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Pentagon considers SBP reform options

As House-Senate conferees prepare to deliberate differences in their separate plans for phasing out a sharp drop in military survivor benefits that occurs at age 62, the Bush administration says it has some “better alternatives” to improving the Survivor Benefit Plan (SBP).

Rather than phase out the age-62 drop in benefits, Congress should defer it “until the surviving spouse reaches full retirement age” under Social Security, Defense Department officials argue. That would put off the unpopular reduction in benefits until age 65, age 67 or somewhere in between depending on the surviving spouse’s birth year.

Another alternative to phasing out the drop in benefits at 62 — when payments typically fall from 55 percent of covered retired pay down to as low as 35 percent — is to lower SBP premiums, Defense officials suggest.

That would make SBP more affordable to enlisted retirees. (About 80 percent of retired officers enroll in SBP versus 65 percent of enlisted retirees.)

Defense officials have in mind a return to bi-level premiums, as set before 1988, with “substantial discounts for those with lowest retired pay.”

The department floated these alternatives in a package of “appeal” documents on the 2005 defense bill sent to the Office of Management and Budget and to the Senate Armed Services Committee on July 7.

Steve Strobridge, director of government relations for the Military Officers Association of America, described it as a late-hour attempt “to sell out the interests of all current and future survivors.”

The House, in passing its version of the 2005 defense authorization bill, voted to phase out what’s also called the age-62 “offset” within four years. Surviving spouses, 62 and older, would see benefits climb to 40 percent of retired pay in October 2005, 45 percent in April 2006, 50 percent in April 2007 and 55 percent a year later.

Retirees who declined to enroll at retirement would get a second chance during a one-year open season, paying a penalty on premiums proportional to time that passed since they retired, but the penalty would not exceed 4.5 percent of monthly retired pay.

The Senate too voted to phase out the age-62 reduction, but over 10 years, not four. Benefits would be fully restored, to 55 percent, by October 2014. Also, retirees enrolling during the open season would have to pay all missed premiums since retirement plus interest.

The cost of the House plan is estimated at $2.2 billion over five years, $6.8 billion over 10, roughly three times higher than the Senate plan. That proposal would cost of $700 million over five years, $2.2 billion over 10.

Defense officials oppose both plans but view the Senate’s as more acceptable. The new low-cost alternatives for SBP reform likely reached Capitol Hill too late to have any impact, except perhaps in arguing how money saved by avoiding the House plan might to be used to reshape the program more significantly.

Strobridge suggested the proposals, from an administration that refused until now to back any improvement in SBP, lack credibility.

“Changing the age for the benefit cut would be nothing but cosmetic, since the vast majority of survivors are already over 65,” Strobridge said.

“Changing the premium helps retirees, not survivors,” he added. “It would do nothing to address the basic inequity of the benefit cut (at 62), which is the whole point of this legislative effort.”

A source involved in House-Senate negotiations said nothing is yet settled on SBP and likely won’t be until after the political conventions. But the Senate’s tighter restriction on any SBP open season is likely to prevail.

Tom Philpott can be contacted at Military Update, P.O. Box 231111, Centreville, Va. 20120-1111, or by e-mail at:

[email protected]