Federal Employees' Group Life Insurance Program: Living Benefits

SUMMARY: The Office of Personnel Management (OPM) is issuing interim

regulations to implement the ``FEGLI Living Benefits Act'' of 1994.

This law requires OPM to issue regulations which state: that under the

Federal Employees' Group Life Insurance (FEGLI) Program, basic life

insurance may be elected to be paid to an insured individual who is

certified as terminally ill with a life expectancy of 9 months or less;

that an employee may elect that the basic benefit be paid in total or,

in part in multiples of $1,000; that annuitants may elect only the

total amount of basic; that there will be no increase in the actuarial

value of the benefit; that OPM will have an Open Season of at least 8

weeks duration beginning prior to the effective date of the law, during

which employees who are not currently enrolled in basic may elect it;

and that define an application process.

DATES: These interim regulations are effective June 15, 1995. Comments

must be received on or before August 14, 1995.

ADDRESSES: Send written comments to Lucretia F. Myers, Assistant

Director for Insurance Programs, Retirement and Insurance Service,

Office of Personnel Management, P.O. Box 57, Washington, DC 20044; or

deliver to OPM, Room 3451, 1900 E Street NW., Washington, DC; or FAX to

(202) 606-0633.

FOR FURTHER INFORMATION CONTACT: Faith M. Hannon, (202) 606-0004.

SUPPLEMENTARY INFORMATION: Public Law 103-409, the ``FEGLI Living

Benefits Act'', requires OPM to regulate a FEGLI Open Season in 1995 of

at least 8 weeks duration prior to the effective date of the law, July

25, 1995. The law also requires OPM to regulate provisions for: the

election by a terminally ill individual covered by FEGLI basic

insurance of a lump sum payment of basic insurance as a Living Benefit;

the reduction of the Living Benefit so that it is actuarially

equivalent to the basic insurance benefit that would have been paid in

the absence of a Living Benefit election; and an application process.

These interim regulations allow OPM to implement the statutory

requirements of the law prior to its effective date.

Open Season

The interim regulations provide that OPM will hold a 9-week FEGLI

Open Season from May 22, 1995, through July 21, 1995. The Open Season

will be of 9 weeks duration to allow for the 2 legal holidays during

this period. During this Open Season, employees who have waived or

cancelled basic insurance and who are not excluded from eligibility by

law or regulation, may enroll in basic insurance only. Optional

insurance may not be elected or increased during this Open Season. This

Open Season is limited to election of basic insurance because its

purpose is to implement the Living Benefits Act which only applies to

basic insurance.

Employees who have been on Leave Without Pay for 12 or more months,

compensationers who have been on Leave Without Pay for 12 or more

months, and annuitants, may not participate in this Open Season. The

law specifically limits participation in the Open Season to employees

as defined by section 8701(a) of title 5, United States Code.

The effective date of basic insurance elected during this Open

Season will be the first day of the first pay period beginning on or

after the date the employing office received the enrollment form.

Unlike in previous Open Seasons, there will be no requirement for the

employee to be in a pay and duty status for the enrollment elected

during this Open Season to become effective. The legislative intent of

this law clearly was to make a Living Benefit available to the greatest

number of eligible employees possible. It would be contrary, therefore,

to the intent of the law to require that employees be in a pay and duty

status before the Open Season election becomes effective. However, we

must emphasize that it is OPM's firm intent to have a pay and duty

status requirement for coverage elections to be effective in any and

all future FEGLI Open Seasons.

An election during this Open Season will not be considered a first

opportunity to enroll for purposes of meeting the requirements to carry

life insurance into retirement. In order to carry coverage elected

during this Open Season into retirement, the coverage must be in effect

for the 5 years of service immediately preceding the date of

retirement, or for the entire period(s) of service during which it was

available, if less than 5 years.

Living Benefits

Public Law 103-409 requires that terminally ill employees who have

FEGLI basic insurance be allowed to elect as a Living Benefit either a

lump-sum payment of the total amount of their basic insurance or a

partial payment of their basic insurance in a multiple of $1,000.

