What Is the Military Survivor Benefit Plan (SBP)?

The Military Survivor Benefit Plan (SBP) serves as a financial safety net for military retirees’ loved ones. It provides a continuous income stream, known as an annuity, to eligible survivors after the retiree’s death. This program operates as insurance, allowing military members to ensure financial support for families. SBP aims to replace a portion of the retiree’s military retired pay, which otherwise stops upon their passing.

Understanding SBP Eligibility and Beneficiaries

SBP is available to military members who retire with retired pay. While the program primarily focuses on retirees, automatic SBP coverage may apply under specific circumstances for those who die on active duty.

Beneficiaries can include spouses, children, and former spouses. A spouse is a common beneficiary, and generally, a spouse married to the member at retirement is eligible. Child coverage typically extends until age 18, or age 22 if the child remains a full-time student. Benefits for children with incapacities may continue indefinitely.

Former spouses can also be covered under SBP, often as a requirement stipulated in a divorce decree. Such an election must usually be made within one year of the divorce. For individuals without a familial relationship, an “insurable interest” election allows coverage for someone who would suffer a financial loss upon the retiree’s death. This category typically requires the base amount to be the full retired pay.

The choice of beneficiary category directly influences premiums paid by the retiree and annuity payments received by the beneficiary. Each category has specific rules governing eligibility and the continuation of benefits, such as a spouse’s remarriage before age 55 potentially suspending the annuity.

SBP Costs and Annuity Payments

SBP premiums are calculated based on a “base amount” selected by the retiree, which can range from a minimum of $300 up to the full gross retired pay. These premiums are typically deducted directly from the retiree’s gross retired pay, offering a tax advantage as they are excluded from federal taxable income. For spouse and former spouse coverage, the premium is generally 6.5% of the designated base amount.

An alternative premium calculation may apply for those who entered active duty before March 1, 1990, or those retiring due to disability, potentially resulting in a lower cost for smaller base amounts. This alternative involves a tiered approach, such as 2.5% of a lower threshold amount and 10% of the remaining base amount. Premiums for child coverage are usually very low, as benefits are paid to children only under specific conditions, such as the death or remarriage of the surviving spouse.

The annuity paid to the eligible beneficiary is typically 55% of the elected base amount. For example, if a retiree chooses a base amount of $2,000, the beneficiary would receive an annuity of $1,100 per month. These annuity payments are generally disbursed monthly to the eligible beneficiary upon the retiree’s death.

Both the base amount and the annuity payments are subject to cost-of-living adjustments (COLAs), ensuring that the benefit retains its purchasing power over time. Premiums also increase with COLAs, maintaining a constant percentage of the base amount.

Navigating SBP Enrollment and Election Changes

The decision to enroll in the Survivor Benefit Plan is a significant one, primarily made at the time of military retirement. This initial enrollment period is the main opportunity for military members to elect coverage and designate beneficiaries. The process often involves completing specific forms, such as DD Form 2656, to formalize the election. SBP elections are generally irrevocable.

While initial elections are binding, there are very limited and specific circumstances under which an SBP election can be changed after retirement. Events such as divorce can lead to the ability to elect former spouse coverage, particularly if mandated by a court order. If a former spouse beneficiary dies, a remarried retiree may have a one-year window to elect SBP coverage for a new spouse.

Changes related to child coverage primarily occur when a child ceases to be eligible, such as reaching an age limit or no longer being a full-time student. Historically, rare, congressionally authorized “open seasons” have provided limited opportunities for military members to enroll in SBP or modify existing elections outside of the standard retirement window. These open seasons are infrequent and not guaranteed.

Upon the death of the retiree, beneficiaries must initiate a claim to begin receiving SBP annuity payments. This typically involves notifying the Defense Finance and Accounting Service (DFAS) and submitting required documentation, such as a death certificate and proof of eligibility. DFAS then processes the claim and begins monthly annuity payments to the eligible survivor.

SBP’s Impact on Other Benefits and Taxation

The Survivor Benefit Plan interacts with other government benefits, notably Dependency and Indemnity Compensation (DIC) from the Department of Veterans Affairs (VA). Historically, if an SBP beneficiary was also eligible for VA DIC, the SBP annuity was reduced, often dollar-for-dollar, by the amount of the DIC. This was known as the SBP-DIC offset.

However, the SBP-DIC offset has been eliminated for most beneficiaries. This change was phased in, with full elimination taking effect on January 1, 2023. As a result, eligible surviving spouses now receive both their full SBP payments and their full DIC payments without reduction. This elimination applies to surviving spouses, but DIC payments made directly to children do not affect SBP child annuity payments.

Regarding taxation, SBP annuity payments received by beneficiaries are generally considered taxable income for federal income tax purposes. Recipients of SBP annuities should be aware that federal withholding tables may impact the net amount received, and they can adjust their withholding using IRS Form W-4P. While the annuity itself is federally taxable, the premiums paid by the retiree for SBP coverage are excluded from federal taxable income, effectively reducing the retiree’s taxable gross retired pay.

State tax treatment of SBP annuities can vary. Some states may tax the annuity, while others may provide exemptions. Beneficiaries should consult their state’s tax laws or a tax professional for specific guidance on state income tax obligations related to SBP payments.