Retirement; Alternative Forms of Annuity

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

regulations on alternative forms of annuity to establish a standard for

determining what constitutes a critical medical condition to replace

the standard that the Merit Systems Protection Board determined was

invalid. The interim regulations also make effective the previously

proposed regulations to implement the changes made by the Omnibus

Budget Reconciliation Act of 1993--the alternative form of annuity is

no longer available for employees whose annuities commence on or after

October 1, 1994, except for employees who have a life-threatening

affliction or other critical medical condition--and also to revise the

list of critical medical conditions considered prima facie evidence of

eligibility. The regulations are necessary to conform the regulations

with current law.

DATES: Interim rules effective November 24, 1995.

Comments must be received on or before December 26, 1995.

ADDRESSES: Send comments to John E. Landers, Chief, Retirement Policy

Division; Retirement and Insurance Service; Office of Personnel

Management; P.O. Box 57; Washington, DC 20044; or deliver to OPM, Room

4351, 1900 E Street, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT:

Harold L. Siegelman, (202) 606-0299.

SUPPLEMENTARY INFORMATION: On November 4, 1994, we published (at 59 FR

55211) proposed regulations on alternative forms of annuity (AFA) to

implement the changes in sections 8343a and 8420a of title 5, United

States Code, made by the Omnibus Budget Reconciliation Act of 1993,

Pub. L. 103-66. The Act included a provision terminating this benefit

for employees whose annuities commence on or after October 1, 1994,

except for employees who have a life-threatening affliction or other

critical medical condition. We also proposed to revise the list of

critical medical conditions considered prima facie evidence of

eligibility. We received one comment on the proposed regulations.

The commenter expressed concern about applications for annuity who

have a critical medical condition that is not on the list of conditions

that constitute prima facie evidence of medical eligibility. The

commenter stated that these applicants should be allowed to qualify

based on medical condition. Sections 831.2207(c)(3)(iv) and

842.707(c)(3)(iv) of Title 5, Code of Federal Regulations, already

accomplish that goal. A doctor's certification that an applicant has

one of the listed conditions is sufficient for an OPM benefits

specialist to approve a claim for the alternative form of annuity

without review by an OPM doctor. If an applicant claims entitlement to

the AFA because of a medical condition not on the list, an OPM doctor

reviews the medical evidence to verify that the condition is

qualifying.

Subsequent to the publication of the proposed regulations, the

Merit Systems Protection Board (MSPB), in the case of Ora L. Haywood v.

OPM, Docket No. DC0831930087-I-1 (Dec. 4, 1994), decided that OPM's

regulation at section 831.2207(c)(3)(i) defining a ``life-threatening

affliction or other critical medical condition'' is invalid. The

regulatory standard rejected by MSPB required a ``medical condition so

severe as to reasonably limit an individual's probable life expectancy

to less than one year.''

As determined by the Board, the Congress retained the AFA for any

nondisability retiree with a ``life-threatening affliction or other

critical medical condition.'' The law allows such employees to recover

their retirement contributions during their lifetime. The phrase

``life-threatening affliction or other critical medical condition'' was

first added to section 8343a by section 6001 of Public Law 100-203,

December 22, 1987, 101 Stat. 1330-275. Congress had provided an

exception to the deferred payment schedule for the alternative annuity

lump-sum benefit to this same category annuitants, namely,

nondisability annuitants who were suffering from a ``life-threatening

affliction or other critical medical condition'' at the time of

retirement.

OPM originally defined a ``life-threatening affliction or other

critical medical condition'' in its interim regulations, published

April 8, 1988, in the Federal Register, 53 FR 11633, after the passage

of Public Law 100-203. The Supplementary Information in the rulemaking

notice explained that the amendment to section 8343a changed the way

the lump-sum credit was paid to certain retirees who elected the

alternative form of annuity. Retirees whose annuities began after

January 3, 1988, and before October 1, 1989, who elected the

alternative form of annuity received the lump-sum payment in two

installments. The first installment was paid at the time of retirement

and the second installment 1 year after the commencing date of annuity.

