What is a gray area retiree and what benefits does it provide for you?
What is a gray area retiree and what benefits does it provide for you?
When I restarted this website and YouTube channel last year, I said I would avoid giving political opinions. I hope to still keep that vow while still informing you of an interesting event from earlier today.
During the Senate budget debate this morning, a senator brought up some interesting facts unique to reservists. That senator was Mrs. Joni Ernst, a retired National Guard officer. I found a transcript of her speech on C-Span.com. I will paste part of her comments below. There were no paragraph breaks so I added breaks where they seemed most appropriate.
Mr. President, I rise today to urge Senate Democratic leadership to end their reckless government shutdown. It’s no secret that over the years I’ve made clear that I don’t like funding our government from one short-sided Band-Aid bill to another. We must establish a path forward to responsibly fund our government for the long term. It’s responsible and right thing to do for our military, for future generations, for our veterans, and for the American people. But rather than finding a long-term funding solution to ensure stability in our military, the Senate Democratic leadership has decided to shut down the government.
So what does that mean for our military? Well, for starters, critical defense projects have come to a halt. We can also see delays in maintenance of our critical aircraft, ships, our weapon systems at a time when our adversaries are becoming more aggressive and more advanced. And our service members who put their lives on the line every day for our country don’t know when they will receive a paycheck.
I have an advisor right now that is deployed to the Middle East. I received an e-mail from him this morning and he said it’s really hard for all of us here knowing that our government is shut down, but he said every day it’s the same for us here in Afghanistan. We will do what we need to do. God bless him for that. Iowa National Guardsmen are deployed overseas right now. One of my former units, the 248 aviation support battalion is spread out through the Middle East doing their mission while we struggle to find a way forward for them here in Washington, D. C.
Military schools have been canceled. I spoke to an active duty army officer this morning. She was scheduled for her pre-command course this weekend and her orders were canceled. She told me, I will not be able to go to that pre-command course before I deploy. She will head overseas not having had a vital course to instruct her on leadership in the military. The likelihood of her picking up that course again in the future, near zero — near zero.
Additionally, having served as a battalion commander in the Iowa National Guard during our last government shutdown, I can tell that you these shutdowns have a significant impact on our National Guardsmen. A shutdown prohibits our citizen soldiers from participating in drill and training exercises essential to our military readiness.
Our public affairs officer sent out this notice this morning from the Iowa National Guard. The headline, Iowa National Guard feels effect of federal government shutdown. Nearly 900 technicians furloughed. That’s in Iowa alone. Approximately 400 personnel sent home from weekend training. That’s just Iowa. 110,000 National Guardsmen were affected over this last weekend because of the shutdown. Now, should these men and women be called to defend our nation in the face of danger, it is critical that they are properly prepared and a government shutdown does not allow this.
During the time that the government shutdown goes on, we’re not able to maintain our equipment. That hurts our readiness. Our personnel can’t do their wellness and medical checks. That hurts our read aniness — readiness. Our military can’t get to their schools for advancement in their careers, that hurts our readiness. Once those orders to school has been canceled, you can’t just pick up on Tuesday, Wednesday, or Thursday and say, okay, I’m going to school now, there are only so many slots allocated. If you miss that training period, you may be waiting months, perhaps even years to pick up those schools in the National Guard.
During the shutdown our folks are furloughed. Depending on how long the government is shutdown, our citizen soldiers might not receive enough training days to be adequately prepared for duty. This could also mean that their time serving throughout the year might not be included in their total years of service, potentially further jeopardizing their benefits and pay. What a lot of folks here that haven’t served in the military or guard or active duty, what they don’t understand, in the reserve and guard you have to meet so many points in a year for that to be considered a good retirement year. If you fall a few days short of that, the entire year does not count towards your retirement. The entire year does not count towards your retirement.
It is very rare these days to have any politician who has military experience. Even rarer is seeing a representative or senator who is knowledgeable about not just military affairs but details about reserve service, as well. How often do you see someone stand up and mention specifics about reserve life, such as the difficulty of getting school slots or the basics of a retirement year? Whatever you may think of the political parties, if you are a reservist then it is refreshing to see at least one elected official who has an understanding of your perspective.
If you would like to read the full transcript of Senator Ernst’s speech, you can find it at https://www.c-span.org/video/?440061-2/senate-votes-81-18-end-shutdown-leaders-reach-deal-daca-debate&vod&start=125. There is also a YouTube video of her speech which can be viewed at https://youtu.be/tQKrK0kDZ2A.
When does twenty-one years of active duty and reserve service – with more than fifty points for each year, by the way – not equal eligibility for reserve retirement? If you completed your twentieth qualifying year prior to 25 April 2005, you might have learned the answer to this question.
