after retiring and include a copy of the marriage certificate/license 8

SPOUSE ONLY OPTION New spouse becomes an eligible beneficiary the earlier of: 1st anniversary of marriage Upon birth of a child if before the 1st anniversary of marriage Exception: Immediately if retired member remarries the spouse covered at retirement and member elects to resume spouse coverage 9

SPOUSE ONLY OPTION SBP coverage and premiums are suspended if spouse loses eligibility: Death Divorce (may change election to Former Spouse coverage following divorce) 10

SPOUSE ONLY OPTION Remarriage options for members with suspended spouse SBP coverage Member must send written request to DFAS prior to first anniversary of marriage to: Resume prior level of coverage for new spouse, OR Increase prior level of coverage for new spouse, Member must repay difference with interest before 1st anniversary of marriage OR Decline coverage for new spouse 11

SPOUSE ONLY OPTION If a member with suspended spouse coverage does NOTHING prior to the 1st anniversary of marriage: Coverage is automatically established by operation of law for new spouse on 1st anniversary of marriage For the same level of coverage previously in effect If DFAS is not promptly notified of marriage, debt of premiums will accrue 12

SPOUSE ONLY OPTION Provides spouse an annuity of 55% of the elected base amount for life Remarriage before age 55 suspends annuity Annuity can be reinstated if remarriage ends Due to death or divorce Annuity continues if remarriage occurs at age 55 or older Annuity increases with retiree COLAs Annuity is taxable 13

CHILD ONLY OPTION Children are eligible until age 18 (22 if unmarried full-time students) Children disabled and incapable of self-support remain eligible for life or as long as disability causes them to be incapable of self-support Be cautious if Social Security Disability benefits are involved However, child’s marriage at any age terminates child’s eligibility 14

CHILD ONLY OPTION Covers all member’s children while they are eligible Cannot designate a particular child(ren) to receive the annuity Child cost based on ages of member and youngest child Child coverage and cost suspended when last child loses eligibility 15

CHILD ONLY OPTION Future child(ren) (natural, adopted, step, grand) are automatically covered if child coverage elected Future child(ren) covered on date of acquisition No change in cost if member is currently paying premiums for child coverage If premiums had been suspended because last child lost eligibility, new child costs recomputed based upon current ages of member and new youngest child Member must notify DFAS-CL in writing with a copy of the new child’s birth certificate 16

CHILD ONLY OPTION Member who has no eligible children at retirement may cover a future child Member must send written request to DFAS within one year of acquiring the first eligible child and include copy of child’s birth certificate Child becomes covered on date of receipt of the election request by DFAS-CL Costs begin 1st day of the following month 17

CHILD ONLY OPTION Provides eligible child(ren) an annuity of 55% of the elected base amount Only one annuity is payable All eligible children receive equal shares of the annuity (when over age 18) Annuity paid to adult guardian on behalf of a minor child Don’t consider electing child only coverage as replacement income for spouse because it can’t be changed to spouse coverage when last child loses eligibility 18

SPOUSE & CHILD OPTION Spouse is the primary beneficiary Spouse receives annuity until death or remarriage prior to age 55 Annuity reinstated if remarriage terminates Eligible children are contingent beneficiaries Receive equal shares of the annuity if spouse dies or remarries prior to age 55 Provides maximum family coverage 19

FORMER SPOUSE OPTION Only one former spouse may be covered Excludes current spouse (can’t split the annuity) Can suspend premiums if former spouse remarries prior to age 55 Must furnish copy of former spouse’s remarriage certificate Does not terminate former spouse’s eligibility Just suspends former spouse’s eligibility to receive the annuity while remarried Premiums reinstated if remarriage ends 20

FORMER SPOUSE OPTION Both DD Form 2656 and DD Form 2656-1 must be completed prior to retiring Copy of complete divorce decree (including property settlement, if applicable) must be attached 21

FORMER SPOUSE & CHILD OPTION Former Spouse is the primary beneficiary Former Spouse receives annuity until death or remarriage prior to age 55 Annuity reinstated if remarriage terminates Eligible children are contingent beneficiaries Only children from marriage to this former spouse are eligible Excludes children of any other marriage Receive equal shares of the annuity if former spouse dies or remarries prior to age 55 22

INSURABLE INTEREST OPTION Unmarried members with no or only one dependent child may elect this option If one dependent child, cannot bypass the dependent child and elect insurable interest coverage for someone else Can elect for one dependent child in lieu of child only coverage, allowing child to receive life-long payment regardless of age, martial or student status Cost much more expensive than child only coverage 23