A retiree who died within 1 year of the date of his retirement due

to a life-threatening affliction or other critical condition would not

realize the full benefit of his alternative annuity election since he

or she would not be alive to receive the second installment of the

lump-sum payment. Retirees in this situation were, therefore, permitted

to receive the entire amount of the lump-sum benefit in one installment

payable at the time of retirement. Retirees whose probable life

expectancy was not less than 1 year were likely to be alive to receive

payment of the second installment of the lump-sum benefit. Therefore,

there would be no need to exclude them from receiving payment in two

installments.

Section 7001(a)(4) of the Omnibus Budget Reconciliation Act of

1990, October 27, 1990, 104 Stat. 1388-327, Pub. L. 101-508, made

several changes to the Civil Service Retirement law. Among those

changes was the suspension of the alternative form of

[[Page 54586]]

annuity with a lump-sum payment equal to an employee's retirement

contributions, for most Federal employees covered by the Civil Service

Retirement System whose voluntary annuities commenced on or after

December 2, 1990, but before October 1, 1995. An exception provided for

in this legislation was codified at 5 U.S.C. 8343a(f)(2). This

exception allowed nondisability annuitants to receive the lump-sum

payment if they were suffering from a ``life-threatening affliction or

other critical medical condition'' at the time of retirement.

OPM's interim regulations implementing Public Law 101-508 were

published on February 19, 1991, using the same definition of ``life-

threatening affliction or other critical medical condition.'' The

regulations implementing this provision are found at 5 CFR

831.2203(h)(1)(i) and 831.2207 (c)(2) and (3). A ``life-threatening

affliction or other critical medical condition'' is defined at 5 CFR

831.2207(c)(3)(i) as a ``medical condition so severe as to reasonably

limit an individual's probable life expectancy to less than one year.''

MSPB concluded that OPM's regulatory interpretation at sections

831.2207 and 831.2208 of Title 5, Code of Federal Regulations, was

appropriate for the bifurcated payments in the original statute because

the 1-year deferral of the lump-sum payment would be against equity and

good conscience for individuals suffering from medical conditions that

would likely be fatal within a year. However, in the context of

continued eligibility under the 1990 (and 1993) provisions, MSPB found

that standard unacceptable. MSPB stated that the purpose of the

provision was to allow critically-ill employees to recover their

contributions during their lifetime.

To conform our regulations with the Board determination of the

purpose of the provision, we calculated the time that a newly-retired,

nondisability retiree receiving the average monthly annuity must

collect annuity to recover the average amount of employee

contributions. On average, nondisability CSRS annuitants must receive

annuity for 22 months to recover their contributions. Thus, an

individual who at the time of retirement has a medical condition which

is not likely to limit his or her life expectancy to less than 2 years

will usually live long enough to recover all of his or her retirement

contributions in the form of monthly annuity benefits. Accordingly, we

are amending sections 831.2207(c)(3)(i) and 842.707(c)(3)(i) of Title

5, Code of Federal Regulations, to replace the 1-year standard with a

2-year standard.

The amendments to paragraph (e) of section 831.2203 and paragraph

(b) of section 842.704 correct obsolete procedures that have become

inappropriate because of statutory changes. When AFA was available to

all nondisability retirees, we notified all employees of their payment

options. The current law permits AFA in a very small number of cases.

Notice of AFA election rights to all retiring employees is no longer

appropriate. An eligible employee must notify OPM and submit qualifying

medical evidence to initiate the election process. The regulations have

been amended to reflect this change.

Waiver of General Notice of Proposed Rulemaking

Under section 553(b)(3)(B) of title 5, United States Code, I find

that good cause exists for waiving the general notice of proposed

rulemaking for the change in the definition of a ``life-threatening

affliction or other critical medical condition.'' Delaying the

implementation of the 2-year standard would be contrary to the public

interest. Because MSPB has already invalidated the current 1-year

standard in our regulations, a delay in application of the new 2-year

standard serves no purpose.

Regulatory Flexibility Act

I certify that this regulation will not have a significant economic

impact on a substantial number of small entities because the regulation

will only affect federal employees and agencies and retirement payments

to retired Government employees and their survivors.

List of Subjects in 5 CFR Parts 831 and 842

Administrative practice and procedure, Air traffic controllers,

Claims, Disability benefits, Firefighters, Government employees, Income

taxes, Intergovernmental relations, Law enforcement officers, Pensions,

Reporting and recordkeeping requirements, Retirement.

