Federal Employees' Group Life Insurance Program: Life Insurance Improvements

OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 870

RIN: 3206-AI64

Federal Employees' Group Life Insurance Program: Life Insurance

Improvements

AGENCY: Office of Personnel Management.

ACTION: Interim rule with request for comments.

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

regulations to implement the Federal Employees Life Insurance

Improvement Act, which was enacted October 30, 1998. This law made

numerous changes to the Federal Employees' Group Life Insurance (FEGLI)

Program. These changes include the elimination of maximums on Basic

insurance and Option B, coverage of foster children under Option C,

making the contractual incontestability provision statutory, providing

for the direct payment of premiums for all employees and annuitants

whose pay is too small for premium withholdings, allowing retiring

employees to elect unreduced Option B and Option C coverage,

establishing a three-year demonstration project for the portability of

Option B, and increasing the coverage available under Option C.

DATES: Interim rules are effective January 27, 2000. Comments must be

received on or before February 28, 2000.

ADDRESSES: Send written comments to Abby L. Block, Chief, Insurance

Policy and Information Division, Office of Insurance Programs,

Retirement and Insurance Service, Office of Personnel Management, P.O.

Box 57, Washington, DC 20044; or deliver to OPM, Room 3425, 1900 E

Street, NW, Washington, DC; or FAX to (202) 606-0633.

FOR FURTHER INFORMATION CONTACT: Karen Leibach, (202) 606-0004.

SUPPLEMENTARY INFORMATION: On October 30, 1998, Public Law 105-311, 112

Stat. 2950, was signed into law. This law, the Federal Employees Life

Insurance Improvement Act, changed many parts of the FEGLI Program.

These regulations put the various new statutory provisions into place.

1. Elimination of Maximums

An employee's Basic Insurance Amount is his/her annual rate of

basic pay, rounded to the next higher thousand, plus $2,000. Each

multiple of Option B coverage is equal to an employee's annual pay,

rounded to the next higher thousand.

Before the enactment of Public Law 105-311, the law limited both

Basic insurance and the multiples of Option B insurance to the annual

rate of pay for Level II Executive Schedule positions, rounded up (plus

$2,000 for Basic). The maximum amount of Basic insurance was $139,000,

and the maximum amount of an Option B multiple was $137,000.

The new law removed those maximums. These regulations also provide

that Option A coverage, which increased for employees in this

situation, will no longer exceed $10,000.

This provision of the law became effective the first pay period

beginning on or after October 30, 1998.

2. Coverage of Foster Children

Before the enactment of Public Law 105-311, foster children were

not eligible for coverage under Option C. They became eligible as

covered family members effective October 30, 1998.

For ease of administration, we have made the requirements for

coverage of foster children under Option C the same as the requirements

for coverage of foster children under the Federal Employees Health

Benefits Program. Those requirements are that the child be unmarried

and under the age of 22 (or if over 22, incapable of self-support

because of a disabling condition that started before the 22nd

birthday), that the child be living with the employee or annuitant in a

regular parent-child relationship, that the employee/annuitant be the

principal source of support for the child, and that the employee/

annuitant expect to raise the child to adulthood. The employee/

annuitant must certify in writing that the child meets these

requirements. Grandchildren can qualify as foster children only if they

meet all the requirements.

3. Incontestability

This provision allows an erroneous enrollment to stand if it has

been in effect for at least 2 years. There was already such a provision

in the FEGLI contract, but it did not apply if the employee or

annuitant was excluded from coverage by law or if the employee's

position was excluded by regulation. The contractual provision also did

not require that the individual have paid premiums for the erroneous

coverage before incontestability could apply. The new statutory

provision applies to all situations in which an administrative error

allows an employee or annuitant to be insured when the law or

regulations would otherwise prohibit the election. If the erroneous

coverage and applicable premium withholdings have been in place for at

least 2 years before the error is discovered, the coverage is allowed

to stand.

This provision was effective for any findings of erroneous coverage

made on or after October 30, 1998.

4. Direct Payment of Premiums

Before the enactment of Public Law 105-311, all employees and

compensationers and most annuitants whose pay/compensation/annuity was

too small for premium withholdings had to terminate their FEGLI

coverage. The only exception to this was FERS (Federal Employees'

Retirement System) annuitants; these annuitants were allowed to make

direct premium payments.

Public Law 105-311 extends the right to make direct payment of

FEGLI premiums to anyone with insufficient pay, compensation, or

annuity. These regulations provide that this applies when the ``pay,''

after all other deductions, is insufficient on an ongoing basis, i.e.,

when the situation is expected to continue for at least 6 months.

