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

1. SURVIVOR BENEFIT PLAN (SBP)Presented byDan McCulloughUSAF AcademySurvivor Benefit Plan Counselor333-2129

2. 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

3. 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

4. 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

5. 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!)

6. 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

7. 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

8. 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

9. 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

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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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.

25. 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

26. BRIEF THE FOLLOWING SLIDE IF MEMBER IS RETIRING FOR DISABILITY

27. 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

28. 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

29. 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

30. 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

31. 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 Annuity payable is 55% of the base amount - 55% of $735 = $404 $ 725 Dollar Amount Between $300 - $735 X 2.5 % _ Cost Factor $ 18.37= Premium

32. 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).

33. SBP Program Cost Factors Threshold 3 $1,575Full 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).

34. 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

35. 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)

36. 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

37. 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

38. 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

39. 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

40. 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 mustbe submitted within the first year of divorce

41. 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

42. 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)

43. 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

44. 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

45. 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!!

46. 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

47. 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

48. 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

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