FY2020 NDAA Analysis: Elimination of Benefits Offset for Surviving Spouses and Related Legal Issues

FY2020 NDAA Analysis: Elimination of Benefits Offset for Surviving Spouses and Related Legal Issues

Legal Sidebari

FY2020 NDAA Analysis: Elimination of
Benefits Offset for Surviving Spouses and
Related Legal Issues
Updated February 13, 2020
Efforts to eliminate a “benefits offset” that affects surviving spouses—widows and widowers of deceased
military servicemembers—gained momentum in the 116th Congress. Bills to accomplish this had been
introduced for several years, and garnered significant bipartisan support in this Congress. The National
Defense Authorization Act for Fiscal Year 2020 (FY2020 NDAA) ultimately included a gradual phase-out
of the offset, resulting in full elimination by 2023.
This Sidebar first explains the legal background of the benefits offset, which involves two military
benefits: the Survivor Benefit Plan (SBP), a taxable annuity paid by the U.S. Department of Defense
(DOD) to survivors of active duty or retired servicemembers, and Dependent Indemnity Compensation
(DIC), a non-taxable benefit paid by the U.S. Department of Veterans Affairs (VA) to survivors of
servicemembers who died in the line of duty or had a service-connected injury or disease. This Sidebar
then analyzes the FY2020 NDAA’s phase-out, including how it differs from other recent offset-
elimination proposals.
The Survivor Benefit Plan
Generally, military retired pay ends with the death of the retiree. In 1972, Congress passed the SBP as a
successor to previous programs, all of which gave servicemembers the means to provide continuing
financial support for their dependents after the servicemembers’ deaths. With the SBP, servicemembers
receive reduced retirement benefits during their lifetimes in exchange for a guarantee that their spouses
(or surviving dependent children) will continue to receive—in the form of an annuity—a portion of those
retirement benefits afterward.
Participation in the SBP is generally automatic; servicemembers who are married or have a child when
they become eligible for retirement pay also become SBP participants unless they opt out. The standard
(and maximum) monthly SBP benefit is “equal to 55 percent of the base amount” of the servicemember’s
monthly retirement pay. A surviving spouse’s SBP eligibility terminates upon his or her death or
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remarriage, unless the surviving spouse is age 55 or older at the time of remarriage. A surviving child’s
eligibility generally terminates when he or she marries or turns 18 (or until age 22 if a full-time student).
At the end of 2001, Congress extended SBP eligibility to surviving spouses of active-duty
servicemembers who died in the line of duty, even if the servicemembers were not yet eligible for
retirement pay. (The bill was retroactively effective to September 10, 2001, the day prior to the terrorist
attacks targeting the Pentagon and other locations).
The SBP offers benefits similar to those offered to survivors of employees participating in non-military
retirement plans. For example, the Federal Employees Retirement System (FERS) provides a monthly
annuity to surviving spouses of federal employees based on the deceased employees’ creditable service.
Similarly, the Employee Retirement Income Security Act (ERISA) requires private companies to provide
annuity benefits to the survivors of participants in certain types of retirement plans.
More information about the SBP—including facts about program size, participation rates, and costs—can
be found in this CRS Report.
Dependent Indemnity Compensation
Under the Feres doctrine, servicemembers and survivors generally may not sue the United States for civil
remedies related to injuries or death from military service. But some form of financial compensation has
been paid to survivors of servicemembers who died on active duty, during training, or from service-
connected disabilities since the Revolutionary War. Rather than being calculated as a percentage of the
deceased servicemember’s pay entitlement (as with SBP), since 1993 the DIC has been a flat basic rate,
with certain additional allowances based on, for example, number of dependent children. As of December
2018, that basic rate was $1,319.04 per month. The VA processes and pays DIC claims. Until 2004, a
surviving spouse’s remarriage (at any age) ended DIC eligibility. With the Veterans Benefits Act of 2003,
Congress made an exception for surviving spouses who remarry after reaching the age of 57. In 2010,
Congress extended DIC benefits to survivors of certain servicemembers who were 100% disabled due to
service-connected disabilities, even if their deaths were not caused by those disabilities.
The SBP-DIC Offset for Surviving Spouses
Prior to the FY2020 NDAA, a surviving spouse’s SBP benefit was “offset” dollar-for-dollar by the
amount of any DIC received from the VA. Specifically, under the statute, “[i]f, upon the death of a person
to whom [the SBP] applies, the surviving spouse or former spouse of that person is also entitled to
[DIC],” then “the surviving spouse or former spouse may be paid [a SBP] annuity . . . , but only in the
amount that the annuity otherwise payable under this section would exceed that [DIC].” As evident from
this language, the offset applied only to surviving spouses, not to other SBP recipients, such as surviving
dependent children. As a result, this offset is sometimes referred to as the “widows’ tax,” although offsets
may more accurately be described as reductions in paid benefits rather than taxes.
Some justified this particular offset by comparing it to laws prohibiting “double dipping,” or collecting
federal funds from two sources for the same purpose (such as billing two federal agencies for the same
work). Other observers may characterize the offset as somewhat consistent with federal practices in other
non-military contexts where benefit entitlements can have complex interactions. For example, one’s own
Social Security entitlement may prevent one from collecting benefits based on status as someone else’s
dependent. On the other hand, one may receive both a FERS annuity and Social Security dependent
benefits, and private pension annuities are generally independent of any life insurance or other indemnity
payments. In the military context, which may be more closely analogous to the situation of surviving
spouses, retired veterans with a disability rating of 50% or more currently receive both retired pay from
the DOD and disability payments from the VA, which arguably means that military retirement and