U.S. Office of Personnel Management.

James B. King,

Director.

Accordingly, OPM is amending 5 CFR parts 831 and 842 as follows:

PART 831--RETIREMENT

1. The authority citation for part 831 continues to read as

follows:

Authority: 5 U.S.C. 8347; Sec. 831.102 also issued under 5

U.S.C. 8334; Sec. 831.106 also issued under 5 U.S.C. 552a;

Sec. 831.108 also issued under 5 U.S.C. 8336(d)(2);

Sec. 831.201(b)(6) also issued under 5 U.S.C. 7701(b)(2);

Sec. 831.204 also issued under section 7202(m)(2) of the Omnibus

Budget Reconciliation Act of 1990, Pub. L. 105-508, 104 Stat. 1388-

339; Sec. 831.303 also issued under 5 U.S.C. 8334(d)(2);

Sec. 831.502 also issued under 5 U.S.C. 8337; Sec. 831.502 also

issued under section 1(3), E.O. 11228, 3 CFR 1964-1965 Comp.;

Sec. 831.621 also issued under section 201(d) of the Federal

Employees Benefits Improvement Act of 1986, Pub. L. 99-251, 100

Stat. 23; subpart S also issued under 5 U.S.C. 8345(k); subpart V

also issued under 5 U.S.C. 8343a and section 6001 of the Omnibus

Budget Reconciliation Act of 1987, Pub. L. 100-203, 101 Stat. 1330-

275; Sec. 831.2203 also issued under section 7001(a)(4) of the

Omnibus Budget Reconciliation Act of 1990, Pub. L. 101-508; 104

Stat. 1388-328.

2. In section 831.2203, paragraph (e) is revised, paragraphs (h)(1)

introductory text, (h)(1)(i), and (h)(1)(ii) are redesignated as

paragraphs (h)(1)(i) introductory text, (h)(1)(i)(A), and (h)(1)(i)(B),

respectively, and a new paragraph (h)(1)(ii) is added to read as

follows:

Sec. 831.2203 Eligibility.

* * * * *

(e) An election of the alternative form of annuity must be in

writing and received by OPM on or before the date of final

adjudication. After the date of final adjudication, an election of the

alternative form of annuity is irrevocable.

* * * * *

(h)(1) * * *

(ii) An individual whose annuity commences on or after October 1,

1994, may elect an alternative form of annuity only if that individual

is an employee or Member who meets the conditions and fulfills the

requirements described in Sec. 831.2207(c) (2) and (3).

* * * * *

3. In section 831.2207, paragraph (c)(3)(i) is revised, paragraph

(c)(3)(ii)(G) is removed and reserved, paragraph (c)(3)(ii)(V) is

removed, and paragraphs (c)(3)(ii) (B), (H), (K), and (M) are revised

to read as follows:

Sec. 831.2207 Partial deferred payment of the lump-sum credit if

annuity commences after January 3, 1988, and before October 1, 1989.

* * * * *

(c) * * *

(3)(i) For the purpose of this section, life-threatening affliction

or other critical medical condition means a medical condition so severe

as to reasonably limit an individual's probable life expectancy to less

than 2 years.

(ii) * * *

[[Page 54587]]

(B) Aortic stenosis (severe).

* * * * *

(H) Severe cardiomyopathy--Class IV.

(K) Cardiac aneurysm not amenable to surgical treatment.

* * * * *

(M) Severe hepatic failure.

* * * * *

Secs. 831.2203, 831.2208 [Amended]

4. In the list below, for each section and paragraph indicated in

the left two columns, remove the reference indicated in the third

column where it appears in the paragraph, and add the reference

indicated in the fourth column:

----------------------------------------------------------------------------------------------------------------

Section Paragraph Remove Add

----------------------------------------------------------------------------------------------------------------

831.2203.............. Newly designated 1995................... 1994

(h)(1)(i) introductory

text.

