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Although it is a small program in comparison to the overall military retirement system, the Survivor Benefit Plan (SBP) for military retirees has been the source of continued Congressional attention and review since the program was begun in 1953. The present SBP, as initially enacted in 1972 and modified in 1980, provides survivor benefits in concert with Social Security, with the cost of the program being borne jointly by retirees and the government.
Declining retiree participation rates in SBP and perceived inequities in the program led the Congress in 1984 to enact prospective changes in the Social Security integration provisions. At the same time, the Military Personnel and Compensation Subcommittee of the House Committee on Armed Services asked CBO to evaluate some more fundamental changes in the structure of SBP. Those proposed changes, incorporated in the House version of the Fiscal Year 1986 Department of Defense Authorization Bill, are the subject of this CBO staff working paper. In keeping with CBO's mandate to provide impartial and objective analysis, this report makes no recommendations.
This study was conducted by Ed Shephard of CBO's National Security Division under the general supervision of Robert Hale and Neil Singer. The analysis benefited from the extensive assistance of the Office of the Department of Defense Actuary and its head, Ms. Toni Hustead. (Outside assistance implies no responsibility for the study, which rests with CBO.) Within CBO, Julia Doherty and Barbara Hollinshead of the Budget Analysis Division and Christian Frederiksen of NSD provided help and comments. The paper was edited by Francis Pierce. G. William Darr prepared the manuscript for release.
July 1985
One of the principal elements of the estate program provided to military personnel is the Survivor Benefit Plan (SBP). Provisions allowing active-duty military retirees to designate portions of their retired pay for their survivors have been in effect since 1953, when the Uniformed Services Contingency Option Plan (renamed in 1961 the Retired Serviceman's Family Protection Plan (RSFPP)) was enacted. In an effort to make participation in a survivor benefit program more attractive, in 1972 the Congress replaced the original program with the current Survivor Benefit Plan. A companion program, the Reserve Component Survivor Benefit Plan (RCSBP), was subsequently enacted in 1978.1
A hallmark of the new Survivor Benefit Plan was the concept that the government and the military retiree should share the cost of providing income security for the retiree's survivors, with members paying an average of 60 percent of the costs. Lower-ranking members were required to pay less. It was expected by the Department of Defense and the Congress that one result of the survivor benefit subsidy would be a participation rate perhaps as high as 85 percent.
As enacted, however, SBP contained several provisions that were viewed as inequitable and that reduced the value of the plan for retirees and their survivors. One such provision was the Social Security offset, which reduced survivors' military annuities once they began to receive Social Security benefits. As a consequence, participation rates declined under SBP following its initial enactment and led the Congress again to modify SBP in 1980. Chief among the 1980 modifications was a limitation on the maximum amount of the Social Security offset.2
Nonetheless, a review of SBP by the Fifth Quadrennial Review of Military Compensation in 1984 concluded that--despite the 1980 revisions--the members' share of SBP costs had risen to 72 percent (for members who entered service in 1984).3 At the same time, the Congress enacted a modification of SBP known as the Thurmond Amendment. This provision, scheduled to take effect at the beginning of fiscal year 1986, would reduce the Social Security offset to the extent that Social Security benefits were earned by a survivor's own labor force experience rather than by his or her status as a survivor of a military retiree.
Continuing concern about SBP's low participation rates (which stood at 52 percent in 1984), its complexity, and its cost-sharing ratio led the Military Personnel and Compensation Subcommittee of the House Armed Services Committee to request that CBO review the current Survivor Benefit plan (SBP) and selected alternatives.4 In particular, the subcommittee asked CBO to analyze an alternative that would substitute a two-tier benefit plan for the current SBP, eliminating the rationale for any Social Security offset.
In subsequent action, the House version of the fiscal year 1986 Department of Defense (DoD) authorization bill proposed several changes to SBP designed to make the program fairer and more attractive to retirees. These changes included:
CBO's analysis of the House changes indicates that they would maintain the members' share of SBP costs at 60 percent, quite close to the target level identified by the Congress upon initial enactment of SBP. Accrual charges, the amount of funds that must be set aside in current military budgets to pay for future benefits, would roughly double over current levels but would remain a small fraction of the overall cost of the military retirement system. Near-term federal outlays would actually decrease, as more members opted for participation and thus paid their contributions into the military retirement trust fund in anticipation of future benefits.
Of the provisions of the House plan, the indexing feature was found by CBO to have the greatest effect upon the cost-sharing ratio. The spousal concurrence provision is the feature most responsible for both the increase in accrual charges and the near-term outlay savings. CBO's estimate of the cost of spousal concurrence and the remarriage coverage option is subject to considerable uncertainty, however, because there is little evidence to suggest how these provisions would affect behavior.
This document is available in its entirety in PDF.
1. RCSBP gives Reserve retirees the opportunity to ensure an annuity for their survivors in the event that they die after completing 20 years of creditable service but before reaching age 60, when they begin receiving retired pay and can elect coverage under SBP. The additional cost of providing coverage for the pre-age 60 years is not subsidized by the government.
2. See Congressional Budget Office, Analysis of the Military Survivor Benefit Plan (Staff Working Paper, March 1981).
3. Department of Defense, Fifth Quadrennial Review of Military Compensation, Vol. II; Uniformed Services Survivor Benefits Program (December 1983), p. IV-19.
4. Office of the Actuary, Defense Manpower Data Center, DoD Statistical Report on the Military Retirement System, Fiscal Year 1984 ( 1984), p. 214.