Annuitants to See SBP Increases

Approximately 175,000 recipients of Survivor Benefit Plan (SBP) annuities will see an increase in their monthly payments deposited on May 1, 2006. 

The SBP is an optional plan that retirees may choose to participate in to provide continued income for their survivors. 

Most recipients of SBP annuities will see a permanent 5 percent increase in their monthly annuity amounts. Annuitants who currently receive 45 percent of the base amount will not see an increase in their May 1, 2006 payment.

The increases result from a new law effective October 1, 2005, which gradually eliminates an offset, or reduction, in the amount of annuity payable because the annuity recipient is also eligible for Social Security.  This law is commonly referred to as the “Elimination of Social Security Offset (SSO)”.  The phase-out of SSO means thousands of survivors will get more money from their Survivor Benefit Plan (SBP) annuities. 

Over the next three years, the elimination of the SSO will incrementally increase SBP annuities.  Beginning April 1, 2006 SBP annuities will be at least 45% of the base amount authorized by the retiree.  Ultimately, SBP annuities will equal 55% of the base amount when this law is fully implemented in 2008.  DFAS will continue to eliminate SSO over the next two years by increasing the percentage of the base amount payable as follows.

·         In April 2007, the minimum annuity percentage will increase to 50 percent.

·         In April 2008, the minimum annuity percentage will increase to 55 percent.

These increases effective on April 1 each year will be payable for the period from April 1 to April 30 in the payment made on May 1 and monthly, thereafter.  The law will be fully implemented in 2008 when all annuities are paid at an amount not less than 55% of the amount designated by the retiree.

We have received a large number of telephone calls from annuitants whose SSO has been eliminated while their gross pay is recomputed at a lower rate.  The end result is a greater net pay, however, the gross pay amount will be less.  The following paragraphs will explain how these annuitants’ pay has changed based on the new law.

The basic computation aspects for the annuity payment, once age 62 is attained, are that the survivor will receive the greater of 1) 55% of the base amount less social security offset (SSO); or, 2) 35% of the base amount.  The recent legislative change phases in the minimum payment to 40% in October 2005; 45% in April 2006; 50% in April 2007; and, restores to full 55% in April 2008.

For those annuitants whose gross pay is now less than it was prior to the change, you were receiving the 55% less the Social Security Offset.  This resulted in a greater net pay for you.  The comparison that has been done in April compares that net annuity amount to the 45% base amount computation.   The 45% of the base amount computation is now greater than the 55% less SSO computation, so the accounts are now reverted to the straight 45%.  Next year the accounts will go to a straight 50% of the base amount.

One aspect to this which may be confusing is that last October, you may not have received an increase under this legislation.  The reason is because the 55% less SSO was greater than what you would have received with an upgrade from 35% to 40%.  There are two computation formulas; one at 55% less a SSO the second using a flat percentage.  Some annuitants are now more beneficial using the flat percentage.  The SSO is now dropped from showing up on their accounts and on their annuity account statements.