Intrigued, yet? Let me tell you about a man who learned this answer…to his great misfortune.
Staff Sergeant (SSG) Billy Angus was drafted into the Regular Army in March of 1968. He extended his enlistment after three years and served for three more. After a two-year break in service, he joined the National Guard. He served in the Guard for four years before deciding in 1981 to enlist in the Regular Army again. At this point, he had ten years of qualifying service for reserve retirement.
In 1992, after an additional eleven years of active duty service, SSG Angus allowed his enlistment to expire. I do not know why he did not complete three more years of active duty service and qualify for a regular retirement. He might have also been part of the downsizing in that year, but that is pure supposition on my part. He believed he still would be eligible for reserve retirement at age sixty.
Much to SSG Angus’s surprise, when he applied for retired pay in 2008, he was informed that he was not eligible. How could this be? He had over twenty qualifying years, right? Was the Army wrong?
The sad answer here is no, the Army was not wrong. There was a law in place at the time which stated that in order to be eligible for reserve retirement the service member’s last eight years of service before achieving retirement eligibility must be in a reserve component. Proving you’re eligible for reserve retirement requires having a notice of eligibility (AKA twenty-year letter). This letter will not be issued until this legal requirement has been met.
Just to make this easier to understand, I’ll show his periods of service below.
Regular Army: 6 Years
National Guard: 4 Years
Regular Army: 11 Years
Total Qualifying Service: 21 Years
Like I said, the law at the time said his last eight years of service had to be in a reserve component. His last eight years were in the Regular Army. As a result, and despite his twenty-one years of service, SSG Angus was not eligible for any retirement benefits at all.
This little known legal requirement is simply called the eight-year rule by retirement services officers. On 5 October 1994, the eight-year rule was replaced with its little brother, the six-year rule. The requirement and effects are exactly the same except the service member only had to complete the last six years of service in a reserve component.
Here is an example of how these rules would work. First, let’s look at the eight-year rule again. Let’s assume SSG Angus served fourteen years in the Regular Army and then another six years in the National Guard. He completes his twentieth year of qualifying service in 1992.
14 Years (Regular Army)
6 Years (National Guard)
20 Years Total Service as of 1992
2 Years Still Required
In this example, SSG Angus would not receive a twenty-year letter because he has yet satisfied the eight-year rule. He would need to serve two more years before he can be issued a notice of eligibility for retired pay.
Now let’s look at the exact same numbers but assume it is now 1995.
14 Years (Regular Army)
6 Years (National Guard)
20 Years Total Service as of 1995
Now the twentieth qualifying has been completed while the six-year rule was in effect. In this case, the service member would have been eligible for a twenty-year letter.
There is some good news for service members nowadays. On 25 April 2005, the requirement for a certain number of years in a reserve component prior to receiving a twenty-year letter was lifted. Everyone completing twenty qualifying years on or after this date will be issued a notice of eligibility regardless of how many reserve years they have.
This change was not retroactive. The date on which a service member completes the twentieth qualifying year determines which rule to use. Here they are as a simple list.
Before 5 October 1994: 8-Year Rule
Before 25 April 2005: 6-Year Rule
On or After 25 April 2005: No minimum reserve requirement
There are still members who are currently serving who fall under these rules. Chances are they have already qualified for a twenty-year letter by now but it is still best to be aware of these laws. This next comment is for you retirement services officers out there. Learn about these rules if you do not already know about them. They are critical when counseling your people. I will include links to the law and to useful presentations you can use while teaching them about these rules.
I would like to close by thanking all of you who have subscribed to this channel and to the podcast. For you YouTubers out there, don’t forget you can subscribe to this channel by clicking on the RC Retirement icon on the bottom right of the screen. This won’t work if you’re viewing this episode on a mobile device, though, only on a computer.
Please share this episode with people who you think can benefit from this information. It is always best to be properly informed so one can make the right decisions.
Thanks for joining me today and, of course, thank you for your service.
10 U S Code § 12731 – Age and service requirements
10 U.S. Code § 12732 – Entitlement to Retired Pay – Computation of Years of Service
6 and 8 Year Rules Presentation (PDF)
6 and 8 Year Rules Presentation (PPT)
SSG Angus’s Retirement Points Statement
Let me tell you about Staff Sergeant Jason Walker who can teach us all a lesson. We can learn a great deal from his example.
Staff Sergeant Walker reached twenty years of qualifying service in the National Guard in 1998. He was thirty-eight at the time. He received a twenty-year letter a few months later. Since he was single at the time, he chose to do nothing and let his Reserve Component Survivor Benefit Plan default to the “by law” election after ninety days. In 1998, the default election was to defer a decision until age sixty (better known as Option A) when he would apply for his retired pay.
