Congress Advances SBP Reform
In a long-sought victory for current and future surviving military spouses, the House and Senate have agreed to phase out a sharp drop in benefits that most widows and widowers see at age 62 under the Survivor Benefit Plan. It is the first time both chambers have endorsed SBP enhancements.
Still to be decided by a House-Senate conference committee working on the 2005 defense authorization bill: how long the phaseout will take and how costly it will be to enroll in the improved SBP plan for retirees who previously declined spouse coverage.
SBP benefits drop at 62 when surviving spouses become eligible for Social Security. They typically fall from 55 percent of covered retired pay down to as low as 35 percent, depending upon when enrollment began. Some retirees avoid the drop by purchasing supplemental SBP at retirement time. But the supplemental SBP is not a government-subsidized program, so premiums are high.
The House in mid-May approved its defense bill with a provision to phase out by April 2008 the age-62 offset. Payments would be raised to 40 percent of covered retired pay on Oct. 1, 2005, 45 percent in April 2006, 50 percent in April 2007, and be fully restored, to 55 percent, a year later.
The House plan also calls for a one-year open season that could be attractive to retirees who declined SBP earlier. Premiums would be set higher than for retirees who elected coverage at retirement, but the penalty for late enrollment would be modest, capped at 4.5 percent of covered retired pay atop regular premiums of 6.5 percent.
Sen. Mary Landrieu (D-La.) initially proposed an amendment to the Senate’s defense bill that echoed the House plan. In late night negotiations, Senate leaders worked a compromise with Landrieu, and, on June 23, she accepted two changes.
One, an amendment from Sen. John Ensign (R-Nev.), would require open-season enrollees to pay all premiums (plus interest) that they would have paid had they elected SBP coverage at retirement. To do otherwise, Ensign said, would be unfair to current participants, when comparing lifetime costs.
The other change was a 10-year phaseout vs. three-and-a-half years under the House plan.
Defense officials argued that the case made for ending the offset was based largely on misperceptions. One such misperception, they said, was that the government promised to subsidize 40 percent of SBP costs for the typical retiree. The percentage has fallen over the past decade to below 20 percent.
Many Senators seriously considered the Administration’s arguments, as well as the cost estimate for the change, which is $5 billion over 10 years plus a $20 billion increase in unfunded liabilities for the military retirement fund, but chose to support the legislation.
House-Senate conferees began work in July to resolve differences between the two versions of the bill. Service associations were pressing lawmakers to support the House version.
Concurrent Receipt May Expand
The Senate approved an amendment offered by Sen. Harry Reid (D-Nev.) that would restore full retired pay next January to 30,000 retirees who are 100 percent disabled.
Military retirees for decades have seen their service annuities reduced, dollar for dollar, by VA compensation for service-connected disabilities. Last year Congress authorized what is now known as the Concurrent Disability Pay (CDP) program to ease the ban on concurrent receipt of full military retiree pay and VA disability pay.
It will restore over 10 years any retired pay offset for disabilities of 50 percent or more. It applies only to retirees who completed 20 or more years of service or left service under Temporary Early Retirement Authority available during the Cold War drawdown.
The Senate bill, as amended, would switch to full CDP benefits in January 2005 for those retirees who are 100 percent disabled. If the House agrees, the monthly CDP would rise by amounts that fully restore retirement payment in addition to VA disability compensation. Current legislation calls for gradual CDP increases, which, next January, for those 100 percent disabled, amounts to a rise from $750 a month to $900.
Reid said 10 years is just too long to wait for the most severely disabled to win full relief from what critics describe as the “veterans disability tax.”
Full restoration, estimated to cost $900 million over 10 years, is high enough to leave doubts whether House conferees will agree to accelerated payments.
Reserve Retirement: Still at 60
Both the House and Senate have rejected proposals to lower the reserve retirement age from 60 down to 55.
The House Armed Services Committee declined to include such a provision in its version of the defense bill. In the Senate, an amendment put forth by Sen. Jon Corzine (D-N.J.) made it to the Senate floor, but it did not survive.
Corzine had urged starting reserve retirement benefits five years earlier, arguing the move was warranted because of the expanded role of Guard and Reserve forces in the war on terrorism. He said it would help boost reserve retention and readiness.
Sen. John Warner (R-Va.), a key opponent of the measure, maintained that the retirement rollback would have little impact on readiness or retention. It would, he said, cost almost $2 billion a year and would immediately only reward those reservists who have completed their service under different rules and are just awaiting their annuities.
Warner warned that if Congress continues to “narrow differences” between reserve and active duty benefits, “pretty soon people will say, ‘Let’s opt for the Reserve and the Guard—all of us—rather than spend 20 years of our lives [on active duty] to gain those benefits.’ ”
Conferees To Settle Other Issues
House and Senate authorization conferees still must iron out differences over several other military personnel issues in their respective defense bills. The issues include:
Reserve health care: Senators adopted, on 70-to-25 vote, an amendment from Tom Daschle (D-S.D.) and Lindsey Graham (R-S.C.) that would open Tricare to selected (or drilling) reservists and their families.
