Each year, the Military Officers Association of America (MOAA) chooses the most important issues to military families, and brings these issues to the attention of our lawmakers. For several years, the elimination of the Survivor Benefit Plan (SBP) – Dependency and Indemnity Compensation (DIC) offset has been a hot topic.
On Wednesday, 17 July 2013, MOAA will “Storm the Hill,” meaning that they will go out to the offices of Senators and Congressmen, educating our elected officials about that issue and explaining the impact on military families. MOAA is requesting that military families support MOAA’s efforts by contacting their lawmakers and explaining their thoughts on this issue. Of course, MOAA is expecting that everyone will support their efforts to eliminate the SBP-DIC offset.
I’m not completely sure. I understand what MOAA wants, and I understand why they want it. However, I am not sure if I agree with them, and I’ll tell you why.
There are two benefits that provide financial support to survivors of military personnel who die as a result of their military service: Survivor Benefit Plan (SBP) and Dependency and Indemnity Compensation (DIC).
Survivor Benefit Plan
The Survivor Benefit Plan has two parts: active duty coverage and retirement coverage. It is similar to life insurance in that it pays a cash benefit to eligible survivors, as long as they remain eligible. Provided the beneficiary does not lose their eligibility, they may continue to receive SBP payments for the length of their life. Coverage is automatic and free while on active duty, but it requires a decision at retirement and retirees pay a premium each month to continue their SBP coverage. While not free after retirement, it is quite inexpensive compared to similar policies available on the commercial market. Annuity payments from SBP are taxable to the recipient.
Dependency and Indemnity Compensation
Dependency and Indemnity Compensation is a benefit paid to survivors of servicemembers who die while on active duty, or veterans who die of a service-connected condition. It provides monthly cash payments. DIC payments are non-taxable.
The way the law is currently written, a beneficiary cannot receive the full amount of both SBP and DIC. The amount of SBP is offset, or reduced, by the amount of DIC received by the beneficiary.
What MOAA Wants
MOAA’s position is that there should be no offset because they are two different programs and retirees have paid into SBP in order to provide for their survivors, and that the survivors are being denied the benefits for which they have been paying. MOAA also makes the argument that servicemembers, retirees and their families don’t know about this offset until the retiree dies and they receive fewer benefits than expected. Seem simple and right, doesn’t it?
Why I’m Not So Sure
This is a complicated issue, and I’m not completely convinced that the complete elimination of the offset is right. As you know, I firmly believe that is the consumer’s responsibility to fully understand all their benefits. I teach entire classes on SBP and DIC, and I am sure to spend extra time explaining how the SBP-DIC offset works. I don’t have a huge amount of sympathy for the “I didn’t know” argument.
In addition, SBP is set up in such a way that if your SBP benefits are reduced due to the receipt of DIC benefits, you can receive a refund of the appropriate amount of SBP premiums paid. In that sense, the beneficiaries are being compensated (thought perhaps not enough considering the time value of money) for the payments they are not receiving.
Thirdly, because it is an offset, SBP recipients are still receiving the total amount they were expecting to receive under SBP, it is just being paid through two different payments. In addition, because DIC payments are non-taxable, the survivors total income after taxes is increased.
My last concern regards the cost of SBP. One of the reasons that this government-subsidized coverage is so inexpensive is because of the way payments are calculated. If you eliminate the SBP-DIC offset, it is possible that SBP premiums will need to increase. I am not in favor of this. It will mean that retirees will have smaller take-home retirement pay, and that fewer people will sign up for SBP. It is a great plan, and we want to encourage people to participate. Changes to the SBP plan may make it less great.
Please educate yourself about this important issue, and contact your legislators if you feel that you should. You don’t have to agree with me, or agree with MOAA , to learn more. There is no single right answer here, except that you should understand all sides. I’d love to hear your thoughts on this subject; I am sure that there are many.