In 2009, SSG Walker, now a gray-area retiree, married forty-two-year-old Amy Strothers. He registered his marriage certificate in the DEERS database and got his new bride a military ID card. He also told her that she automatically would receive part of his pension if he passed away.
In 2016, while working on his roof, he fell off a ladder and fractured his spine. He died in the hospital a few days later. He was fifty-six years old.
Several months later, after the whirlwind inherent with the death of a loved one had passed, Mrs. Walker contacted me at my office. After doing some research and asking some questions, I had to inform Mrs. Walker that there would be no survivor annuity for her. Her only consolation would be Tricare coverage in 2020.
Do you see what happened here? SSG Walker never updated his RCSBP election when he got married and he died before becoming eligible for retired pay. The law prior to 2001 stated that reservists who did not make an election for RCSBP upon receiving a twenty-year letter would default to Option A. This means no one gets anything if he dies. He had one year from the date of his marriage to change his election to cover his wife. This never occurred.
This is easily one of the sadder situations a retirement services officer can encounter. We are a group that likes to say yes and do what we can to enable people rather than telling them there are limited options due to poor decisions or lack of action on someone’s part. I was unable in this case to find anything else that could be done for Mrs. Walker. The thought of Tricare in four years was of little comfort to me and I am sure even less for her.
Now we get to the moral of the story. Rather than causing future harm on our loved ones, it is best if we make or update survivor benefit elections in a timely manner. Believe it or not, it is a lot simpler than it looks. As with so many things, especially paperwork, it is much scarier on its surface than it actually is. There was one time I had to talk a person through doing this over the phone. He was another full-timer and I was so out of it with sickness I barely remember the conversation. However, at the end, he still said, “That’s it?” and I responded that indeed that was all.
You can update a survivor benefit election using a DD Form 2656-6. I will put a link to it in the references below. Using SSG Walker as a reference, here is a list of the questions he would have had to answer in order to add his wife to the plan. Read it once (and get scared by it) and then think about how little effort it would actually take.
- Date of Retirement
- Date of Birth
- Mailing Address
- Telephone Number
- Current Coverage
- Reason For the Change
- Requested Change
- Level of Coverage
- Spouse’s Name
- Spouse’s SSN
- Spouse’s Date of Birth
- Date of Marriage
- Date Signed
- Name of Witness
- Witness’s Signature
- Date of Witness’s Signature
- Address of Witness
- Date of Expiration of Notary’s Commission (if applicable)
So we have a total of twenty-one questions here and the last one is only needed if the witness is not a certified survivor benefits counselor. All that would be needed in addition to this information is the marriage certificate.
I am not one to usually say anything positive about paperwork, however this would be an exception. If you take a look at this form, it is quite versatile in its design. You can make an SBP change due to divorce, death of a beneficiary, the birth of a child, marriage, or remarriage to an earlier spouse. All you need to do is check the appropriate block and attach a supporting document.
That is all there is this week. It’s a fairly simple topic and I hope this information has proven useful to you. If you know of anyone else who can benefit from this article, pleases share it with them. I also welcome any questions or comments you may have. Please post them in the comments section below.
Once again, thank you for being a part of the audience today and thank you for your service.
DD Form 2656-6
Related YouTube Episodes:
SBP Episode Playlist
The funny thing about holidays, especially if they fall on a Monday, is they tend to cause you to lose track of what day it is. I am writing this on Wednesday night rather than my usual Monday night routine. I completely forgot what day it was.
I will also confess I got distracted by a few comments from the YouTube channel. I had some very interesting questions which caused me to do a lot of additional research into answers. For all that, I do apologize. The good news, particularly for those who consume the podcast or my written articles, is there will be no noticeable delay. However, since I use these articles as talking points for the YouTube episodes, I’ll be posting that new chapter very late in the evening.
Now, let’s get on with today’s topic. This is actually what I had planned to cover back on the day when I decided to do the medical retirement series. See how the best laid plans can be changed by life? 😊
Today, I will cover the types of people who can be beneficiaries under the survivor benefit plan. This will be a fairly straightforward and short article…I think. We’ll see as I write.
When Elections Are Made
Both when you receive a twenty-year letter (the Reserve Component Survivor Benefit Plan) and when you apply for retired pay (the Survivor Benefit Plan), you make some sort of survivor benefit election. Even making no choice at all, under current law, is making a choice.
So who is covered or can be covered by this plan? Who will receive a lifelong annuity based on your retirement income (even if you don’t live to receive it yourself) if you die?
