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# 87 - MILITARY - SBP-DIC Offset No Longer Applies If Remarriage Occurs at Age 57 or Older

Monograph # 87                                                  September 2012 (v. 4.1)

MILITARY:  SBP-DIC OFFSET NO LONGER APPLIES IF REMARRIAGE OCCURS AT AGE 57 OR OLDER

© Lawrence D. Gorin, Attorney at Law, Beaverton, Oregon    

A WEDDING GIFT FROM THE DEPT. OF DEFENSE......
or a slap in the face to widows who choose not to remarry?


Background

    For qualifying and eligible surviving spouses of deceased military servicemembers and retirees, there are two principal long-term financial benefit programs offered through the federal government.

    First, the Department of Defense administers the Survivor Benefit Plan (SBP), which is a government-subsidized insurance plan that provides a deceased servicemember’s or retiree’s qualifying surviving spouse with a monthly annuity payment, commencing upon the death of the servicemember or retiree.  SBP coverage is provided at no cost to all servicemembers while on active duty.  Upon retirement, the servicemember may "elect" to continue SBP participation, with the retiree's portion of the premium cost then being paid by way of a reduced monthly retirement benefit during the retiree's lifetime.  Upon the retiree's death, a monthly annuity, the maximum amount being 55% of the amount of retired pay, is then paid to the retiree’s surviving spouse.

    Second, the Department of Veterans Affairs (the VA) administers a program, funded entirely by the government, that provides monthly Dependency and Indemnity Compensation (DIC) payments for the surviving spouse of a servicemember in the event the servicemember dies as a result of service-connected causes as well as for the surviving spouse of a retiree if the retiree’s death is due to injury or disease contracted while on active duty.

    While each program is independent of the other and each is administrated by a different agency (SBP by the Department of Defense; DIC by the Department of Veterans Affairs), there are several situations in which eligibility for benefits under one program may affect eligibility under the other.

Eligibility restrictions based on age and marital status

    Prior to January 1, 2004, eligibility of a deceased veteran’s surviving spouse to receive benefits from the Department of Veterans Affairs under the VA’s Dependency and Indemnity Compensation (DIC) program was suspended in the event of the surviving spouse’s remarriage, regardless of age at time of remarriage (but subject to reinstatementif the remarriage ended in death or divorce).

     Concerned about the “marriage penalty,” at least for “older” women, Congress changed the law through the Veterans Benefits Act of 2003, Pub L 108-183.  Under the revised law, codified as 38 USC § 103(d)(2)(B), eligibility for receipt of DIC benefits would no longer be lost in the event of the surviving spouse’s remarriage, provided, however, that the remarriage occurred at age 57 or thereafter.

    But a surviving spouse who is eligible to receive both DIC benefits and SBP annuity payments, often referred to as a “dual-eligible” surviving spouse, suffers an economic set-back in the amount of the SBP benefit if the spouse opts to receive both the DIC benefit as well the SBP payment.  Specifically, under 10 USC § 1450(c)(1), the federal law applicable to this class of surviving spouses, DOD is required to reduce (“offset”) the amount of the surviving spouse’s SBP payment on a dollar-for-dollar basis by the amount of the DIC benefit (regardless of the surviving spouse’s age or marital status).  Consequently, the dual-eligible spouse is precluded from simultaneously receiving both the DIC benefit as well as the full amount of the SBP payment that would otherwise be payable.  In essence, the DIC dollars simply replace the SBP dollars.  Of course, there is a tax advantage to receiving DIC dollars in place of SBP dollars, since the SBP dollars are taxable whereas the DIC dollars are not.  But the “offset” still results the spouse not receiving the full amount of both benefits to which the spouse would otherwise be eligible.

    For example, if a veteran’s surviving widow is eligible for receipt of a DIC benefit of $1,195 per month (the basic monthly rate as of December 1, 2011, for eligible surviving spouses of qualifying veterans who died on or after January 1, 1993) and an SBP benefit of $1,500 per month, the SBP payment would be reduced by $1,195 (the amount of the DIC benefit).  Thus, instead of receiving a total of $2,695 per month (the full amount both DIC and SBP payments), the surviving spouse would receive only $1,500 (being the $1,195 DIC benefit and a reduced SBP payment of $305).

Change in the law

    However, as a result of an August 26, 2009, decision of the US Court of Appeals, DOD has changed its policy.  Under the revised policy, the dollar-for-dollar SPB-DIC “offset” no longer applies to surviving spouses who otherwise qualify for both DIC and SBP benefits AND who remarry at age 57 or later.  Consequently, for an unremarried eligible surviving spouse whose SBP annuity previously would have been reduced due to receipt of DIC benefits, getting married at age 57 or later now results in a financial reward from DOD -- receipt of both the DIC benefit and the full unreduced SBP benefit -- but only if such spouse remarries at age 57 or older. 