Eligible compensationers and annuitants may only elect to receive a

lump-sum payment of the total amount of their basic insurance. The law

also defines a terminally ill individual as one who has been certified

as having a life expectancy of 9 months or less. The Living Benefits

Act does not apply to and has no effect on Optional Insurance.

This interim regulation specifies the parameters of the total/

partial requirements of the law and also explains that a Living Benefit

election will either reduce the accidental death and dismemberment

coverage upon an effective election of a partial Living Benefit or

terminate the accidental death and dismemberment coverage upon an

effective election of a total Living Benefit. In addition, this

regulation describes how the Basic Insurance Amount (BIA) will be

reduced in proportion to the amount elected for a partial Living

Benefit. The remaining BIA, or post-election BIA, will not change after

the computation of the partial Living Benefit regardless if there is a

change in other circumstances, e.g., salary, or age. When the insured

[[Page 31372]] dies, the remaining BIA will be multiplied by the age

factor that was in effect at the time the completed Living Benefit

application was received by the Office of Federal Employees' Group Life

Insurance (OFEGLI) in order to compute the final payment of basic

insurance benefits.

Once an insured has made an effective Living Benefit election, that

election is irrevocable. In addition, an insured may make only one

Living Benefit election. That is to say, the insured who has made a

partial Living Benefit election may not make a subsequent Living

Benefit election for any portion of the remaining basic insurance.

Assignments

This regulation stipulates that individuals who have assigned their

insurance under the authority of 5 U.S.C. 8706(e) may not elect a

Living Benefit and that those individuals who have elected a Living

Benefit may not assign their insurance.

Actuarial Reduction

OPM is required by law to assure that there is not an increase in

the actuarial value of the benefit paid. This is accomplished by

regulating that the amount of Living Benefit payment is actuarially

reduced to account for the amount of interest lost to the Employees'

Life Insurance Fund (Fund) and the time difference between when the

Living Benefit payment is made and when the death benefits would have

been paid in the absence of a Living Benefit election. The actuarial

reduction will be based on an assumption of the interest rate and the

time period that reflects the earlier payment date. Initially, the

actuarial reduction will be 4.9 percent of the benefit. This 4.9

percent actuarial reduction factor will change, if necessary, after

Living Benefits have been in effect long enough to analyze the

experience. Any change in the actuarial reduction factor will be

published in the Federal Register.

Withholdings and Contributions

This interim regulation specifies that the withholdings and

contributions for basic insurance will terminate at the end of the pay

period in which a total Living Benefit election is effective. The

withholdings and contributions for basic insurance after a partial

Living Benefit has been elected will be based on the remaining BIA

(post-election BIA) in effect at the end of the pay period in which the

Living Benefit election is effective. A Living Benefit election is

effective on the date the Living Benefit payment check is cashed or

deposited.

Application Process

OPM is required by law to regulate the application process.

Therefore, this regulation provides how an insured individual may apply

for the Living Benefit through OFEGLI and the subsequent steps that

need to occur in order for a Living Benefit to be paid. Only the

insured individual may make a Living Benefit election. No one else,

e.g., a spouse, a guardian, or someone with a power of attorney, may

make a Living Benefit election on the insured's behalf. It also

explains that, if the physician's certification of the nature of the

illness and the life expectancy of the insured are not sufficient for

OFEGLI to approve or disapprove the application, OFEGLI may request

additional medical evidence from the attending physician. If necessary,

OFEGLI may then also request a medical examination of the insured at

OFEGLI's expense.

Additional Information

Detailed guidance will be provided to agencies and employing

offices through Benefits Administration Letters (BAL's) and Payroll

Office Letters. This information and guidance will address the

obligations of the agencies and employing offices in the administration

of the Living Benefit.

OPM believes that, at this time, it is required to withhold 10% of

the Living Benefit payment for Federal and/or State taxes unless the

insured requests on the application that the amount for taxes not be

withheld. This policy is subject to change if applicable tax law or

regulations change.

Waiver of Notice of Proposed Rulemaking

Pursuant to section 553(b)(3)(B) of title 5 of the U.S. Code, I

find that good cause exists for waiving the general notice of proposed

rulemaking. OPM must issue regulations to implement Public Law 103-409,

which is effective July 25, 1995. In addition, employing offices need a

certain amount of lead time in order to implement the regulations by

the effective date. These concerns make it impractical to publish

proposed regulations.