INSURABLE INTEREST OPTION Can elect coverage for a person with a financial interest in the continued life of the member Can be a relative or non-relative If related closer than cousin, no proof of financial interest needed Others must prove financial interest connection Examples: Beneficiary of life insurance policy, business partner, joint property owner, etc. 24

INSURABLE INTEREST OPTION Lifetime coverage for beneficiary Not terminated by marriage, student status, or age Beneficiary receives 55 % of retired pay after SBP costs are deducted Member may terminate coverage at any time Can’t name another insurable interest beneficiary Member may change to coverage for new spouse and/or child Must submit election change request to DFAS-CL within one year of acquiring new spouse and/or child 25

BRIEF THE FOLLOWING SLIDE IF MEMBER IS RETIRING FOR DISABILITY

INSURABLE INTEREST OPTION Insurable Interest election will be vitiated (voided) if: Member retires for disability, and Member dies within one year of retiring, and Cause of death is related to the disability for which the member is retired If election is voided, premiums paid will be refunded to the SBP beneficiary Exception: An annuity is payable if the SBP beneficiary is a dependent holding a valid military dependent ID card with the member as the sponsor on the member’s date of death 27

DECLINE COVERAGE Retired pay STOPS when retiree dies No payments made to anyone unless member is enrolled in SBP SBP beneficiary excluded at retirement can not arbitrarily be covered in the future If member has an eligible spouse at retirement and declines spouse coverage, cannot cover that spouse or a later acquired spouse If member has an eligible child at retirement and declines child coverage, cannot cover that child or a later acquired child 28

SPOUSE PREMIUMS Cost is 6.5 percent of the base amount you elect; or If base amount is lower than $1,575, cost is 2.5 percent of the first $735, plus 10 percent of the base amount in excess of $735 If you initially entered active service prior to 1 Mar 90 or are retiring for disability Cost increases with retiree COLAs Premiums are not taxable Provides a tax savings SBP cost lower than it appears

SBP Program Cost Factors Thresholds to determine premiums $300 $735/736 $1,574/1575 Minimum Base Amount Maximum Base Amount $ 735 Dollar Amount Between $300 - 735 X 2.5 % _ Cost Factor $ 18.37 = Premium $1,000 Dollar Amount Between $736 - $1,574 -$735 From Threshold 1 = $265______ Difference X 10 % _ Cost Factor $26.50 = Premium $1,800 Dollar Amount Between $1,575 and Maximum Base Amount (Full Retired Pay) ($1,800 base provides $990 per month annuity) X 6.5 % Cost Factor $117.00 = Premium $44.87 = Monthly Premium for $1,000.00 Base Amount which provides $550 annuity

SBP Program Cost Factors Threshold 1 $300 $735 Minimum Amount of retired pay which can be used as a “Base Amount” is $300. Any dollar amount between $300 and $735 makes up the 1st threshold. The cost factor for any base amount in this threshold is 2.5%. If $300 is used as the base the cost is: 2.5% of $300 = $7.50 per month Annuity payable is 55% of the base amount - 55% of $300 = $165 If $735 is used as the base the cost is: 2.5% of $735 = $18.37 per month - 55% of $735 = $404 $ 725 Dollar Amount Between $300 - $735 X 2.5 % _ Cost Factor $ 18.37 = Premium

SBP Program Cost Factors Threshold 2 $736 $1,574 $1,000 Dollar Amount Between $736 - $1,574 -$735 . From Threshold 1 = $265 . Difference X 10 % . Cost Factor $26.50 = Premium Cost computations for Threshold 2 are computed using amounts of retired pay between $736 and $1,574. You take your chosen base amount (i.e. $1,000), subtract $735 from Threshold 1 ($1,000 - $735 = $265), take 10% of the remainder ($26.50) and add the result to the cost amount in Threshold 1 ($18.37). In the example, we used $1,000 of retired pay as the base amount. The final cost ends up being $44.87 ($26.50 + $18.37) and the annuity payable is 55% of $1,000 ($550 per month). If $1,574 is used as the base amount, the cost is $102.27 ($83.90 + $18.37) and the annuity is 55% of $1,574 ($865 per month).

SBP Program Cost Factors Threshold 3 $1,575 Full Retired Pay $1,800 Dollar Amount Between $1,575 and Maximum Base Amount (Full Retired Pay) ($1,800 base provides $990 per month annuity) X 6.5 % Cost Factor $117.00 = Premium When you get to $1,575 of retired pay, it becomes cheaper for the retiree to compute the cost by simply using a flat 6.5% cost factor on the entire amount. In this example, we used $1,800 of pay as a base amount. The cost comes out to $117.00 per month and the annuity would be 55% of $1,800 ($990 per month).