    In sum, for surviving spouses in this particular group, it literally pays to get married.  Indeed, using the DIC payment rate as of December 1, 2011, the eligible surviving spouse who remarries at age 57 or older will be effectively paid $1,195 per month by DOD for doing so.

    But the financial reward accorded to dual-eligible surviving spouses who remarry at age 57 or older (and thus retain their DIC benefit and regain their full and unreduced SBP benefit) is not accorded to dual-eligible surviving spouses who choose, perhaps for moral, religious, ethical or other personal reasons, not to remarry and who thus continue to be subjected to the SBP-DIC offset.  In effect, the financial boon for the former class (surviving spouses who remarry at age 57 or older) is a financial bust of the latter class (those who choose not to remarry).  In practical terms, although the servicemember paid for both benefits (SBP with premiums and DIC with his life), the only way his widow can collect the full amount of both benefits is to remarry at age 57 or thereafter, an act that many widows view as disloyal to their original vows of marriage and to the memory of the deceased spouse.  The law that allows this to occur is arguably unfair, unreasonable, illogical and irrational, but nonetheless perfectly legal.

The “rest of the story”........

    On August 26, 2009, the US Court of Appeals for the Federal Circuit, in the case of Sharp v. United States, 580 F3d 1234 (DC Cir, 2009), held that the SBP-DIC “offset” as applied by the Department of Defense, effectively reducing SBP benefits for surviving spouses who also qualify for DIC benefits, is in fact not authorized by the controlling congressional enactments, at least not as to otherwise eligible surviving spouses who remarry at age 57 or later.

    The lead plaintiff in the case, Patricia Sharp, was the surviving spouse of Brig. Gen. Richard H. Sharp (USA), who died in 1983 while on active duty.  At the time of Gen. Sharp’s death, he and Mrs. Sharp had been married for 23 years, and she was her husband’s designated beneficiary for SBP suviving spouse annuity payments.  Mrs. Sharp thus became eligible to receive both SBP benefits and DIC benefits, with the former (SBP) being reduced (“offset”) to the extent of the latter (DIC).  Subsequently, on November 25, 2000, at the age of 60, Mrs. Sharp remarried.  As a result of her remarriage, her continued receipt of DIC benefits was suspended (but she did regain the full amount of her SBP entitlement).  This was in accord with the law in effect at the time of her remarriage in 2000 that barred surviving spouses from continued receipt of DIC benefits if and when they remarried, regardless of age at time of remarriage.

    But 38 USC § 103(d)(2)(B), the statute that mandated the “DIC marriage penalty” (suspension of DIC eligibility due to remarriage), was amended by Congress through the enactment of the Veterans Benefits Act of 2003, Pub L 108-183.  Specifically, section 101(a) of the Act amended 38 USC § 103(d)(2)(B) so as to declare that “The remarriage after age 57 of the surviving spouse of a veteran shall not bar the furnishing of [DIC] benefits * * *.” 

    Further --- and this is the important part --- while section 101(a) of the Veteran Benefits Act of 2003 removed remarriage as a DIC eligibility disqualification factor, at least if the remarriage occurs at age 57 or later, section 101(b) of the Act created a new provision declaring, in essence, that “In the case of an individual who is eligible for dependency and indemnity compensation under this section * * * [and] who is also eligible for benefits under another provision of law by reason of such individual’s status as the surviving spouse of a veteran, then, notwithstanding any other provision of law * * *, no reduction in benefits under such other provision of law shall be made by reason of such individual’s eligibility for [DIC] benefits.”  (Emphasis supplied.)

    Lastly, section 101(e) of the act included a “grandmother provision” that restored DIC eligibility to those qualifying surviving spouses (such as Mrs. Sharp) who had remarried at age 57 or older prior to December 16, 2003 (the enactment date the new law) and had thereby had their DIC eligibility suspended.

    Thus, under the revised law, Mrs. Sharp was entitled to restoration of her eligibility for receipt of DIC benefits from the VA, which is what then occurred.  But when that happened, DOD then applied the “SBP-DIC offset” and reduced Mrs. Sharp's SBP benefit by the amount of her restored DIC benefit.  DOD’s action was taken pursuant to 10 USC § 1450(c)(1), the provision of the SBP law that mandated the dollar-for-dollar reduction of SBP payments for a surviving spouse who is also eligible for DIC benefits.   It was DOD’s position that 10 USC § 1450(c)(1) was applicable and controlling in Mrs. Sharp’s circumstances.