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disability are treated as separate entitlements, at least to some extent. The question whether that should
change when those payments are received by the surviving spouse rather than the veteran may be open to
debate.
The other primary obstacle to eliminating the offset appeared to be cost: in 2009, the Congressional
Budget Office (CBO) estimated that ending the offset would cost approximately $7 billion over ten years.
On June 25, 2019, the CBO revised its estimate of the cost of eliminating the SBP-DIC offset to
approximately $5.7 billion over ten years; the difference appears to be due to the introduction of the
Special Survivor Indemnity Allowance (discussed below), which reduced the amount of offset to be
eliminated.
Effect of Surviving Spouse Remarriage on Applicability of the Offset
As noted, surviving spouses who remarry before age 55 lose SBP eligibility, while surviving spouses who
remarry before age 57 lose DIC eligibility. However, the law that restored DIC eligibility to surviving
spouses who remarry after age 57—38 U.S.C. § 1311(e)—contained language that appeared to contradict
the SBP offset provision: “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 benefits under this
section.” The DOD, arguing that § 1311(e) did not apply to the SBP offset and that Congress did not
intend otherwise, nonetheless continued to apply the offset to surviving spouses who remarried after age
57. At least one court, describing the matter as “a close question of statutory interpretation,”
acknowledged the Government’s argument that prohibiting the offset only for surviving spouses who
remarried after age 57 seemed “arbitrarily disparate” and “arguably unreasonable.” But in Sharp v. United
States, the U.S. Court of Appeals for the Federal Circuit determined that DOD’s interpretation was
ultimately unlawful. As that court put it:
Perhaps Congress intended to encourage marriage for older surviving spouses. Perhaps section
1311(e) simply represents a first step in an effort to eventually enact full repeal. After all, the
servicemember paid for both benefits: SBP with premiums; DIC with his life. . . .Whatever the
reason, the government has failed to make the “extraordinary showing of [Congress’s] contrary
intentions” that would permit this court to construe section 1311(e) in a way that eviscerates its plain
language.
As a result, prior to the FY2020 NDAA, surviving spouses who remarried before age 55 received neither
SBP nor DIC; surviving spouses who remarried between the ages of 55 and 57 received SBP but not DIC;
surviving spouses who never remarried received SBP subject to the offset of whatever DIC they received;
and surviving spouses who remarried after age 57 received both SBP and DIC in full.
Prior Measures to Address the Offset
Congress provided an option in 2003 for surviving spouses of active-duty servicemembers to transfer SBP
benefits to surviving dependent children if the spouses are either ineligible for SBP or “determine[] it
appropriate” to make the transfer. (As noted, the benefit entitlement of children is not the same as a
spouse’s lifetime or remarriage entitlement, which may shorten the term of the SBP annuity.)
Beginning in 2009, Congress created the Special Survivor Indemnity Allowance (SSIA) to partially
“offset the offset”—giving an additional $50 per month to those whose SBP was offset by DIC, and
gradually increasing the monthly SSIA amount to $100 over several years. Additional increases were later
authorized, bringing the monthly SSIA amount to $310 in 2017. Congress permanently authorized that
SSIA along with annual cost-of-living adjustments in the FY2018 National Defense Authorization Act;
for 2019, the maximum SSIA benefit was $318 per month, with no adjustment for number of dependents.
Accordingly, for a surviving spouse whose SBP is offset by the base amount of DIC ($1,319.04), the 2019
SSIA will functionally restore approximately 24% of the benefits that were subtracted by the offset.