831.2203.............. (h)(2) introductory text (h)(1)(ii)............. (h)(1)(i)(B)

831.2208.............. (a) introductory text... 1995................... 1994

831.2208.............. (b)..................... 1995................... 1994

831.2208.............. (c)(2)(ii).............. 831.2203(h)(1)(i)...... 831.2203(h)(1)(i)(A)

----------------------------------------------------------------------------------------------------------------

PART 842--FEDERAL EMPLOYEES RETIREMENT SYSTEM--BASIC ANNUITY

5. The authority citation for part 842 continues to read as

follows:

Authority: 5 U.S.C. 8461(g); Secs. 842.104 and 842.106 also

issued under 5 U.S.C. 8461(n); Sec. 842.105 also issued under 5

U.S.C. 8402(c)(1) and 7701(b)(2); Sec. 842.106 also issued under

section 7202(m)(2) of the Omnibus Budget Reconciliation Act of 1990,

Pub. L. 101-508 and 5 U.S.C. 8402(c)(1); Secs. 842.604 and 842.611

also issued under 5 U.S.C. 8417; Sec. 842.607 also issued under 5

U.S.C. 8416 and 8417; Sec. 842.614 also issued under 5 U.S.C. 8419;

Sec. 842.615 also issued under 5 U.S.C. 8418; Sec. 842.703 also

issued under section 7001(a)(4) of the Omnibus Budget Reconciliation

Act of 1990, Pub. L. 101-508; Sec. 842.707 also issued under section

6001 of the Omnibus Budget Reconciliation Act of 1987, Pub. L. 100-

203; Sec. 842.708 also issued under section 4005 of the Omnibus

Budget Reconciliation Act of 1989, Pub. L. 101-239 and section 7001

of the Omnibus Budget Reconciliation Act of 1990, Pub. L. 101-508;

subpart H also issued under 5 U.S.C. 1104.

6. In section 842.703, paragraphs (d)(1) introductory text,

(d)(1)(i), and (d)(1)(ii) are redesignated as paragraphs (d)(1)(i)

introductory text, (d)(1)(i)(A), and (d)(1)(i)(B), respectively, and a

new paragraph (d)(1)(ii) is added to read as follows:

Sec. 842.703 Eligibility.

* * * * *

(d)(1) * * *

(ii) An individual whose annuity commences on or after October 1,

1994, may elect an alternative form of annuity only if that individual

is an employee or Member who meets the conditions and fulfills the

requirements described in Sec. 842.707(c) (2) and (3).

* * * * *

7. In section 842.704, paragraph (b) is revised to read as follows:

Sec. 842.704 Election requirements.

* * * * *

(b) An election of the alternative form of annuity must be in

writing and received by OPM on or before the date of final

adjudication. After the date of final adjudication, an election of the

alternative form of annuity is irrevocable.

* * * * *

8. In section 842.707, paragraph (c)(3)(i) is revised, paragraph

(c)(3)(ii)(G) is removed and reserved, paragraph (c)(3)(ii)(V) is

removed, and paragraphs (c)(3)(ii) (B), (H), (K), and (M) are revised

to read as follows:

Sec. 842.707 Partial deferred payment of the lump-sum credit if

annuity commences after January 3, 1988, and before October 1, 1989.

* * * * *

(c) * * *

(3)(i) For the purpose of this section, life-threatening affliction

or other critical medical condition means a medical condition so severe

as to reasonably limit an individual's probable life expectancy to less

than 2 years.

(ii) * * *

(B) Aortic stenosis (severe).

* * * * *

(H) Severe cardiomyopathy--Class IV.

* * * * *

(K) Cardiac aneurysm not amenable to surgical treatment.

* * * * *

(M) Severe hepatic failure.

* * * * *

Secs. 842.703, 842.708 [Amended]

9. In the list below, for each section and paragraph indicated in

the left two columns, remove the reference indicated in the third

column where it appears in the paragraph, and add the reference

indicated in the fourth column:

----------------------------------------------------------------------------------------------------------------

Section Paragraph Remove Add

----------------------------------------------------------------------------------------------------------------

842.703............... Newly designated 1995................... 1994

(d)(1)(i) introductory

text.

842.703............... (d)(2) introductory text (d)(1)(ii)............. (d)(1)(i)(B)

842.708............... (a) introductory text... 1995................... 1994

842.708............... (b)..................... 1995................... 1994

842.708............... (c)(2)(ii).............. 842.703(d)(1)(i)....... 842.703(d)(1)(i)(A)

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[[Page 54588]]

[FR Doc. 95-26233 Filed 10-24-95; 8:45 am]

BILLING CODE 6325-01-M