    Not being happy with DOD’s reduction of her SBP annuity amount, Mrs. Sharp (along with two other similarly situated widows) then sued the government in 2007.  According to Mrs. Sharp, the Veterans Benefits Act of 2003, at section 101(a), not only removed remarriage as a DIC eligibility disqualification factor, at least if the remarriage occurs at age 57 or later, but also provided, in section 101(b), that “notwithstanding any other provision of law * * *, no reduction in benefits under such other provision of law shall be made by reason of such individual’s eligibility for [DIC] benefits.

    Mrs. Sharp correctly pointed out that 10 USC § 1450(c)(1), the provision of law that mandates the dollar-for-dollar offset of the SBP annuity payments for surviving spouses who also qualify for DIC payments, is a “provision of law” that, if applied to surviving spouses in her situation (being eligible for DIC benefits even though remarried at age 57 or older), would result in a reduction of her SBP annuity.   Mrs. Sharp argued that the plain language used in section 101(b) of the Veterans Benefits Act of 2003  (“notwithstanding any other provision of law * * *, no reduction in benefits under such other provision of law shall be made by reason of such individual’s eligibility for [DIC] benefits”) means exactly what it says and effectively bars DOD from reducing her SBP annuity as otherwise required by 10 USC § 1450(c)(1).

    Consequently, said Mrs. Sharp, dual-eligible widows who remarry after age 57 are entitled to receive BOTH Survivor Benefit Plan (SBP) annuity payments from DOD and Dependency and Indemnity Compensation (DIC) benefits from the VA, in full and without any offset between the two. 

    In response, DOD argued that Congress never intended the law to have the result as advocated by Mrs. Sharp.  DOD urged the Court of Appeals to construe the law and determine the intent of Congress by considering the legislative history leading up to the enactment of the  Veterans Benefits Act of 2003.  The court rejected DOD’s “unconvincing argument,” noting that the text of 38 USC § 1311(e) is clear and unambiguous.  Said the Court of Appeals:

   “To determine Congress' intent, we use the traditional tools of statutory construction, beginning with the text of the statute.  Where the intent is unambiguously expressed by the plain meaning of the statutory text, we give effect to that clear language without rendering any portion of it meaningless.  Here, Congress' intention to supersede all other laws (except a provision not at issue in this case), and prevent a decrease in some other benefit payment as a result of section 1311(e)'s restoration of DIC payments to surviving spouses who remarry after age 57, is plain on the face of the statute.

    Net result:  DOD was ordered by the court to commence acting in conformance with the law as enacted by Congress (which DOD had erroneously not been doing), thereby restoring to Mrs. Sharp the SBP reduction that it had been applying in her case.  Mrs. Sharp, having remarried after attaining age 57, was thus allowed to retain her full DIC benefit (notwithstanding her remarriage) and also receive her full and unreduced SBP benefit (notwithstanding her receipt of the DIC benefit).

See entire court decision at:
http://scholar.google.com/scholar_case?case=6337069160091118726
http://www.cafc.uscourts.gov/opinions/08-5105.pdf

    Follow-up note.  Following the court’s decision in Sharp v. US, DOD decided not to further appeal the decision.  Thus, the SBP-DIC offset that applies to surviving spouses who are eligible for both SBP and DIC benefits will NOT apply to those surviving spouses who remarry at age 57 or thereafter.  For that particular group, they will get their full unreduced SBP benefit AND the full DIC benefit.  However, surviving spouses who are eligible for both SBP and DIC benefits but who remain unmarried will continue to have their SBP benefit reduced on a dollar-for-dollar basis by the amount of the DIC benefit.

See DOD Memorandum for DFAS Director at:
http://www.naus.org/news/documents/DoDMemo10-22-09-SBP-DICOffset.pdf

See DFAS webpage explaining the change in the law:
http://www.dfas.mil/rapay/annuitantstoreceivefullsbpanddicbenefits.html

But -- surprise, surprise -- DOD demands repayment

   The situation for some "dual-eligible widows" who remarry at age 57 or older (and who thus become entitled to receive both DIC benefits together with full unreduced SBP payments) is not as rosy as may appear at first blush.  This is particularly true when the surviving spouse's DIC eligibility stems from the servicemember's death due to service-connected causes following retirement rather than death occurring while on active duty.