Insured individuals in this situation can choose either to

terminate their FEGLI coverage or to make direct payments. Employees

who choose to make direct payments must pay on a current basis; if they

do not make the payments, the coverage cancels. Employees who choose to

terminate are entitled to the 31-day extension of coverage and the

right to convert. When the employee's pay again becomes sufficient for

the premium withholdings, premiums will again be withheld from the

employee's pay. Any

[[Page 72460]]

coverage that was terminated is automatically restored; coverage that

was cancelled for nonpayment, however, will remain cancelled.

Annuitants and compensationers who elect to make direct premium

payments will remain on direct pay, even if their ``pay'' increases

enough to allow withholdings.

This provision became effective the first pay period beginning on

or after October 30, 1998.

5. Election of Unreduced Options B and C at Retirement

Before the enactment of Public Law 105-311, Option B and C coverage

began to reduce for annuitants when they reached age 65. Both coverages

reduced by 2% per month until there was no coverage left. This

reduction was automatic, and annuitants had no choice about it. Because

their coverage was reducing, annuitants paid no premiums after age 65.

Public Law 105-311 allows annuitants to make an election at

retirement as to whether they want their Option B and Option C coverage

to reduce. (This also applies to persons becoming insured as

compensationers.) If they choose No Reduction, they will continue to

pay premiums appropriate to their age beyond age 65. OPM has set April

24, 1999, as the effective date for this provision. This applies to

persons separating for retirement or becoming insured as

compensationers on or after that date.

Under these regulations, retiring employees (and persons becoming

insured as compensationers) will choose how many of the Option B

multiples for which they are eligible and how many of the Option C

multiples for which they are eligible they actually want to continue.

They will also elect either Full Reduction or No Reduction for all of

their multiples of each type of Optional coverage. Shortly before an

individual's 65th birthday, he/she will receive a reminder notice,

showing what coverage the annuitant/compensationer elected and what the

premiums will be for coverage beyond age 65. The individual will then

have an opportunity to change his/her election, including choosing to

have some multiples reduce and others not reduce. For persons who are

already over age 65 at the time of retirement or becoming insured as a

compensationer, the reminder notice will be sent as soon as the

retirement processing is complete.

Public Law 105-311 also allows for an election opportunity for

those who are already retired or insured as compensationers and who

still have Option B coverage on the effective date (April 24, 1999).

Those who are over age 65 and whose Option B coverage has already

started reducing will elect whether to freeze their remaining Option B

at the amount in force on the effective date. These annuitants/

compensationers will not have an election opportunity for Option C.

6. Portability

Public Law 105-311 set up a 3-year demonstration project for the

portability of Option B coverage which would otherwise terminate. This

provision allows certain individuals to continue their group coverage

at the group rate plus an administrative surcharge. Those eligible for

portability of their Option B are separating employees and employees

exceeding 12 months in nonpay status, who meet the same 5-year/1st

opportunity requirement as employees who are retiring. Ported coverage

reduces by 50% when the insured individual reaches age 70 and

terminates when the individual reaches age 80.

These regulations put in place the requirements and procedures for

portability. OPM has set April 24, 1999, as the effective date for this

provision.

7. Increased Option C Coverage

Before the enactment of Public Law 105-311, Option C coverage was

$5,000 for a spouse and $2,500 for each eligible child.

Public Law 105-311 increased the coverage available under Option C

to up to 5 multiples of the previous amounts. OPM has set April 24,

1999, as the effective date for this provision.

New employees and employees newly eligible on or after the

effective date can elect the higher amounts within 31 days of becoming

eligible. Employees who have a life event on or after April 24, 1999,

can elect the higher amounts within 60 days after the life event.

Employees who had a life event between October 30, 1998, and April 23,

1999, were allowed to elect the increased coverage within 60 days of

April 24, 1999; their increased coverage was effective April 24, 1999.

8. Open Season

Public Law 105-311 required OPM to conduct an open season no later

than 180 days after the date of enactment, with coverage elected during

the open season effective 365 days after the start of the open season.

OPM held an open enrollment period from April 24, 1999, through

June 30, 1999. All eligible employees were able to elect or increase

coverage. The effective date of open enrollment elections is the first

pay period beginning on or after April 23, 2000, which follows a pay

period in which the employee was in pay and duty status for the

required amount of time.

9. Study and Report

Public Law 105-311 also required OPM to conduct a study and submit

a report to Congress on Federal employees' interest in other types of

life insurance, specifically group universal life insurance, group

variable universal life insurance, and additional voluntary accidental

death and dismemberment insurance. OPM completed the study, which

showed that there is some interest in these other life insurance

products. OPM submitted its report to Congress May 4, 1999.