Guard and Reserve members who elect to buy into Tricare would pay premiums equal to 28 percent of program costs, roughly $530 annually for individuals or $1,860 for family coverage. For those who opt to keep their employer-provided health coverage, DOD would pay part or all of the employee share of premiums during mobilization.
The amendment, with a price tag of $5.4 billion over five years, replaced a low-cost Senate Armed Services Committee alternative, called Tricare Reserve Select, that would have opened Tricare to drilling reservists if their employers, rather than the government, picked up the 72 percent cost share and premiums covered the rest.
However, the House has a significantly different viewpoint. The House defense bill calls for a three-year test that would offer Tricare only to those drilling reservists and their families who lack employer-provided health care. Legislators in the House say they want to confirm whether access to Tricare improves reserve force readiness or manning before spending billions of dollars.
End strength: The Army will grow, but by how much? The House bill would direct a 30,000 increase in active duty soldiers and a 9,000 increase in Marines, both phased in over three years. The Senate bill, on a floor amendment from Sen. Jack Reed (D-R.I.), would mandate only an increase of 20,000 soldiers.
Base closings: House and Senate authorization conferees in July tackled whether to buck a threatened Presidential veto over a proposed delay for the 2005 base realignment and closure (BRAC) round.
Legislators in the House called for a two-year delay, defeating, by a vote of 259 to 162, an amendment to knock the provision from the bill. Senators refused to add a similar two-year delay. The defeat came on a narrow 49-to-47 vote.
Both Republicans and Democrats say uncertain force requirements from wars in Iraq and Afghanistan and a planned restructuring of US basing overseas argue against holding BRAC in 2005.
Tax Relief Update
Freshman Sen. Mark Pryor (D-Ark.) took a first step toward remedying an inequity in income tax rules for lower-income military families whose service members served combat tours last year in Afghanistan and Iraq.
Combat-zone tax exclusions actually lowered incomes for 5,000 to 10,000 of these troops by affecting their eligibility for more valuable tax breaks, such as the Earned Income Tax Credit. (See “Action in Congress: Combat Tax Penalty,” July, p. 20.) The net income loss for some families surpassed $4,000, and the number of affected families could be even higher in 2004 given the longer combat tours being served, defense officials said. A Defense Department initiative to address the combat-zone tax problem failed to clear the White House’s Office of Management and Budget earlier this year.
Pryor, joined by Sen. Max Baucus (Mont.), ranking Democrat on the Senate Finance Committee, introduced the Tax Relief for Americans in Combat Act (S. 2419) to allow service members “to continue receiving their rightful combat pay exclusions, while having the ability to take full advantage of other tax credits.”
By law, tax bills must originate in the House, so Pryor worked an arrangement with the House Ways and Means Committee that will enable him to attach his combat tax relief provision to the Senate version of the unrelated Guardsmen and Reservists Financial Relief Act of 2004 (H.R. 1779), sponsored by Rep. Bob Beauprez (R-Colo.). The Beauprez measure cleared the House last April and is awaiting Senate action.
Divorced Retirees File Lawsuit
Over the last decade, Congress has shown little interest in amending a 1982 law that permits state courts to divide military retirement as marital property in divorce settlements. That lack of action prompted a group of divorced service members and retirees to file a lawsuit, challenging the Uniformed Services Former Spouses Protection Act (USFSPA) as unconstitutional.
The lawsuit (Adkins, ULSG, et al. vs. Rumsfeld), filed in US District Court (Eastern Division of Virginia), argues that USFSPA violates divorced military members’ rights to due process and to equal protection. ULSG stands for USFSPA Litigation Support Group, formed last year specifically to challenge the law in court after legislative remedies failed. ULSG claims the law:
Jonathan L. Katz, a lawyer for the plaintiffs, said the lawsuit might be the first brought on these constitutional challenges. Plaintiffs include more than 40 divorced retirees and 15 divorced active duty members.
DIC Deadline Approaches
Congress expanded the law regarding Dependency and Indemnity Compensation (DIC) payments to include remarried surviving military spouses, if they do not remarry until age 57 or older. DIC payments go to spouses of service members whose deaths were service connected.
The Veterans Benefits Act of 2003, enacted late last year, set Dec. 15 as the deadline for surviving spouses who remarried before Dec. 16, 2003, to apply to have DIC restarted. At stake is about $967 a month.
Applicants should complete VA Form 21-686c, Declaration of Status of Dependents, which can be downloaded from the VA Web site (www.va.gov). For more information, contact a VA regional office at 1-800-827-1000.
Because the VA has no way of knowing who is eligible or where they live, readers are urged to share this information with potential applicants in their communities before the open season ends.
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