Apples to apples: understanding the Survivor Benefit Plan-Reserve Component The Reserve Component Survivor Benefit Plan RC-SBP is a wonderful benefit for almost all reservists. It is very similar to the active duty SBP program. One of the major differences is, as a reservist, when you make your SBP election. Within 90 days from the date of your 20-year satisfactory service letter, you have to make your RC- SBP decision. I know this is not a pleasant activity, but the first course of action, is to determine what your current death benefits are. If you should pass away today, what would your loved ones receive? Figuring this out will go a long way in helping you make your decision. First, let’s start with social security. If you have an online account with social security, check your statement to see what the monthly benefits are, and how long will they be paid out. If you do not have a social security account, I would encourage you to go to socialsecurity.gov and create one, especially if you have children under 18. Next, look at what your employer provides in benefits. For most, it would be a death benefit from group term life insurance. But for others there might be some type of survivor benefit payout if you are eligible for a defined benefit plan. Now, include what you personally have. Look at equity in your home, individual life insurance and investments (e.g. TSP or 401K). A good place to document all these different benefits is using the Veteran Affairs Needs Analysis calculator https:// insurance.va.gov/NeedsCalculator. Now here is where it gets a little tricky. As a reservist, if death should occur while drilling, there are multiple benefits for your spouse and eligible children through the Veterans Affairs and Coast Guard. Once you have ascertained what your current benefits are, we can look at what your eligibility to retire from the Coast Guard Reserve has gotten you—the Reserve Component Survivor Benefit Plan. If your completed form is not received within 90 days from issuance of your retirement package and you’re married, you will automatically be enrolled in Option C. To be clear, the basic statutory provisions of SBP can be found here: https://uscode.house.gov/view. xhtml?path=/prelim@title10/subtitleA/ part2/chapter73&edition=prelim Here are your three options: • Option A means you are DECLINING TO MAKE A DECISION UNTIL AGE 60. Why would you choose this option? If you have completed a needs analysis, look at all the sources of income your loved ones will get should you die between now and attaining the age of 60 (when you are eligible to receive your retirement check). This option sounds good, but here’s the major drawback: if you die between now and 60, you won’t be around to make the SBP decision. So, in deciding to choose this option, it should really be looked at as “We will reevaluate at my age of 60, but if I die, there is enough income being provided for my loved ones, absent SBP.” One of the reasons reservists look at this option is because the cost to provide spouse coverage is 6.5 percent, starting 36 RESERVIST � Issue 2 • 2020 when you start drawing your reserve retirement check. There is no Reserve Component or Real Cost of reserve SBP. • Option B means you want RC-SBP when you die, but if death occurs before you would be eligible to receive your checks, your surviving spouse will not receive the monthly annuity until you would have been eligible to receive your retirement check. This is where you look at all the financial resources your loved ones would receive upon your death and, if sufficient until retirement eligibility, this is a good option. A few things to think about with this option. Yes, the monthly annuity payment is DEFERRED until age 60. Are there younger children at home who would receive social security due to your death? Is there sufficient life insurance death benefits your loved ones would be able to use? Real Cost of Option B, the deferred annuity, an additional cost to the 6.5 percent spouse premium. The additional cost is added on to the base premium and payments start when you start drawing your retired pay. This “real cost” is different for everyone. You can use the DOD Actuary calculators, but it’s based on your base amount chosen to cover for SBP, your age, your spouse’s age and, if you are adding in child coverage, the age of your youngest child when the SBP decision is made. This real cost is added to the 6.5% spouse SBP cost. Payments are made for 30 years upon starting to receive your retirement check. Of course, upon your death, if within the 30 years, the premium payment your survivors will be required to pay the real cost but for them the premium would be 0.01 percent. This will also be added (or subtracted) if you should die before attaining the age of 60. A rule of thumb is to add 2 percent to the 6.5 percent for planning purposes. • Option C is the immediate annuity option. This option is also the default option you will be enrolled in if you do not make your RC-SBP election within the 90-day time frame. This option provides an immediate annuity. No matter when you die, your designated SBP beneficiary will begin receiving 55 percent of your elected base amount, guaranteed COLA protected. Factor in an estimate of 3 to 3.5 percent coupled with the 6.5 percent for the real cost of this option. If you have done a needs analysis and determined your loved ones would benefit from this monthly annuity, then this option is for you. A few other considerations though. If you have group term life insurance from your employer, SGLI or other life insurance, taking this option, the immediate annuity might be useful in providing monthly income while allowing the life insurance death benefit to not be drawn down
