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In 1980, the Congress enacted major revisions to the military Survivor Benefit Plan. These changes were prompted by inequities in the plan that had developed since its enactment in 1972.

This study first analyzes the Survivor Benefit Plan before the 1980 revisions, showing how inequities in that plan affected government expenditures and the portion of costs paid by military retirees. The study then evaluates numerous alternatives to the plan that were debated by the Congress. The study's evaluations were presented to the Congress during its deliberations and are documented here for reference.

The analyses were done at the request of the Chairman of the Subcommittee on Manpower and Personnel of the Senate Armed Services Committee and the Ranking Minority Member of the House Armed Services Committee. In accordance with CBO's mandate to provide objective analysis, the study makes no recommendations.

The study was prepared by Robert F. Hale of the National Security and International Affairs Division of the Congressional Budget Office, under the general supervision of David S.C. Chu. The results benefit from extensive analysis performed for CBO by David Wilt of the American Management Systems, Inc. The author also gratefully acknowledges the contributions of Julia Doherty, Harold Furchtgott, John Green, and Nancy Swope of the CBO staff, and the assistance of the Department of Defense in providing data and the basic cost model. Francis Pierce and Robert L. Faherty edited the manuscript; Janet Stafford prepared it for publication, in addition to typing the numerous preliminary analyses that preceded this final document.
 

Alice M. Rivlin
Director
March 1981
 
 

SUMMARY

CHAPTER I. INTRODUCTION

CHAPTER II. THE PREVIOUS SURVIVOR BENEFIT PLAN

• Description
• Problems Under the Previous Law
• Cost Sharing Under the Previous Law
• Costs Under the Current Law

CHAPTER III. THE CONGRESSIONAL CHANGES (S. 91)

• Description
• Cost Sharing Under S. 91
• Costs

CHAPTER IV. OTHER ALTERNATIVES

• The Fleet Reserve Association (FRA) Proposal
• The Original S. 91
• Retired Officers Association (TROA) Proposal
• No Contribution Age 62 or Over
• Effects of Key Provisions on S. 91