Regulatory Flexibility Act

I certify that this regulation will not have a significant economic

impact on a substantial number of small entities because the

regulations primarily affect individuals currently enrolled under the

Federal Employees' Group Life Insurance Program and those Federal

employees who would enroll during this mandated Open Season.

List of Subjects

5 CFR Part 870

Administrative practice and procedure, Government employees,

Hostages, Iraq, Kuwait, Lebanon, Life insurance, Retirement.

5 CFR Part 871

Administrative practice and procedure, Government employees, Life

insurance, Retirement.

5 CFR Part 872

Administrative practice and procedure, Government employees, Life

insurance, Retirement.

5 CFR Part 873

Administrative practice and procedure, Government employees, Life

insurance, Retirement.

5 CFR Part 874

Government employees, Life insurance, Retirement.

Office of Personnel Management.

James B. King,

Director.

Accordingly, OPM is amending 5 CFR parts 870, 871, 872, 873, and

874 as follows:

PART 870--FEDERAL EMPLOYEES' GROUP LIFE INSURANCE PROGRAM

1. The authority citation for part 870 is revised to read as

follows:

Authority: 5 U.S.C. 8716; Sec. 870.202(c) also issued under 5

U.S.C. 7701(b)(2); subpart J is also issued under section 599C of

Pub. L. 101-513, 104 Stat. 2064, as amended; subpart K is also

issued under Pub. L. 103-409.

2. In Sec. 870.203, paragraph (e) is added to read as follows:

Sec. 870.203 Effective dates of insurance.

* * * * *

(e) An open enrollment election of basic life insurance filed

during the period from May 22, 1995, through July 21, 1995, is

effective on the 1st day of the first pay period beginning on or after

the date the employing office received the enrollment form. There is no

requirement to be in a pay and duty status for the enrollment to be

effective.

3. In Sec. 870.204, paragraph (h) is added to read as follows:

Sec. 870.204 Waiver and cancellation of waiver of insurance coverage.

* * * * *

(h)(1) An Open Season will be held from May 22, 1995, through July

21, 1995, during which time employees otherwise eligible for coverage

may [[Page 31373]] cancel their existing waivers of coverage by

affirmatively electing to be insured on a form designated by OPM.

(2) An employing office may make a determination, within 6 months

after the May 22, 1995, through July 21, 1995, Open Season, that an

employee was unable, for cause beyond his/her control, to cancel his/

her then existing waiver of coverage by affirmatively electing to be

insured during the 1995 Open Season. The employee will be permitted to

submit an affirmative election of coverage within 31 days after he/she

is advised of that determination. Basic life insurance coverage in that

case is retroactive to the 1st day of the first pay period beginning on

or after July 21, 1995.

4. In Sec. 870.301, paragraph (c) is added to read as follows:

Sec. 870.301 Basic insurance amount (BIA).

* * * * *

(c) The post-election BIA of an employee who elected a partial

Living Benefit is the BIA as of the date OFEGLI received the completed

Living Benefit application reduced by the percentage which the partial

lump-sum payment represents of the pre-election BIA multiplied by the

age factor as stated in Sec. 870.301(b)(rounded up or down to the

nearest multiple of $1,000 or, if midway between multiples, to the next

higher multiple of $1,000). The post-election BIA will not change after

the effective date of the partial Living Benefit election. For purposes

of computing the payment of benefits upon the death of the insured

individual who elected a partial Living Benefit, the BIA will be

multiplied by the age factor in effect as of the date OFEGLI received

the completed Living Benefit application.

5. Section 870.402 is added to read as follows:

Sec. 870.402 Withholdings and contributions following a Living

Benefits election.

(a) The basic insurance withholding for an insured individual who

has elected a total payment of basic insurance for a Living Benefit

will cease the end of the pay period in which the election of Living

Benefits is effective.

(b) The amount withheld for basic insurance from the pay of an

insured employee who has elected a partial Living Benefit will be based

on the amount of BIA remaining after the partial Living Benefit

election is effective.

