Military pension: Survivor Benefit Plan

Valuing, dividing and allocating military pension benefits is one of the most misunderstood areas of divorce law in Pennsylvania. Accordingly, it is vital for military service members (SM's) and spouses going through divorce to hire legal counsel who is familiar with military benefits. This is especially true for tricky "Survivor Benefit Plans" (SBP's). This post details some of the steps involved as of January 2015. But always ask your attorney for the plan for your case. A useful website (based in North Carolina) can be found here.

Step One: What is an SBP?

A SBP is the survivor annuity program for pension division. It allows a former spouse to continue to receive payments after the SM dies (10 U.S.C. 1447 etc.). Without an SBP, the pension stops at the death of the SM/retiree.

A SBP pays 55% of the selected base amount to the recipient. By default, the selected base amount is 100% of the full monthly pay. However, a smaller base amount (down to $300/month) can be elected.

Electing an SBP lowers the amount paid to the retiree. For example, in a retirement from active duty, election of a SBP for a former spouse will generally cost 6.5% of the base amount, to be deducted from the pension check. However, if the former spouse dies first, then the entire pension is restored to the retiree.

To create a SBP, either the SM/retiree must voluntarily elect to create a SBP or else a court order must be sent to the retired pay center.

Step Two: Documenting the asset

As always, the first step in dividing an marital asset is to value and document the asset. For active-duty personnel, the place to start is the Leave and Earnings Statement (DFAS Form 702). The LES will list the "Date of Initial Entry into Military Service", which is vital for valuing a military retirement asset. For unfamiliar practitioners, "How to Read your LES" at is a good start on learning to read the LES.

For retiree's, the Retiree Account Statement (DFAS-CL Form 7220) is the place to start. Also, the letter from DFAS that SM's receive upon retirement. For Guard/Reserve Personnel, start with the Retirement Points Accounting System.

Military retirement assets other than Thrift Savings Plans, operate like a defined benefit plan (i.e. paying a certain monthly amount at a certain time). Thrift Savings Plans issue quarterly statements and they are like a 401K, with a fund amount.

Since we are concerned with SBP's here, the diligent practitioner can also obtain DD Form 2656-1 for SBP elections.

These documents can be obtained directly from the SM or through an authorization or discovery. If necessary, a court order may be sent to DFAS, state adjutant general's office or other military agency.

Step Three: Valuing the asset

In order to know the SBP plan, the practitioner must first determine the value of the underlying pension. Active- duty retirement falls under one of three systems (a) final retired pay (b) High-3 and (c) CSB Redux. Details can be found at Army Retirement Services (good for all branches), located at here.

Reserve/National Guard retirement rules are based on "retirement points". Reserve/Guard members generally go into retired pay status at 60, with 20 "good years" needed for eligibility.

Step Four: Mechanics of dividing a survivor benefit plan

There are four basic methods to divide a military pension: (a) Set dollar amount (for example, $700 a month); (b)Percentage of the pension (used when the SM had already retired) (c) Formula clause, using a percentage of a coverture fraction (used when the SM is not retired; and (d) Hypothetical amount (complicated and for active-duty). All of the methods (except the set dollar amount) use cost of living adjustments. These adjustment are usually made in January.

Reserve/Guard methods are similar but expressed in points rather then months.

Remember that only the "Disposable Retired Pay" (DRP) can be divided. DRP is gross pay less any VA disability waiver and premium for SBP. Regardless of the Order, the military will only divide the DRP.

Step Five: Be Careful!

An SBP is suspended if the former spouse remarries before age 55.

The SM/retiree must elect the SBP within one year of the divorce. The former spouse must then make a "deemed election" within one year of the order granting SBP coverage. The former spouse can use DD From 2656-10.

Courts cannot enforce orders or agreements that require the SM to use Servicemembers Group Life Insurance to secure benefits.

For the former spouse to receive direct pay from a retired pay center, there must have been 10 years of marriage concurrent with 10 years of military service (the 10/10 Rule). Without 10/10, the former spouse can still claim a pension division, but cannot get the money directly from the retired pay center.

The SBP cannot be divided between current and former spouses.

To receive TRICARE, the former spouse must meet the 20/20/20 rule: 20 years of marriage, 20 years of creditable service and 20 years of overlap between the two. Otherwise, use the Continued Health Care Benefit Program.

Finally and most importantly, disability pay can reduce a divisible pension. Disability pay includes military disability retired pay, VA disability compensation and Combat-Related Compensation. The Court cannot divide VA disability compensation and only a small portion of military disability retired pay. When the retiree has a VA disability rating of less then 50%, the election of VA payments means a dollar-for-dollar reduction of the pension. Thus, the retiree can unilaterally reduce the pension of the former spouse though electing VA payments. To combat this, Orders and Agreements often imply indemnification language to guard against the unilateral reduction of the pension. The scope of such indemnification language is bounded by state law.

Family Law practioners often avoid division of military benfits altogether, because of the aforementioned pitfalls. But sometimes it is best for the servicemember or former spouse to diviide military benefits. And it is always best to have counsel who understands the military benefit process, regardless of the final resolution.