THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Wednesday, November 15, 1995 TAG: 9511140135
SECTION: MILITARY NEWS PAGE: A6 EDITION: FINAL
COLUMN: MILITARY UPDATE
SOURCE: Tom Philpott
LENGTH: Medium: 71 lines
Kay McGee of Crestview, Fla., isn't happy with the military's Survivor Benefit Plan, which her husband, Linnaeus, joined in 1972.
The retired Navy chief agreed to forfeit a portion of his retired pay in return for a guarantee that, after his death, reduced annuities would flow to his widow.
It sounded good then. But if given the chance, said Kay McGee, she and her husband would have opted out of SBP long ago, after learning more about it and weighing insurance alternatives. McGee said she was particularly upset to discover benefits drop sharply - from 55 percent of retired pay to 35 percent - when a surviving spouse becomes eligible for Social Security at 62.
``We could have turned around and put that money into an insurance policy,'' she said, referring to $75 a month Linnaeus still forfeits in retired pay as his SBP premium.
SBP has some clear advantages over commercial insurance programs, but the decision to enroll is irrevocable. Neither McGee nor any of the other 950,000 retirees enrolled today can drop their coverage unless death or divorce severs their relationship with beneficiaries.
That longstanding rule, however, could bend soon.
Defense officials are studying a proposal to allow SBP participants to opt out of SBP, or lower their coverage, at two points during retirement. The first would come five years after leaving service. Presumably, by then retirees would be well into second careers and aware of SBP alternatives.
The second opt-out point would come at age 65 as retirees near the end of their earning years, begin drawing Social Security and know whether SBP is needed. Those who drop coverage would have their retired pay restored but would not get a refund of past premiums.
Driving the withdrawal options, said a Defense official, is a steady stream of complaints from retirees who want out of SBP as financial status or insurance needs change. Cost isn't an issue. In fact, withdrawals would save the government money, allowing Uncle Sam to pocket premiums without paying a dime in benefits.
But officials worry about abandoning retirees to their own, sometimes poor, judgment on survivor benefit protection. Some retirees might fail to buy replacement insurance. Some could die a year, a month, even a day after dropping SBP, leaving survivors in financial difficulty.
Despite common complaints about SBP benefits - that they can't be tapped while retirees are alive, or disappear if a spouse dies first, or fall when a surviving spouse turns 62 - most insurance experts consider SBP an excellent and relatively inexpensive base for a survivor protection plan. If retirees are allowed to withdraw, the experts warn, they should do so with great caution.
Kay McGee, 62, and her husband, 65, have too much invested in SBP to disenroll now. ``We'd be throwing our money down a rat hole.''
Still, Chuck Partridge, legislative counsel for the National Association of the Uniformed Services, said many retirees would welcome withdrawal options. By age 65, he said, ``financial situations can change.''
But Defense, he said, should develop safeguards so every individual understands the consequences to his or her dropping SBP, given age, finances, cost and availability of replacement coverage, and other factors.
Defense officials could send SBP withdrawal legislation to Congress by early next year. They have no plans, however, to recommend an end to the drop in benefits at age 62. MEMO: Reader comments and suggestions are welcomed. Write to Military Update,
P.O. Box 1230, Centreville, Va. 22020, or send e-mail to:
milupdate@aol.com.MDUL/.MDNM/
by CNB