(c) The amount withheld for basic insurance from the annuity of an

annuitant who elected a partial Living Benefit as an employee will be

based on the amount of BIA remaining after the partial Living Benefit

election is effective.

(d) The amount withheld for basic insurance from the compensation

of a compensationer who elected a partial Living Benefit as an employee

will be based on the amount of BIA remaining after the partial Living

Benefit election is effective.

6. In Sec. 870.501, paragraph (a) is revised to read as follows:

Sec. 870.501 Termination and conversion of insurance coverage.

(a) Except as provided in Secs. 870.601 and 870.701, the basic

insurance of an insured employee stops on the date of his/her

separation from the service, subject to a 31-day extension of basic

life insurance coverage, or on the effective date of a full Living

Benefits election.

* * * * *

7. In Sec. 870.601, paragraphs (c) introductory text and (c)(4) are

revised to read as follows:

Sec. 870.601 Eligibility for life insurance.

* * * * *

(c) An individual who makes an election under paragraph (b) of this

section must select one of the following options, except that those

individuals who have elected a partial Living Benefit must select the

option under paragraphs (c)(1) or (c)(4) of this section:

* * * * *

(4) Continuation or reinstatement of basic life insurance coverage

with no reduction after age 65, and with continuous premiums withheld

from annuity. An insured individual may cancel an election under

paragraphs (c)(3) or (c)(4) of this section at any time, except for

those individuals who have elected a partial Living Benefit as an

employee. An insured individual who has elected a partial Living

Benefit may only cancel an election under paragraph (c)(4) of this

section if he/she is electing to terminate the insurance under

paragraph (c)(1) of this section.

* * * * *

8. In Sec. 870.602 the current paragraph is redesignated as

paragraph (a) and paragraph (b) is added to read as follows:

Sec. 870.602 Amount of life insurance.

* * * * *

(b) The post-election BIA of an annuitant who elected a partial

Living Benefit as an employee is the BIA as of the date OFEGLI received

the completed Living Benefit application reduced by the percentage

which the partial lump-sum payment represents of the pre-election BIA

multiplied by the age factor as stated in Sec. 870.301(b) (rounded up

or down to the nearest multiple of $1,000 or, if midway between

multiples, to the next higher multiple of $1,000). For the purpose of

computing the payment of benefits upon the death of an insured

annuitant who elected a partial Living Benefit as an employee, the BIA

will be multiplied by the age factor in effect as of the date OFEGLI

received the completed Living Benefit application.

9. In Sec. 870.701, paragraphs (c) introductory text and (c)(4) are

revised to read as follows:

Sec. 870.701 Eligibility for life insurance.

* * * * *

(c) An individual who makes an election under paragraph (b) of this

section must select one of the following options, except that those

individuals who have elected a partial Living Benefit must select the

option under paragraphs (c)(1) or (c)(4) of this section:

* * * * *

(4) Continuation or reinstatement of basic life insurance coverage

with no reduction after age 65, and with continuous premiums withheld

from compensation. An insured individual may cancel an election under

paragraphs (c)(3) or (c)(4) of this section at any time, except for

those individuals who have elected a partial Living Benefit as an

employee. An insured individual who has elected a partial Living

Benefit may only cancel an election under paragraph (c)(4) of this

section if he/she is electing to terminate the insurance under

paragraph (c)(1) of this section.

* * * * *

10. In Sec. 870.702 the current paragraph is redesignated as

paragraph (a) and paragraph (b) is added to read as follows:

Sec. 870.702 Amount of life insurance.

* * * * *

(b) The post-election BIA of a compensationer who elected a partial

Living Benefit as an employee is the BIA as of the date OFEGLI received

the completed Living Benefit application reduced by the percentage

which the partial lump-sum payment represents of the pre-election BIA

multiplied by the age factor as stated in Sec. 870.301(b) (rounded up

or down to the nearest multiple of $1,000 or, if midway between

multiples, to the next higher multiple of $1,000). For the purpose of

computing the payment of benefits upon the death of an insured

compensationer who elected a partial Living Benefit as an employee, the

BIA will be multiplied by the age factor in effect as of the date

OFEGLI received the completed Living Benefit application.