APPENDIX A. ANALYSIS OF SURVIVOR BENEFIT PLANS

APPENDIX B. METHOD AND DATA USED IN ESTIMATING OUTLAYS AND COST-SHARING RATIOS
 

TABLES
1.	EFFECTS OF SOCIAL SECURITY OFFSET UNDER PREVIOUS LAW
2.	COSTS OF SBP ALTERNATIVES AND PORTIONS OF COSTS BORNE BY THE INDIVIDUAL
3.	MONTHLY SBP BENEFITS UNDER ALTERNATIVE PROPOSALS FOR A PERSON WHO RETIRES IN 1980
A-1.	DESCRIPTION OF ALTERNATIVES CONSIDERED BY THE CONGRESS
A-2.	NET COSTS UNDER PREVIOUS LAW
A-3.	INCREASES OR DECREASES (-) IN NET COSTS UNDER PREVIOUS LAW
A-4.	INCREASES OR DECREASES (-) IN NET COSTS RELATIVE TO COSTS UNDER PREVIOUS LAW
A-5.	INCREASES (+)/DECREASES (-) IN NET COSTS OF ENACTED S. 91 UNDER VARIOUS OPTIONS
A-6.	METHODS AND ASSUMPTIONS USED IN CALCULATING COST-SHARING RATIOS
A-7.	COST-SHARING RATIOS
A-8.	COST-SHARING RATIOS
B-1.	CURRENT SBP BENEFICIARIES BY AGE AS OF END OF FISCAL YEAR 1978
B-2.	MONTHLY SBP PAYMENTS TO CURRENT BENEFICIARIES AS OF SEPTEMBER 30, 1978
B-3.	CURRENT NON-DISABILITY SBP PARTICIPANTS BY AGE
B-4.	CURRENT DISABILITY SBP PARTICIPANTS BY AGE
B-5.	NUMBERS OF CURRENT TITLE III RETIREES BY AGE
B-6.	NON-DISABILITY RETIREE DEATH RATES
B-7.	DISABILITY RETIREE DEATH RATES BY AGE
B-8.	DEPENDENT DEATH RATES
B-9.	ANNUAL FUTURE RETIREES
B-10.	ANNUAL FUTURE NON-DISABILITY RETIREES BY AGE
B-11.	ANNUAL NUMBERS OF FUTURE DISABILITY RETIREES BY AGE
B-12.	FRACTIONS OF FUTURE RETIREES PARTICIPATING IN THE SBP
B-13.	AVERAGE ANNUAL RETIRED ANNUITY FOR CURRENT NON-DISABILITY SBP PARTICIPANTS
B-14.	AVERAGE ANNUAL CURRENT DISABILITY RETIRED ANNUITY BY AGE
B-15.	AVERAGE ANNUAL TITLE III ANNUITY BY AGE
B-16.	ANNUAL RETIRED ANNUITY BY AGE FOR FUTURE NON-DISABILITY RETIREES
B-17.	AVERAGE ANNUAL FUTURE DISABILITY RETIRED ANNUITY BY AGE
B-18.	FRACTIONS OF RETIREMENT PAY COVERED UNDER THE SBP
B-19.	SOCIAL SECURITY OFFSETS
B-20.	OFFSETS--CURRENT BENEFICIARIES--62 AND OVER
B-21.	OFFSETS--CURRENT BENEFICIARIES--WIDOW(ER)S WITH ONE CHILD
B-22.	OFFSETS--CURRENT NON-DISABILITY RETIREE SURVIVORS--62 AND OVER
B-23.	OFFSETS--CURRENT NON-DISABILITY RETIREE SURVIVORS--WIDOW(ER)S WITH ONE CHILD
B-24.	OFFSETS--FUTURE NON-DISABILITY RETIREE SURVIVORS--62 AND OVER
B-25.	OFFSETS--FUTURE NON-DISABILITY RETIREE SURVIVORS--WIDOW(ER)S WITH ONE CHILD
B-26.	OFFSETS--CURRENT DISABILITY RETIREE SURVIVORS--62 AND OVER
B-27.	OFFSETS--CURRENT DISABILITY RETIREE SURVIVORS--WIDOW(ER)S WITH ONE CHILD
B-28.	OFFSETS--FUTURE DISABILITY RETIREE SURVIVORS--62 AND OVER
B-29.	OFFSETS--FUTURE DISABILITY RETIREE SURVIVORS--WIDOW(ER)S WITH ONE CHILD
B-30.	OFFSETS--CURRENT TITLE III RETIREE SURVIVORS--62 AND OVER
B-31.	OFFSETS--FUTURE TITLE III RETIREE SURVIVORS--62 AND OVER
B-32.	OFFSETS--CURRENT BENEFICIARIES 62 AND OVER--40 PERCENT LIMIT
B-33.	OFFSETS--CURRENT BENEFICIARIES--WIDOW(ER)S WITH ONE CHILD--40 PERCENT LIMIT
B-34.	OFFSETS--CURRENT NON-DISABILITY RETIREE SURVIVORS--62 AND OVER--40 PERCENT LIMIT
B-35.	OFFSETS--CURRENT NON-DISABILITY RETIREE SURVIVORS--WIDOW(ER)S WITH ONE CHILD
B-36.	OFFSETS--CURRENT DISABILITY RETIREE SURVIVORS--62 AND OVER--40 PERCENT LIMIT
B-37.	OFFSETS--CURRENT DISABILITY RETIREE SURVIVORS--WIDOW(ER)S WITH ONE CHILD--40 PERCENT LIMIT
B-38.	OFFSETS--CURRENT TITLE III RETIREE SURVIVORS--62 AND OVER--40 PERCENT LIMIT
B-39.	ECONOMIC ASSUMPTIONS
B-40.	FRACTION OF SBP WIDOW(ER)S UNDER 62 WITH ONE CHILD
B-41.	DIVORCE RATES FOR SBP MEMBERS
B-42.	DEPENDENT REMARRIAGE RATES
B-43.	NON-DISABILITY RETIREE NON-PARTICIPANTS IN SBP OR RSFPP
FIGURE
B-1.	SIMPLIFIED VERSION OF EQUATION USED TO ESTIMATE COST-SHARING RATIOS

 

In 1972, the Congress enacted the military Survivor Benefit Plan (SBP), a voluntary program for military retirees. Those who elect to cover some or all of their retirement pay under the SBP contribute in the form of a reduction in that pay. In return, their survivors receive lifetime benefits that are adjusted for future increases in the Consumer Price Index (CPI).

Inequities that developed since enactment of the SBP in 1972 caused some retirees to contribute substantially more than their survivors will receive in benefits. Prompted by these inequities, the Congress in 1980 enacted major changes in the SBP, focusing on limits both on the so-called social security offset and on the amount withheld from retirement pay in return for survivor coverage.

This study analyzes the inequities that prompted the changes and examines legislation passed by the Congress to correct them. The study documents analyses presented to the Congress during its debate over the changes.
 

INEQUITIES IN THE PREVIOUS LAW

Social Security Offsets

Under the law in effect before the recent Congressional changes, most survivors' benefits were reduced by the full amount of any social security benefits they received based on their spouses' earnings during military service. The size of these social security offsets had grown sharply in recent years largely because recent military retirees, who were first covered under social security in 1957, had spent larger portions of their careers under the system. Offsets would have continued to grow, particularly for survivors of officer retirees, mainly because of recent increases in maximum wages subject to social security coverage. As a result of these and other shifts, social security offsets would have completely eliminated benefits for many survivors in future years.

