Memorandum Number: No. 056-M

MEMORANDUM FOR CORRESPONDENTS

INFORMATION PROVIDED ON MOBILIZATION INSURANCE FOR RESERVISTS

With the signing of the FY 96 National Defense Authorization Act on February10, 1996, members of the National Guard and Reserves gained the ability toprotect their civilian income from losses accrued by federal military service.Since that time, the Department of Defense has been getting a great manyquestions on this new provision in the law called the Ready ReserveMobilization Income Insurance Program.

Effective September 30, 1996, the law provides that members of the ReadyReserve ordered involuntarily to active duty (other than for training) for 31days or more are eligible to participate in an optional program of incomeinsurance. The order must specify that the member's service is in support ofwar, national emergency or to augment active forces for an operational missionas provided by law.

With this new benefit, participating reservists can have peace of mind knowingthat benefit payments will continue for up to one year, or a maximum of 12months out of any 18-month period. Thus, their military earnings can besupplemented to compensate for some of the difference between their militaryand civilian pay.

The new program was prompted by DoD's experience in the Persian Gulf War. Asurvey of Reserve component members after the conflict revealed thatapproximately two-thirds of the nearly 250,000 Reservists activated duringOperation Desert Shield/Storm suffered economic loss as a result of:

· Military pay being less than civilian income (to include Reserve dutypay);

· Additional expenses incurred by the member and his/her family as aresult of activation; and

· Continuing losses after release from active duty due to erosion of thecivilian business or professional practice.

Losses were widespread across all pay grades and military occupations.Approximately two-thirds of the enlisted members and more than one-half of theofficers surveyed indicated that they would buy income insurance.

Details of the program are still being developed, and a DoD directive is inthe draft phase. Attached, however, are the most frequently asked questionsand answers to date. For more information, contact Lt. Col. Terry D. Jones,Office of the Assistant Secretary of Defense for Reserve Affairs,703-695-3620.

QUESTIONS & ANSWERS CONCERNING THE READY RESERVE MOBILIZATION INCOME INSURANCEPROGRAM

Q1: What are the basic features of the Ready Reserve Mobilization IncomeInsurance Program and how will it work?

A: It's an optional program of income insurance. Traditional members of theReady Reserve and National Guard, including Coast Guard Reservists, areeligible to collect payments if they are recalled to active military duty(other than for training) for a period of 31 days or more. Member's ordersmust specify that the duty is in support of an operational mission for which RCmembers are involuntarily activated, or is service in support of forcesactivated during a period of war or of national emergency declared by thePresident or the Congress. The basic coverage starts at $1,000 per month, withincremental increases of $500 up to a maximum of $5,000 per month. Benefitpayments will continue for up to one year, or a maximum of 12 months out of any18-month calendar period.

Q2: Who is eligible to enroll in the Ready Reserve Mobilization IncomeInsurance Program?

A: Eligibility is open to members of the Ready Reserve, with the exception ofthose Reserve and National Guard members who are on active military duty, i.e.,AGRs/TARs/full-time National Guard, etc. The Ready Reserve is comprised ofReserve and National Guard units and/or individuals, who can be called toactive duty in time of war, national emergency, or to augment active forces foran operational mission as provided by law.

Q3: How much will this insurance cost?

A: We won't know the answer to that until sometime in August 1996. DoDactuaries currently are developing the premium cost recommendations which mustthen be approved by the DoD Board of Actuaries at their July 1996 meeting.Once approved by the Board, the premium rates will be published.

Q4: How can I enroll in the Ready Reserve Mobilization Income InsuranceProgram?

A: On and after the date the program is implemented, in October 1996, activemembers of the Ready Reserve will have an opportunity to decide if they want toparticipate in the program. Effective October 1, 1996, new members of theReady Reserve will automatically be enrolled at the basic benefit level of$1,000/month of coverage and, within 60 days will have to choose from threeoptions:

· Increase desired coverage. (It can be increased in $500/monthincrements to a maximum benefit of $5,000/month.)

· Decrease desired coverage from the automatic $1,000/month to$500/month.

· Decline coverage.

Members of the Ready Reserve, as of September 30, 1996, will receive writtennotification that the program is effective October 1, 1996. The Ready Reservemember will have 60 days from notification to choose between the same threeoptions. Unlike new members who are automatically enrolled, existing membersshall be considered as having declined to be insured if they fail to sign upwithin 60 days of their notification.