[[Page 31374]]

11. In Sec. 870.801 the current paragraph is redesignated as

paragraph (a) and paragraph (b) is added to read as follows:

Sec. 870.801 Assignments.

* * * * *

(b) If an individual has assigned his/her insurance, he/she may not

elect a Living Benefit and if an individual has elected a Living

Benefit, he/she may not assign his/her insurance.

12. In part 870, subpart K is added to read as follows:

Subpart K--FEGLI Living Benefits

Sec.

870.1101 Purpose.

870.1102 Definitions.

870.1103 Open season.

870.1104 Living benefits.

870.1105 Actuarial reduction.

870.1106 Withholdings and contributions for basic insurance.

870.1107 Application procedures.

Subpart K--FEGLI Living Benefits

Sec. 870.1101 Purpose.

This subpart sets forth the circumstances under which employees may

enroll in basic insurance during the 1995 Open Season and terminally

ill individuals enrolled in basic insurance may elect to receive a

payment of their basic insurance as a Living Benefit on or after July

25, 1995.

Sec. 870.1102 Definitions.

In this subpart--

Effective date of Living Benefits election means the date on which

the Living Benefits payment is cashed or deposited.

Terminally ill means the individual has a medical prognosis of a

life expectancy of 9 months or less.

Sec. 870.1103 Open season.

(a) An Open Season will be held from May 22, 1995, through July 21,

1995, during which time an employee who has waived or cancelled basic

insurance and is not excluded from eligibility by law or under

Sec. 870.202 of subpart B, may enroll in basic insurance only. Optional

insurance may not be elected or increased during this Open Season.

Employees who have been on Leave Without Pay for 12 or more months,

compensationers who have been on Leave Without Pay for 12 or more

months, and annuitants, may not participate in this Open Season.

(b) The effective date of basic insurance elected during this Open

Season is the 1st day of the first pay period beginning on or after the

date the employing office received the enrollment form. There is no

requirement to be in a pay and duty status for the enrollments elected

during this Open Season to become effective.

Sec. 870.1104 Living benefits.

(a) An individual who is covered by basic insurance and who is

certified as terminally ill, as defined in Sec. 870.1102, may elect to

receive a lump-sum payment of basic insurance on or after July 25,

1995. Only the insured individual may make a Living Benefits election.

(b)(1) An employee may elect to receive the basic insurance in

total or in part, in a multiple of $1,000.

(2) A compensationer or an annuitant may only elect to receive a

lump-sum payment of the total amount of basic insurance.

(c) If the employee elects to receive a partial payment of basic

insurance, the remaining BIA, the post-election BIA, will be reduced in

proportion to the amount of basic insurance elected as a Living

Benefit, as prescribed by Pub. L. 103-409. The post-election BIA will

not change after the effective date of the partial Living Benefit

election. Only the basic benefits remaining will be payable at death.

(d)(1) If the employee receives the total amount of basic insurance

as a Living Benefit, accidental death and dismemberment coverage will

terminate as of the effective date of election.

(2) If the employee receives a partial payment of basic insurance

as a Living Benefit, accidental death and dismemberment coverage will

be reduced to equal the post-election BIA.

(e) Once an election of Living Benefits has become effective, the

election may not be revoked and no further election of Living Benefits

may be made.

(f) If an individual has assigned his/her insurance, he/she may not

elect a Living Benefit and if an individual has elected a Living

Benefit, he/she may not assign his/her insurance.

Sec. 870.1105 Actuarial reduction.

The amount of basic insurance elected as a Living Benefit will be

reduced in order to produce a basic insurance benefit that is

actuarially equivalent, to the extent practicable, to the basic

insurance benefit of those who do not elect to receive a Living

Benefit. The actuarial reduction will be based on assumptions of the

amount of interest lost to the Fund because of the early payment and

the time difference between when the Living Benefit payment is made and

when the death benefits would have been paid in the absence of a Living

Benefits election.

Sec. 870.1106 Withholdings and contributions for basic insurance.