Both versions of the SBP were designed primarily as a form of income protection for the spouses of service members. Naturally, this makes them the most common choice as a beneficiary. The spouse even has the option to object if you choose to decline SBP coverage. If anything less than full coverage is selected, the spouse has to agree and have the election form notarized.
For the Reserve Component SBP, the cost for coverage is based on the difference between your age and your spouse’s age. There is a complex table of values used to determine this cost and I won’t cover that here. The cost usually is no higher than three and a half percent of retirement. For the other SBP (the one that covers you when you start receiving your retired pay; let’s call it the Active Duty SBP), has a maximum cost of 6.5% of retired pay.
Spouse and Children
You can also choose to select your children – in addition to your spouse – beneficiaries for SBP (in case both you and your wife die). This is very cheap coverage since the children will “age out” over time. They are eligible to receive the annuity (divided equally among them) until they turn eighteen or, if they’re full-time students, until they turn twenty-two. As a child ages out, the annuity is recomputed to pay an equal amount to those who are still eligible.
If you have selected this option, the difference in cost over what it would have cost to cover only your spouse is pennies. I recall one time when a retiree asked me to compute the difference between the two premiums (covering his wife only or his spouse and children) and the difference was seven cents more to cover his children also.
Former Spouse (or Former Spouse and Children)
Sometimes a divorce decree will order a member to provide survivor benefits for an ex-spouse. At other times, the service member voluntarily chooses to do this. If either of these happens, there is a little bit of additional paperwork to make this happen, but it is quite simple. The costs for this are the same as Spouse or Spouse and Children.
As I said earlier, children can age out of eligibility for the SBP annuity, but you can choose to cover them instead of a spouse or choose them if they’re your only dependents. The cost is slightly higher for this option but it is typically only a few dollars per month. I believe ten dollars is the highest I’ve ever seen.
One thing to keep in mind is whether the child (or children) is (are) disabled to the point they are incapable of providing their own support. If this is the case, the age limits I mentioned earlier do not apply. There are some additional documentation requirements, as I’m sure you expected, like physicians’ statements and sometimes even court orders, but they’re not too difficult.
The only real burden is this. SBP will not pay an annuity to a minor or to someone who is incapable of making sound decisions on their own. For this reason, it’s a good idea to either appoint a guardian (with the proper documents, of course) or to establish a special needs trust. I will post a link to an FAQ from findlaw.com which describes this kind of trust (this is not an endorsement of the site, just some good information. Do your own research to find what meets your particular need).
The other thing to keep in mind if you’re choosing to cover a special needs child is the impact the income from the SBP annuity might have on any sort of state or federal assistance they may be receiving (another good question for a lawyer). Many forms of welfare are income-dependent and SBP is considered a type of income. Again, do the research and choose what is best for you and your child(ren).
Natural Interest Person (NIP) AKA Insurable Interest
A natural interest person (or, as I’ll call it, an insurable interest) is typically any other person who is either closely related to you (like a cousin, parent, or sibling) or who has a vested interest in your continued survival (like a business partner). These people can be listed as SBP beneficiaries, as well.
There are two downsides to this sort of election. First, the premiums are significantly higher. The costs are a minimum of ten percent of your retirement up to a maximum of forty percent (depending on the difference between your age and the age of the person). The other factor is the annuity is lower. Instead of a flat fifty-five percent of your retirement being paid as the annuity, this sort of beneficiary receives an annuity based on the following formula.
(Retired pay – SBP premium) X 55% = Monthly Annuity
In other words, the cost of the premium is subtracted from your retirement and then the annuity is fifty-five percent of what is left. It can actually work out that the annuity is less than the total premium you are paying. Keep this in mind before making this type of election.
The good news, though, is you can choose to cancel an insurable interest election at any time. This is quite different from any other beneficiary election because those are usually locked in unless you have a qualifying life event (like a divorce or the death of a beneficiary).
If you have no eligible dependents and do not wish to make an insurable interest election (based on what I just described), you can opt not to participate in the Survivor Benefit Plan. If you have a change in your status, you can make an update to your decision within one year of the change.
Lastly and similar to the no beneficiary option, you can choose not to have SBP coverage at all. If you’re married, as I said before, your spouse has to agree with this decision and the election form has to be notarized (you don’t need a notary if you choose full coverage for your spouse).
Well, that is it for SBP beneficiaries. This didn’t turn out to be too horribly long after all. Thank you for joining me.
Next week, I plan to cover changing SBP elections. I believe this is a critical action on the part of the service member for a variety of reasons. I’ll talk about why that is next week.
As always, I ask that you spread this information to people whom you think could benefit from it. Let’s continue building this audience. Thanks for joining me today and, of course, thank you for your service.
Related YouTube Episodes: