Financial Frontlines®

Legislation including a host of upgrades and changes to the Post 9-11 GI Bill just passed a key congressional committee.  Major proposed changes include:

• Giving credit for Title 32 (Full-Time National Guard/Reserve Service) service members back to September 11, 2001.  This will greatly assist these service members in qualifying for a more robust benefit.
• $1,000 books and supplies stipend for Active Duty service members and their spouses (they are currently inelgible).
• Addition of vocational training (on-the-job training and apprenticeships) and expanded licensing/certification benefits.
• Adjustment of the housing allowance to include full-time distance learners (at 50 percent rate) and base the housing allowance on enrollment level.
• Capping the tuition and fees paid for Active Duty service members and their spouses at $20,000 annually.  This is big potential hit, since these populations currently have no tuition cap (but give up the books and supplies stipend/housing allowance under the Post 9-11 GI Bill).

For full details, see this article in the Military Times.

We will keep you informed on the progress of this legislation.  While we think there is a good chance that much of it will pass this year, there is so much uncertainty/acrimony around any budget issues in Congress that there are no guarantees.

Phil Dyer, CFP®, RLP®. CPCC

A friendly reminder for those Stop-Lossed between 11 Sept 2001 and 30 Sept 2009 from the DOD:

The 2009 War Supplemental Appropriations Act established Retroactive Stop-Loss Special Pay (RSLSP), providing $500 for each month/partial month served in stop-loss status.  Service members, veterans, and beneficiaries of service members whose service was involuntarily extended under Stop-Loss between Sept. 11, 2001 and Sept. 30, 2009 are eligible for RSLSP.

To receive this benefit, those who served under stop-loss must submit a claim for the special pay.  Since it went into effect, the services have been reaching out to service members, veterans and their families through direct mail, veteran service organizations, and the media.  But there is still money left to be claimed, and the deadline is approaching.

We’re reminding all service members who are eligible to submit a claim for the benefit available to them.  The average benefit is $3,700 but those eligible must submit their claim by Oct. 21, 2010.

The DoD Web site (http://www.defense.gov/stoploss) links to service-specific sites, where you can get more information, or begin the RSLSP claim process.

If you know people who separated/retired and may be eligible for this benefit, remind them to submit a claim before the deadline!

Survivors of military members have an opportunity for two forms of survivors’ benefits.  The most common is the purchased benefit called the Survivor Benefit Program (SBP) where the military member pays premiums from retired pay.  Currently serving members are also covered by SBP automatically.  The other is a program ran by Veteran Affairs (VA) called Dependency Indemnity Compensation (DIC).  DIC is paid to survivors whose spouse died of Service-connected causes.

If a survivor qualifies for DIC and is covered by SBP, the DIC amount is subtracted from the SBP amount.  This is known as the SBP-DIC Offset.  MOAA has for some time and continues to fight against the offset on Capitol Hill.  Last August, 3 survivors fought in the courts against the offset for their specific situation and won.  They realized the law was worded differently for survivors who remarried after age 57.  In this specific case, the law does not stipulate an offset.  As a result, all survivors remarried after age 57 now receive full SBP and DIC payments.  The DOD is in the process of fixing the offset issue for survivors in this situation.

Here is the status of DOD’s progress in the process of fixing the offset for survivors who fall under the conditions of the lawsuit.  The DOD identified 737 survivors remarried after age 57.  All of these survivors are now receiving their full monthly SBP and DIC payments.  However, the lawsuit also has a retroactive period that requires survivors who qualify to receive back pay.  The retroactive period is from the date of remarriage but no earlier than 1 January 2004.  To date, 367 have received their back pay.  The remaining survivors will get their back pay over the next few months as DOD calculates the amounts due for each individual.

As for the rest of you, MOAA now has a new tool to use in fighting for the elimination of the SBP-DIC offset.  In 2008, Congress symbolically admitted the offset was wrong by passing legislation that authorized a supplemental pay to help restore some of the pay denied by the offset.  This program is known as Special Survivor Indemnity Allowance (SSIA).  SSIA is administered by the Defense Finance and Accounting Service (DFAS) as is SBP.  Here is the payment schedule for the SSIA:

Beginning                     Monthly Amount

October 2008                          $50
October 2009                          $60
October 2010                          $70
October 2011                          $80
October 2012                          $90
October 2013                          $100
October 2014                          $150
Increases thru 2017
October 2017                          $310

The SSIA was the first foot in the door for the repeal of the offset.  Now the Sharp case is another foot in the door.  We have support on the Hill for the repeal of the offset but the impediment has been the last minute consensus on how to pay for the offset elimination.  The fight will go on.

For more on the Sharp case, see this DFAS article.  General information on SBP can be found in this DFAS booklet.

AS FOR CURRENT LEGISLATION: the elimination of the SBP-DIC offset is not dead for this year but it is on life support.  There is a slight chance something (elimination or increase of supplemental payments) could get passed.  We will continue to fight for this issue as one of our top three initiatives.  We will update the final result through our Legislative Update and News Exchange electronic newsletters and this blog.

Forbes has an excellent article out on some major tax law changes coming up over the next three years…

Forbes Article

It talks about key changes in the following areas:

• Flexible Spending Accounts (FSA) restrictions on reimbursement for over-the-counter medications (2011) and setting a $2,500 cap on pre-tax contributions (2013).  Note that FSAs are not currently available for Active Duty military members, but available in most private sector companies and to other Federal employees.
• Expiration of the majority of the Bush-era tax cuts (2011)
• Significant increase in the “marriage penalty” for high-income dual wage-earner couples (2013)
• Increase in Medicare tax for high-income wage-earners (2013)
• Capital gains surtax that will affect interest, dividends, capital gains, rental income, royalties and other passive income (capital gains from the sale of a primary residence are exempt) (2013)
• Increase in the threshold of deductible medical expenses from 7.5% of AGI to 10% of AGI for those under 65 (2013).  The increase for those over 65 comes in 2016.

Some of the possible financial moves recommended include:

• Moving to muni-bonds for better after-tax yield on your interest-producing investments
• Taking capital gains in 2010 to benefit from the maximum 15% tax bracket currently in place
• Utilizing FSA accounts for things such as LASIK surgery, braces and other expensive items before the $2,500 cap becomes effective in 2013
• Doing a Roth IRA conversion this year

These changes are significant, since they will drive the top tax bracket on capital gains in 2013 to nearly 24% (a 58% increase from current levels) and take the top rate on interest, rent, royalties from 35% to over 43% (a 24% jump from current levels).  It is unclear which bucket dividend income will fall into at this time.

While most of these tax changes will have a mild-to-moderate impact on the Active Duty military member, the second career and fully retired face steep potential tax increases.  Make sure you consult your tax and financial advisor to see what the best moves for your specific situation are…

Forewarned is forearmed!

Phil Dyer, CFP®, RLP®, CPCC

Since the passage of the Health Care Reform bill, the number one question here at MOAA has been, “Will Tricare increase the age of a dependent to 26 to match the new law?”

Answer: Yes, but it won’t be soon. Military health care and Tricare fall under a different set of laws than the Health Care Reform act. Military health care requires changes in the National Defense Authorization Act (NDAA). For the dependent age to increase to 26, the NDAA must authorize it. It will. Probably when the NDAA for FY2011 is passed which is usually around October or November of this year.

Then, once the law changes to allow 26 year olds, it has to flow through the bureaucracy. This could take a year…give or take. After a legal change, all the directives, policies, instructions, regulations, publications, computer systems, publication in the Federal Register with the required comment period, and the contracts with the Tricare insurance providers must change.

Oh, and don’t be surprised if when this change occurs, coverage for dependents over the age of 23 requires a premium. Don’t have any info to base this on, just a “worse-case-scenario” hunch.

In the meantime, check out these options if you need health care for an older dependent:

Tricare Continued Health Care Benefit Program

The MOAA Short-term Health Plan

www.ehealthinsurance.com