DEPENDENCY AND INDEMNITY COMPENSATION (DIC) DIC is a tax-free monthly payment awarded by the VA If member’s death is ruled service-connected by the VA AND If member has been rated 100% VA disabled for: 10 or more years immediately preceding death 5 or more years immediately preceding death if awarded 100% VA disability rating at retirement 1 year immediately preceding death if member was a former POW 34

DEPENDENCY AND INDEMNITY COMPENSATION (DIC) DIC is paid to: Unmarried surviving spouse ($1,154 per month) Eligible children ($286 per month) DIC reduces surviving spouse’s SBP annuity dollar-for-dollar SBP premiums refunded for portion of the SBP annuity not received DIC does NOT reduce the SBP annuity paid to child(ren) 35

WITHDRAW FROM SBP BECAUSE OF VA DISABILITY RATING Retirees may withdraw from SBP because of VA disability rating If member has been rated 100% disabled by the VA for: 5 consecutive years immediately following retirement 10 consecutive years if 100% disability rating was not received immediately following retirement

WITHDRAW FROM SBP BECAUSE OF VA DISABILITY RATING Retiree sends signed letter of request to DFAS DFAS processes written request and: Sends member a fact sheet with pros and cons of withdrawing Verifies rating with the VA Sends concurrence statement for spouse to sign All premiums terminated Premiums refunded to widow(er) following the member’s death

DISCONTINUE PARTICIPATION Member can discontinue ALL participation in the SBP during a one-year period One-year period begins on 2nd anniversary of retirement, ends on 3rd anniversary of retirement (between member’s 25th and 36th month of retirement) No refund of premiums 38

DISCONTINUE PARTICIPATION ALL coverage stops (e.g., can’t keep coverage for a child and stop the spouse’s portion if election is for spouse and child coverage) Spouse concurrence required On 3rd anniversary of retirement, election becomes irrevocable as long as beneficiary remains eligible 39

CHANGE FROM SPOUSE TO FORMER SPOUSE COVERAGE When a member who has spouse SBP coverage divorces, that spouse’s SBP eligibility is terminated No longer the member’s “spouse” Spouse coverage must be changed to former spouse coverage in order to keep formerly covered spouse covered as a former spouse Retiree may submit a DD Form 2656-1 to DFAS with a copy of the divorce decree Former spouse may request ‘deemed’ election (if court ordered or in written agreement) Either must be submitted within the first year of divorce 40

DIVORCE AFTER RETIREMENT Court CANNOT: order retired member to elect former spouse SBP coverage if the member does not already have spouse coverage change the level of coverage (base amount) because of the divorce If former spouse coverage is elected, member cannot arbitrarily stop the coverage 41

MISCELLANEOUS PROVISIONS Future Civil Service (CS) retirement If retiree waives AF retired pay and combines AF and CS time, retiree may retain only one survivor annuity plan (either AF or CS, not both) If military retiree does not combine AF and CS time, retiree may participate in both AF and CS survivor annuities plans (survivor can receive both annuities) 42

MISCELLANEOUS PROVISIONS Non-resident alien annuitant tax liability Flat 30 % income tax reduction Status of forces agreement (SOFA) may affect tax liability Only applies to non-U.S. citizen spouses who return to their home country 43

MISCELLANEOUS PROVISIONS Paid-up premiums Member must be at least age 70 AND must have made 360 premium payments No further premium payments required Annuity remains payable to eligible beneficiary Continues to receive COLAs 44

UNIQUE FEATURES Premiums paid with pre-tax dollars: SBP premiums are deducted from member’s retired pay before tax liability is assessed SBP cost is lower than it appears!! Reduces federal and state tax SBP is government subsidized COLAs are applied to the annuity even after member is deceased Provides inflation protection for the future!! 45

UNIQUE FEATURES Premiums suspended if there is no eligible beneficiary Premiums are paid-up after member reaches age 70 and has made 360 premium payments Age, health, sex, lifestyle – not factors in cost or eligibility to be in program Surviving spouse cannot outlive annuity SBP provides peace of mind SBP makes other investments and assets more valuable 46

MEMBER’S RESPONSIBILITIES Member and spouse must attend SBP briefing Complete a DD Form 2656 Make SBP election Obtain spouse’s concurrence (if required) prior to retirement As a reminder, the law requires DFAS establish maximum SBP coverage if valid election/spouse concurrence is not received before date of retirement 47

MEMBER’S RESPONSIBILITIES After retirement, promptly notify DFAS of changes that affect SBP or your pay: Change in marital status Loss or addition of family member(s) Change of direct deposit financial institution Change in correspondence (residential) mailing address Many can be done using myPay 48

Closing… We are here to help you if/when you need assistance.... Congratulations on your retirement!!