Q5: If I decline to accept coverage now, can I elect to enroll at a laterdate?

A: Generally, no. Under the current legislation, as long as an individualremains in the Ready Reserve, that member will be given only one opportunity toenroll and to select the level of coverage required to replace lost income.Exceptions will be made for:

· Personnel who come off active duty and reenter the Ready Reserve, ifthey have not previously declined coverage while a member of the ReadyReserve.

· Personnel who change components.

· Personnel who separate from the Ready Reserve and re-affiliate at asubsequent enlistment or appointment.

Q6: How will I pay the premium?

A: The monthly premium will be deducted from the insured member's militarypay each month. Ready Reserve members who do not receive pay will directly paytheir respective Service the premium amount applicable. The procedures forthis will be covered in the enrollment instructions. There is a provision tocancel a member's coverage for non-payment of premiums.

Q7: How will the benefits be paid once I have been involuntarily activated?

A: Eligibility for benefits begins at the end of the first payroll month withthe first payment occurring at the end of the second payroll month of coveredservice. Benefits would be:

· Included in the Reservist's normal monthly (or twice monthly) militarypay;

· Displayed on the member's leave and earnings statement as a supplementalpayment; and

· Subject to tax withholding.

Q8: Will the benefits be prorated for part of a month?

A: Prorated benefits will be paid for any part of a month after the first 30days. For example: a Reservist who is involuntarily activated for 35 dayswith $3,000 in coverage, would receive $500 as an income loss replacementbenefit (5 days x $100/day), in addition to military pay and benefits for thetime period.

Q9. If I am mobilized and drawing the benefit, will I still be required topay the premium while I am on active duty?

Yes. It is just like any other insurance program. Premiums are continuouslycollected to build the fund from which benefits are paid.

Q10. Are premium rates fixed? Is there a chance the rates could change?

The Department of Defense Board of Actuaries will recommend premium rates tothe Secretary. Utilizing standard accounting practices, the Board will reviewthe Fund on a periodic basis. It is possible that premium rates could increaseor be reduced dependent upon the financial soundness of the program.

Q11: Will I be able to increase my coverage at a later date?

A: The law does not provide for an increase in the schedule of benefits.

Q12: Are benefits under the program of insurance protected from inflation?

A: Yes. The Department of Defense Board of Actuaries has been directed underthe law to carry out periodic actuarial valuations of benefits offered by theinsurance program and recommend appropriate changes to the Secretary to reflectchanges in the value of benefits paid under the program. Should such anincrease in benefit payments occur, a corresponding adjustment will be made tothe premium rate to offset the effects of inflation.

Q13: By law the insurance program is designed to be self-funded frompremiums paid by insured members. What happens if assets in the Fund areinsufficient to pay full benefits during the start-up phase of the Program?

A: If at any time assets of the Fund are expected to be insufficient to paythe insurance benefits the Secretary will request the President to submit tothe Congress a request for a special appropriation to cover the insufficiency.If such appropriation is not made, the Secretary will reduce the amount ofbenefits paid to a total amount that does not exceed the assets of the Fund bythe end of the fiscal year. Benefits that cannot be paid because of such areduction will be deferred and may be paid only after and to the extent thatadditional funds become available.

Q14: As a Ready Reserve member, how should I decide how much coverage toget?

A: This program is not designed to be a dollar-for-dollar replacement of lostcivilian income; rather it is intended to help close the gap between civilianand military pay. As you decide on how much coverage to get, you may want toconsider factors such as:

· What can my family and I live on if I am called to active duty?

· How much can I afford to pay for insurance premiums?

· What support is available to me from other sources (i.e., the Soldiersand Sailors Relief Act and the Uniformed Services Employment and ReemploymentRights Act)?

· Are there predictable lifestyle changes in the near future for which Ineed to plan (i.e., change of civilian employment, move to self-employment,etc.)?

· Remember, a decision to decline coverage is generally irrevocable.

Q15: Is this program retroactive to cover past activations for Bosnia andHaiti?

A: No. As prescribed by law, the Ready Reserve Mobilization Income InsuranceProgram may only be offered after its effective date of September 30, 1996.

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