members may perceive that, for their individual estate needs, the survivor benefit plan does not meet their personal criteria in terms of costs or resulting annuities. Senator THURMOND. What is the single most frequent reason given why retirees are not participating in the SBP? Colonel HIRSH. We do not have a single source from which to derive that type of information. However, from the correspondence we receive, there is strong indication that the social security offset is perceived as an undesirable feature of the SBP. SOCIAL SECURITY OFFSET Senator THURMOND. If the social security offset is the problem, why hasn't the Department of Defense taken a position on this issue? Colonel HIRSH. The impact of the social security offset on the SBP has been growing as changes in social security and SBP have occurred. The Department fully expected the President's Commission on Military Compensation to address the question directly. They did not however and the Department is now reviewing the issue in connection with the comprehensive proposal on military compensation being prepared at this time. CORRECT DEFICIENCIES IN THE SBP Senator THURMOND. Since the President's Commission failed to make recommendations to correct deficiencies in the SBP, what recommendations will the Department of Defense consider? Colonel HIRSH. The Department supports a cost-of-living increase for RSFPP and a revision in the method of computing the reduction of military retired pay for SBP participation similar to that used under the civilian survivor plan. Additionally, we support a reinstatement of SBP payments to widows whose Dependency and Indemnity Compensation is terminated on remarriage after age 60. We also support an elimination of the social security offset when there is only one dependent child. With regard to an increase for minimum income widows under section 4 of Public Law 92-425, as amended, we believe that feature is reasonable. As an open enrollment period, we have consistently deferred to the Congress as we have on the remarriage of à survivor at or after age 60 receiving an annuity under RSFPP. Recommendations with respect to other apparent deficiencies are, as I have indicated, under development and will be forwarded to the Congress as a part of the comprehensive military compensation proposal. Senator THURMOND. What percentage of participants initially enroll in the program at the minimum base level of $500? Colonel HIRSH. No tabulation of participants has been developed by level participation. Data could be developed in several weeks by tasking the service finance centers to make special runs. Senator THURMOND. How does the social security offset affect the majority of these minimum level participants? Colonel HIRSH. Members participating at the $300 minimum level would receive no benefits from SBP after the widow reached age 62 with a 100 percent offset since the minimum social security payment is larger than the SBP annuity. With a 50 percent offset the benefits from SBP after age 62 would be minimal. SURVIVOR BENEFIT PLAN Senator THURMOND. Do you consider the SBP program to be a good investment at only the minimum base level participation? Colonel HIRSH. Participation by any member at any base amount level is, of course, merely an option which must be explored in the context of other available estate plans. In many cases, the social security benefit will exceed the SBP annuity and, in these cases. SBP would not be a good investment. This is more frequently true for those whose military service was from 1957, the year members became participants in the social security system. Senator THURMOND. If H.R. 3702 were favorably considered by this committee. what increased percentage of participation does the Department of DefenseTM expect? Colonel HIRSH. Under that condition, we would expect an increase in the participation rate. To what level, however, would have to be based a subjective determination. If you draw a parallel between military and civilian participation rates, we see that the civilian plan has increased from about 85 percent in 1972 to 93 percent for today. Given the features of H.R. 3702 it would not be un reasonable to assume that participation in the military SBP would expect to increase to the 70- to 75-percent level. Senator THURMOND. If participation increased to 75 percent what would be the net expected government revenue/outlay change from the current program over the next 20 years or until the year 2000? Colonel HIRSH. The net expected cumulative outlay change by the year 2000 resulting from a participation rate of 75 percent is as follows: [Dollars in millions] Change Assumption: Change from 50 percent participation and 100 percent offset to 75 percent participation and 100 percent offset---. +$302 Change from 50 percent participation and 100 percent offset to 75 +$1,950 +$339 Senator THURMOND. Does the Department of Defense consider the SBP to be a viable program which enables enlisted retirees to provide survivor benefits? Colonel HIRSH. Yes. The Survivor Benefit Plan for the uniformed services has been a useful option for members. It assures that their survivors will receive an annuity that serves an income replacement function when they are deceased. The opportunity for members to elect participation and the base amount upon which the annuity is calculated, permits members to structure their individual estate programs to meet the needs of their survivors. The SBP can be an integral part of that future planning; however, the increasing impact of the social security offset, is reducing the usefulness of this option. Senator THURMOND. Why hasn't the Department of Defense continue to support legislation to eliminate the social security offset for Reservists who served for periods of less than 30 days for training? Colonel HIRSH. At this time, the Department of Defense does not support the proposal to eliminate the social security offset from SBP in the case where the only active service of the member concerned consists of periods of active duty of less than 30 days and for which the persons received a refund of FICA (social security) taxes for the amount of military covered wages. This proposal does not recognize those Reservists who may have more than 30 days of continuous active duty, but many years of maximum covered earnings in civilian employment, or those who have not had the maximum in all years, although they have had in some years. This proposal would recognize that the government was not the primary employer of these members, but would not recognize the FICA taxes paid by DOD, or their covered wages or the income protection known to be available to these members. The change would cause selective consideration for certain Reservists as opposed to other Reservists and those with active careers. Senator THURMOND. In addressing open enrollment, would you comment on what do you perceive to be a fair method to provide SBP to those who elected not to participate because of the current SBP deficiencies? Colonel HIRSH. As to a period of open enrollment, the