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The FY2020 NDAA and Other Offset-Elimination Proposals
The Military Surviving Spouses Equity Act (H.R. 553) and the Military Widow’s Tax Elimination Act of
2019 (S. 622) were nearly identical bills that would have eliminated the SBP-DIC offset wholesale by
striking the provisions in 10 U.S.C. §§ 1450-51 that required it. Both bills contained a virtually identical
set of additional revisions to eliminate other references to the offset.
Both bills also specified that these changes would not entitle survivors to retroactive benefits; in other
words, surviving spouses would not receive any compensation for the time during which the offset was
applied. However, surviving spouses who previously received refunds of SBP premiums under subsection
1450(e) would not be required to return those refunds.
Both H.R. 553 and S. 622 would have eliminated the option in section 1448(d)(2)(B) for an otherwise-
eligible surviving spouse to designate a child beneficiary for SBP payments. The bills would have then
restored SBP eligibility to surviving spouses who previously designated child beneficiaries—even if the
child’s entitlement has expired—as long as the surviving spouses continue to meet remaining eligibility
requirements.
The FY2020 NDAA adopted most of the same measures as the standalone bills, namely:
 Striking the language requiring the offset;
 Prohibiting retroactive benefits;
 Prohibiting recoupment of SBP premiums refunded to surviving spouses;
 Repealing the authority for designating dependent children as SBP recipients; and
 Restoring eligibility for spouses who previously designated their children as SBP
recipients.
The most salient difference between the FY2020 NDAA and the standalone bills lies in the
timing of the offset elimination. Rather than eliminate the offset all at once, Congress opted to
phase out the offset over several years. In place of § 1450(c)(1)’s requirement that SBP payments
be made only to the extent the amount of SBP owed exceeds DIC, the FY2020 NDAA reduces
the offset’s impact to a surviving spouse by one-third in 2021, by two-thirds in 2022, and
eliminates the offset entirely in 2023. For 2020, the full offset remains in place.

Further, the provisions repealing the child designation authority and restoring eligibility to
spouses of such children do not take effect until the offset is fully eliminated. Thus, children
previously designated as SBP recipients will continue to receive SBP payments until 2023, or as
long as they continue to be eligible, while surviving spouses who designated their children as
SBP recipients will again become eligible to receive SBP benefits at that time. The restoration of
eligibility for surviving spouses specifically includes spouses whose children’s eligibility
terminates before 2023. (As discussed above, child SBP benefits generally terminate when a
child marries or ages out of eligibility.)

The FY2020 NDAA, like H.R. 553, leaves intact subsection 1450(m)—the provision
establishing SSIA. Accordingly, surviving spouses currently receiving SSIA should generally
continue to receive it until the offset is completely eliminated in 2023. However, in setting up the
SSIA, Congress provided that the amount of SSIA paid to a survivor “may not exceed the
amount of the annuity for that month that is subject to offset” under subsection 1450(c)(1).
Surviving spouses thus will only receive SSIA in 2021 and 2022 to the extent that their SBP

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benefits are still being offset by DIC. Once the offset is eliminated, the statutory SSIA provision
will no longer apply, leaving subsection (m) a dead letter.

Unlike both standalone bills, the FY2020 NDAA also leaves intact subsection 1450(e)—
regarding refunds of SBP premiums for surviving spouses affected by the offset—and subsection
1450(k)—regarding loss of DIC eligibility due to remarriage after the age of 55. Like subsection
1450(m), these subsections will lose their operability once the offset is eliminated, because they
apply only to surviving spouses affected by the offset.

Author Information

Mainon A. Schwartz

Legislative Attorney

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