(a) Withholdings and contributions for basic insurance for those

individuals who receive a lump-sum payment of their total basic

insurance as a Living Benefit will terminate at the end of the pay

period in which the Living Benefit election is effective.

(b) Withholdings and contributions for basic insurance for those

employees who receive a lump-sum payment of a partial amount of their

basic insurance as a Living Benefit will be reduced in proportion to

the amount of benefit elected and will be based on the post-election

BIA in effect at the end of the pay period in which the Living Benefit

election is effective.

Sec. 870.1107 Application procedures.

(a) The insured individual must request information on Living

Benefits and an application form directly from OFEGLI.

(b) The insured individual must complete the first part of the

application (General Information) and have his/her physician complete

the second part of the application (Physician's Statement). The insured

then submits the completed application directly to OFEGLI.

(c)(1) OFEGLI will review the application and the certification by

the physician of the nature of the illness and that the insured is

terminally ill, with a life expectancy of 9 months or less.

(2) If additional information is needed, OFEGLI will contact the

insured or the insured's physician.

(3) Under certain circumstances, OFEGLI may require a medical

examination prior to making an approval decision. In these cases,

OFEGLI will be financially responsible for the cost of the medical

examination.

(d)(1) If the application is approved, OFEGLI will send the insured

a check for the Living Benefit payment and an explanation of benefits.

In addition, once the payment has been cashed or deposited, OFEGLI will

send explanations of benefits to the insured's employing office and

payroll office so that they will change basic insurance withholdings

and contributions in accordance with Sec. 870.1106.

(2) If the application is not approved, OFEGLI will notify the

insured individual and the employing office. The decision will not be

subject to administrative review. However, the insured individual may

reapply at a later date if future circumstances

warrant. [[Page 31375]]

PART 871--STANDARD OPTIONAL LIFE INSURANCE

13. The authority citation for part 871 continues to read as

follows:

Authority: 5 U.S.C. 8716.

14. In Sec. 871.501, paragraph (a) is revised to read as follows:

Sec. 871.501 Termination and conversion of insurance.

(a) The standard optional insurance of an insured person stops when

his/her basic insurance stops as provided in Sec. 870.501 of this

chapter, subject to a 31-day extension of standard optional life

insurance coverage, except when the basic insurance stops due to a full

Living Benefits election, in which case the standard optional insurance

will continue unless voluntarily cancelled by the insured.

* * * * *

PART 872--ADDITIONAL OPTIONAL LIFE INSURANCE

15. The authority citation for part 872 continues to read as

follows:

Authority: 5 U.S.C. 8716.

16. In Sec. 872.501, paragraph (a) is revised to read as follows:

Sec. 872.501 Termination and conversion of insurance.

(a) The additional optional insurance of an insured person stops

when his/her basic insurance stops as provided in Sec. 870.501 of this

chapter, subject to a 31-day extension of additional optional insurance

coverage, except when the basic insurance stops due to a full Living

Benefits election, in which case the additional optional insurance will

continue unless voluntarily cancelled by the insured.

* * * * *

PART 873--FAMILY OPTIONAL LIFE INSURANCE

17. The authority citation for part 873 continues to read as

follows:

Authority: 5 U.S.C. 8716.

18. In Sec. 873.501, paragraph (a) is revised to read as follows:

Sec. 873.501 Termination and conversion of insurance.

(a) The family optional insurance of an insured person stops when

his/her basic insurance stops as provided in Sec. 870.501 of this

chapter, subject to a 31-day extension of family optional insurance

coverage, except when the basic insurance stops due to a full Living

Benefits election, in which case the family optional insurance will

continue unless voluntarily cancelled by the insured.

* * * * *

PART 874--ASSIGNMENT OF LIFE INSURANCE

19. The authority citation for part 874 continues to read as

follows:

Authority: 5 U.S.C. 8716.

20. In Sec. 874.201, paragraph (g) is added to read as follows:

Sec. 874.201 Assignments permitted.

* * * * *

(g) An insured individual who has elected a Living Benefit may not

assign his/her insurance and an insured individual who has assigned

his/her insurance may not elect a Living Benefit.

[FR Doc. 95-14574 Filed 6-14-95; 8:45 am]

BILLING CODE 6325-01-P