The Reserve Component Survivor Benefit Plan
This earlier post describes the SBP and its options, as well as the pros and cons of buying it for your survivors. If you landed here from a search engine or some other link then I’d recommend reading the previous two posts before proceeding with this one.
Some of the references and links in this post include articles from the Association of the United States Navy (AUSN), a support group for sailors and officers formerly known as the Navy Reserve Association. Although AUSN is a Navy organization, the SBP is covered by Congressional legislation implemented by the Department of Defense for all services, both active & Reserve/Guard components. The AUSN links to their February-April 2009 magazine may only be accessible if you’re a member. (AUSN is a great group, and I’d highly recommend joining just for their career advice and their benefits updates.) Please let me know if you have public links from the DoD or another service and I’ll add them here.
The SBP was enacted by Congress in 1972, and the Reserve Component SBP was added in 1978. The RCSBP sells insurance to Reserve/Guard who have applied for retirement but who are not yet age 60 (“gray area”). Once they reach age 60, their RCSBP is the same program as the SBP but with slightly different premiums to cover a portion of the cost of the years before age 60. Congress pays about 40% of the program and the rest is covered by the retiree’s premiums paid to the SBP and the RCSBP.
Although only about 75% of active duty retirees buy the SBP, over 90% of retiring Reserve/Guard enroll in the RCSBP. The difference appears to be the inexpensive insurance coverage during the “gray area” years before age 60, and the fact that premiums aren’t due until age 60.
RCSBP is another incentive offered by the Department of Defense to encourage Reserve/Guard to retire awaiting pay instead of resigning pending retirement. When Reserve/Guard reach 20 years of qualifying service they can either apply for retirement (awaiting pension at age 60) or resign from the Reserve/Guard until their pension starts (at age 60). For the DoD, the difference is that “retired awaiting pay” means the member can be recalled in the event of a full mobilization of the armed forces. (Even though recalling a retiree is highly unlikely.) There are a number of financial reasons to retire instead of resigning, and an additional reason is that Reserve/Guard who have “retired awaiting pay” can buy SBP coverage for their beneficiaries.
Another reason to buy RCSBP coverage is because it starts as soon as the Reserve/Guard member retires instead of at age 60. It’s possible to reach 20 years of qualifying service in your late 30s and wait over two decades before drawing the pension at age 60. If SBP is elected at the time of applying for retirement, then the Reserve/Guard member has SBP coverage for that entire time before age 60. (By law, upon retirement the member is automatically signed up for full coverage. The decision to reduce or decline coverage is actually made by the spouse.) If the retiree dies prematurely then one of their survivor’s options would be to receive up to 55% of their pension immediately instead of waiting until they would have been age 60. The Reserve/Guard member doesn’t actually have to pay the SBP premiums for that coverage until their pension starts. In other words, Reserve/Guard who have “retired awaiting pay” can have over two decades of “free” insurance coverage before they even start drawing their pension. Better still, at age 62 (after paying two years of SBP premiums) they can either continue their SBP coverage or cancel it.
- A: Decline coverage until age 60 and revisit the decision then.
- B: Deferred Coverage – If you die before age 60, a RCSBP annuity begins paying out on what would have been your 60th birthday.
- C: Immediate Coverage – The RCSBP annuity would begin on the day after your death, even before age 60. This is the default option.
The RCSBP’s enhanced “free” gray-area coverage comes at a price: the premiums are calculated at a slightly higher rate than the conventional SBP’s 6.5%. The premiums are determined from data tables and fact sheets provided when the Reserve/Guard member receives their notice of eligibility for retirement (20 good years). Members can also estimate their payments from a RCSBP calculator.
Spouses can elect the full amount of coverage (55% of the Reserve/Guard pension) or smaller amounts. As discussed in the last post, the decision should be based on the survivor’s projected spending or to insure the ability to pay off a large expense such as a mortgage.
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