Department of Defense has consistently deferred to the judgment of the committee on this subject. One option that the committee may wish to consider, however, would involve a onetime retroactive pay-in feature equal to the costs of SBP participation from the time of retirement to the present, minus any paid-in costs for those who have been paying for coverage under the Retired Servicemen's Family Protection Plan. Senator THURMOND. Would you consider an open enrollment whereby a person would pay the premiums for 1 year after application before becoming covered in the program a fair solution? Colonel HIRSH. This is another option that would be feasible in order to extend entitlement to survivors of those members who elected into the SBP during an open enrollment period. However, it may be necessary to consider those instances where members are currently participating in the Retired Serviceman's Family Protection Plan (RSFPP) and paying the associated costs. It may be fair to integrate the 1-year SBP cost conversion under the open enrollment. In such cases, we assume the survivor entitlement under the RSFPP would continue during the 1-year period and then be converted to SBP entitlement. Senator THURMOND. Does the Department of Defense propose any legislation to provide annuities for the forgotten widows similar to the action taken for widows under similar conditions for the civil service program? Colonel HIRSH. At this point, the Department is not actively considering sponsorship of such a bill. During consideration of the original SBP law, and the amendment enacted in 1976, the financial plight of certain widows of members who had not elected to participate in the Retired Serviceman's Family Protection Plan or its predecessor was considered. In recognition that many of these survivors were in need of assistance, a special provision was included in the Survivor Benefit Plan for those widows. Entitlement to this gratuitous payment is dependent upon a person (1) being widowed prior to 21 September 1973, from a person who was entitled to retired or retainer pay when he died; (2) eligiblefor a pension under subchapter III of chapter 15 of title 38. United States Code, or section 9 (b) of the Veterans' Pension Act of 1959; and (3) whose annual income, as determined in establishing that eligibility, is less than $1,400, now at $2,100. Senator THURMOND. In other words your chart shows a surplus of $4.7 billion in 2035, but that is based upon only 50 percent participation. What would be the surplus if participation rises to the same level as current with Civil Service employees? Colonel HIRSH. Tables have not been developed to show comparable cost at the high participation rates exeperienced by the Civil Service. However, a clear indication of the changes in the surplus that would result can be derived from the attached tables showing the effect of a change in participation from 50 percent to 75 percent. SURVIVOR BENEFITS INFORMATION SOCIAL SECURITY OFFSET OF 100 PERCENT WITH FUTURE PARTICIPATION RATE OF 75 PERCENT SURVIVOR BENEFITS INFORMATION-Continued SOCIAL SECURITY OFFSET OF 100 PERCENT WITH FUTURE PARTICIPATION RATE OF 75 PERCENT-Continued arles payable payable Revised SOCIAL SECURITY OFFSET OF 50 PERCENT WITH FUTURE PARTICIPATION RATE OF 75 PERCENT Senator THURMOND. Returning to H.R. 3702 what percent of participation in SBP would be necessary to reduce the costs you postulate on the program when you total payments over the next 22 years? Colonel HIRSH. As we testified before the Subcommittee, the cost of the SBP is reduced as the participation grows. The above tables illustrate the change that would be effected if the participation rate moved from 50 percent to 75 percent. Senator NUNN. I believe, Colonel Sullivan, you have a statement now. STATEMENT OF COL. JOE B. SULLIVAN, JR., USAR, OFFICE OF THE DEPUTY ASSISTANT SECRETARY OF DEFENSE (RESERVE AFFAIRS) Colonel SULLIVAN. Since Senator Morgan has set this out in considerable detail, I do not need to read this statement. Senator NUNN. Your statement in full will appear in the record at this point. [The statement follows:] PREPARED STATEMENT OF COL. JOE B. SULLIVAN, JR., USAR, OFFICE OF THE DEPUTY ASSISTANT SECRETARY OF DEFENSE (RESERVE AFFAIRS) Mr. Chairman and distinguished members of the committee, I am Col. Joe B. Sullivan, Jr.. from the Office of the Deputy Assistant Secretary of Defense for Reserve Affairs. The purpose of my statement is to summarize for you the features of the bills pertaining to extending a survivors' benefit program for the Reserves. The issue is one of equity. This is not the first Congress in which the issue has been addressed. A number of bills have been introduced over a period of several years. The issue arises from the provision of title III, reserve retirement, that a member of a reserve component who has become eligible for retirement is not entitled to receive an annuity until he or she reaches the age of 60, and therefore, is not entitled to select the survivor benefit protection for the spouse or dependent until that time. Should the member die before reaching the age of 60, there is no vesting of estate rights. There is some protection for survivors through the extension of the Servicemen's Group Life Insurance program to members who enter the retired reserve but are less than age 60. SGLI coverage does not protect the full amount of the retirement benefit, nor was it intended to do so. I will summarize the provisions of the three bills that are before this Congress, and in those instances where the cost implications have been estimated, provide that information. The first bill is H.R. 11797. This bill provides a survivor benefit coverage for the reserve member at the time he or she completes 20 satisfactory years of service and becomes eligible for reserve retirement regardless of the age of the member at the time of completion of the satisfactory years of service. Three options are offered: A. Elect in writing to defer the decision to participate in the survivor benefit plan until the attainment of entitlement age: and consequently have no survivor protection until that time, except the Servicemen's Group Life Insurance coverage. B. Elect in writing to participate immediately in the survivors benefit plan with an actuarially reduced survivor monthly annuity, deferred until such time as the former member would have attained entitlement age. C. Elect in writing to participate immediately in the survivors benefit plan with an actuarially reduced survivor monthly annuity to commence immediately upon death of the member. These options to the Reserve member are provided at no additional cost to the Government because the cost of the additional options would be borne by the survivor or the reservist in the form of an actuarially reduced survivor benefit or retired pay. During September 1977 members of the reserve compensation system study, at the request of the chairman of the Military Compensation Subcommittee of the House Armed Services Committee and with the approval of the Secretary |