Contribution Formula

Participants in the SBP contribute based on a formula that increases costs per dollar of survivor coverage as retirement pay increases. The "weighted" formula requires that retirees contribute 2.5 percent of their first $300 per month of covered retirement pay and 10 percent of any amount above $300. Under the law in effect before the Congressional changes, each increase in military retirement pay because of growth in the CPI triggered a recalculation of SBP contributions. This recalculation pushed more pay into the 10-percent bracket of the formula and increased the cost per dollar of coverage. Sharp increases in the CPI have already pushed up the costs of coverage over 1972 levels, and costs would have continued to grow in future years. In contrast, the contribution formula for the survivor benefit plan for civil service retirees results in constant costs per dollar of coverage.

Other Inequities

Other possible inequities in the previous law included problems of offsets for widows who are entitled to social security based on their own earnings, offsets for certain part-time reservists, exclusion from the SBP of widows whose spouses died before enactment of the program in 1972, and participation by some disability retirees who would never have received benefits.

Results of Key Inequities

The growing social security offsets, coupled with problems in the contribution formula, meant that, under previous law, military retirees would have contributed considerably more than their survivors would receive in benefits. CBO estimates that an average nondisabled person who retired in 1981 would have contributed three times more than his survivor would receive. By the year 2000, an average retiree would have contributed almost four times more than his survivor would receive. These results are highly sensitive to many detailed assumptions and should be regarded as rough guides. Nonetheless, they suggest that individuals would clearly bear more of the costs than was intended. A Senate committee indicated when it passed the SBP in 1972 that, depending on when they retired, military personnel would bear about 60 percent to 80 percent of the costs of their survivors' benefits.
 

SENATE ALTERNATIVE (S. 91)

On September 22, 1980, the Congress approved an alternative SBP bill (S. 91) that corrected many of these inequities. S. 91 revises the military contribution formula to conform to the civil service formula and limits the social security offset to no more than 40 percent of survivor benefits. It also makes several other, more minor changes.

The two major changes outlined above mean that an average nondisabled retiree who leaves the military in 1981 will bear about 70 percent of the cost of his survivor's benefits. This is similar to what the Senate envisioned when it passed the SBP in 1972. While reducing costs to the individual, S. 91 will increase the government's costs. The additional costs will amount to about $280 million over the next five years and about $2.6 billion over the next 20 years. (All costs are in constant 1980 dollars.)
 

ALTERNATIVE PROVISIONS

Before approving S. 91, the Congress considered numerous alternative plans that are analyzed in this study and its appendixes. Included in these alternatives are key provisions that could be debated if further revisions of the SBP are considered.

Open Enrollment

Given the major changes made by S. 91, the Congress could allow those who chose not to participate in the SBP a chance to reconsider and join. Such an "open enrollment" provision could decrease costs over the next five years by a total of $200 million because of the added contributions by those who would elect to join. But costs over the next 20 years would increase by a total of $480 million as survivors of new participants began receiving benefits. The difficulty of estimating the number of new participants under an open enrollment provision makes these cost estimates more uncertain than others in this study.

Indexing

The contribution to SBP on the first $300 of covered retirement pay equals 2.5 percent; the contribution equals 10 percent on amounts above $300. The $300 threshold is fixed in the law and was not changed by S. 91. This means that, as retirement pay for future retirees increases because of higher military pay, larger and larger portions of retirement pay are included in the 10 percent portion of the formula, which increases costs to participants. Progressive increases in costs could be avoided by "indexing" the $300, which would mean increasing it each time military pay was increased and by the same amount. This would stabilize at today's levels the portion of costs borne by future retirees. Indexing would add a total of $15 million to costs over the next five years and $530 million over the next 20 years.

Halving the Social Security Offset

This provision, included in an earlier version of S. 91, would halve the social security offset for widows age 62 or older rather than limiting it to no more than 40 percent of total survivor benefits. Cutting the offset in half would be consistent with current provisions regarding social security contributions, which require that individuals pay half the total contribution. Halving the offset would tend to benefit those who retired some years ago, particularly officer retirees, more than did S. 91. Halving the offset, rather than the 40 percent limit enacted by S. 91, would add about $60 million to costs over the next five years and $980 million over the next 20 years.

Eliminating the Mothers' Offset

Under previous law, widows under age 62 receive a social security offset only if they are mothers with one dependent child. (Mothers under age 62 who have more than one dependent child are exempt from any offset, apparently on equity grounds, while young widows who have no children are not eligible for social security and so have no offset.) Under S. 91, the offset for mothers under age 62 who have one dependent child is limited to no more than 40 percent of benefits, as are other offsets. Eliminating this mothers' offset altogether, which was proposed in an earlier version of S. 91, would add $40 million over the next five years and a total of $150 million over the next 20 years.

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