    For married servicemembers on active duty, DOD automatically provides SBP life insurance for the benefit of the servicemember's spouse at no cost to the servicemember. Upon retirement after 20 or more years of active duty, the servicemember may elect to continue the SBP coverage.  To do so, however, DOD requires that the servicemember commence paying for the cost of the insurance coverage, doing so by way of a reduction of the monthly amount of retired pay to which the servicemember would otherwise be entitled to receive. 

    Thus, during the years of retirement, the amount of the veteran's monthly retired pay is reduced by the cost of the SBP coverage (the premiums).  In the event of the retiree's death due to service-connected disability, the surviving spouse will generally become eligible for the DIC benefit as provided by the Veterans Administration, and this would be in addition to the SBP payment from DOD.  However, when that occurs, DOD will apply the "SBP-DIC offset," thereby reducing the SBP payment on a dollar-for-dollar basis against the DIC benefit.  If the amount of the DIC benefit equals or exceeds the amount of the SBP entitlement, it will result in the total elimination of the SBP entitlement.  And when that occurs, DOD refunds to the surviving spouse all of the SBP premium payments that the deceased veteran had previously paid during the veteran's retirement years. 

    However, under present law, if the surviving spouse who is otherwise eligible for DIC then remarries on or after attaining age 57, the spouse's entitlement to the full SBP annuity will be reinstated without regard of the SBP-DIC "offset" that would otherwise apply.  But in order to qualify for the reinstatement of the full SBP annuity following remarriage at age 57 or older, the remarried spouse must repay any SBP premiums that had been previously refunded following commencement of receipt of DIC payments, which often amounts to thousands of dollars.  The remarried spouse may repay the premiums in a lump sum or in monthly installments.  If the remarried spouse elects to make repayment in installments, DFAS will deduct installment payments from the amount of the reinstated SBP annuity.  The deductions will be in the amount of 50% of the DIC amount or 50% of the gross SBP annuity, whichever is less.  No interest will accrue until the date of the first readjusted annuity payment.  Thereafter, interest accumulates on any unpaid balance until the full amount has been repaid.  If the surviving spouse's marriage later terminates by death or divorce, the SBP-DIC offset will again be applied and the SBP annuity will again be reduced by the amount of the DIC, but no refund of SBP premiums will be paid.

More info available at the Air Force Retiree Services website at:
http://www.retirees.af.mil/factsheets/factsheet.asp?id=11696

     The case of Freda Green of Brooksville, Florida, is illustrative of the dilemma.  Upon her Air Force husband's retirement after 33 years of active duty, he elected to provide SBP life insurance coverage for Freda.  DOD, through the Defense Finance & Accounting Service (DFAS), then commenced deducting the SBP costs (the "premiums" for the insurance coverage) from her husband's monthly military retired pay.  Freda's husband subsequently died in 2003 due to service-connected disabilities, resulting in Freda becoming eligible for the DIC benefit as provided by the Veterans Administration.  However, the amount of the DIC benefit exceeded the amount of the SBP life insurance benefit to which she was also entitled to receive from DOD.  Application of the SBP-DIC offset thus resulted in the total elimination of the SBP benefit to which she would have otherwise been entitled.  Since she would not be receiving the SBP benefit (due to the SBP-DIC offset), DFAS then refunded to Freda all of the SBP premiums that her deceased husband had paid throughout his retirement years.  DFAS sent Freda a check for $41,000.

    In 2010, at age 73, Freda remarried, resulting in restoration of her SBP entitlement.  And for the following six months, she received both the DIC benefit and the full SBP benefit, without any offset.  But then, in January 2011, DFAS sent her a letter demanding that she REPAY the $41,000 that had been refunded to her back in 2003 (following her first husband's death).  DFAS gave Freda 45 days in which to repay the $41,000 (which had long ago been spent).  And if she did not repay the $41,000, DFAS would start deducting money from her SBP benefit, which is what DFAS did, deducting $577 per month from her SBP check.  According to DFAS, existing federal law requires that this be done, at least until and unless Congress takes action to change the law.

See News story re Freda Green in Tampa Bay Times.
After widowed military wife remarries, government asks for $41,000 benefit back
http://www.tampabay.com/news/military/article1143324.ece

Also see CNN video news story about Freda.  (News story follows the commercial)
http://us.cnn.com/2011/US/01/15/florida.military.widow/index.html?hpt1

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LAWRENCE D. GORIN
Attorney at Law
6700 S.W. 105th Ave., Suite 320
Beaverton, Oregon  97008
Phone:  503-716-8756
E-mail:  LDGorin@pcez.com
http://ldgorin.justia.net/index.com