Waiver of Notice of Proposed Rulemaking

In accordance with Sec. 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. This notice is being waived in order to implement

legislation which has become effective.

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 life insurance benefits of Federal employees and

retirees.

Executive Order 12866, Regulatory Review

This rule has been reviewed by the Office of Management and Budget

in accordance with Executive Order 12866.

List of Subjects in 5 CFR Part 870

Administrative practice and procedure, Government employees,

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

Office of Personnel Management.

Janice R. Lachance,

Director.

Accordingly, OPM is amending 5 CFR part 870 as follows:

PART 870--FEDERAL EMPLOYEES' GROUP LIFE INSURANCE PROGRAM

1. Revise the authority citation for part 870 to read as follows:

Authority: 5 U.S.C. 8716; subpart J also issued under section

599C of Public Law 101-513, 104 Stat. 2064, as amended;

Sec. 870.302(a)(3)(ii) also issued under sec. 153 of Public Law 104-

134, 110 Stat. 1321; Sec. 870.302(a)(3) also issued under sections

11202(f), 11232(e), and 11246(b) and (c) of Public Law 105-33, 111

Stat. 251 and section 7(e) of Public Law 105-274, 112 Stat. 2419.

[[Page 72461]]

2. In Sec. 870.101, revise the definition of the first appearance

of Child and add the definitions Portability Office, Ported coverage,

and Regular parent-child relationship in alphabetical order to read as

follows:

Sec. 870.101 Definitions.

* * * * *

Child, as used in the definition of Family member for Option C

coverage, means a legitimate child, an adopted child, a stepchild or

foster child who lives with the employee or former employee in a

regular parent-child relationship, or a recognized natural child. It

does not include a stillborn child or a grandchild (unless the

grandchild meets all the requirements of a foster child). The child

must be under age 22 or, if age 22 or over, must be incapable of self-

support because of a mental or physical disability which existed before

the child reached age 22.

* * * * *

Portability Office means the office OPM designates to manage ported

coverage and to collect premiums for ported coverage.

Ported coverage means continued coverage that would otherwise have

terminated.

* * * * *

Regular parent-child relationship means that the employee or former

employee is exercising parental authority, responsibility, and control

over the child by caring for, supporting, disciplining, and guiding the

child, including making decisions about the child's education and

medical care.

* * * * *

Sec. 870.104 [Redesignated as Sec. 870.105]

3. Redesignate Sec. 870.104 as Sec. 870.105 and amend it by

revising paragraph (a), and add a new Sec. 870.104 to read as follows:

Sec. 870.104 Incontestability.

(a) If an individual erroneously becomes insured, the coverage will

remain in effect if at least 2 years pass before the error is

discovered, and if the individual has paid applicable premiums during

that time. This applies to errors discovered on or after October 30,

1998.

(b) If an employee is erroneously allowed to continue insurance

into retirement or compensation, the coverage will remain in effect if

at least 2 years pass before the error is discovered, and if the

annuitant or compensationer has paid applicable premiums during that

time. This applies to such errors discovered on or after October 30,

1998.

(c) If an individual who is allowed to continue erroneous coverage

because of incontestability does not want the coverage, he/she may

cancel the coverage on a prospective basis. There is no refund of

premiums.

Sec. 870.105 Initial decision and reconsideration.

(a) An individual may ask his/her agency or retirement system to

reconsider its initial decision denying life insurance coverage, the

opportunity to change coverage, the opportunity to assign insurance, or

the opportunity to elect portability for Option B coverage.

* * * * *

4. Revise Sec. 870.202(a)(1)(ii) to read as follows:

Sec. 870.202 Basic insurance amount (BIA).

(a)(1) * * *

(ii) $10,000; whichever is higher, unless an employee has elected a

Living Benefit under subpart K of this part. Effective for pay periods

beginning on or after October 30, 1998, there is no maximum BIA.

* * * * *

5. Revise Sec. 870.205(a), (b)(1), and (c) to read as follows:

Sec. 870.205 Amount of Optional insurance.

(a) Option A coverage is $10,000. Effective for pay periods

beginning on or after October 30, 1998, Option A cannot exceed this

amount. Exception: This does not apply to annuitants who retired with a

higher amount of Option A before the removal of the maximum on Basic

insurance (the first pay period beginning on or after October 30,

1998).

(b)(1) Option B coverage comes in 1, 2, 3, 4, or 5 multiples of an

employee's annual pay (after the pay has been rounded to the next

higher thousand, if not already an even thousand). Effective for pay

periods beginning on or after October 30, 1998, there is no maximum

amount for each multiple.

* * * * *

(c) Effective April 24, 1999, Option C coverage comes in 1, 2, 3,

4, or 5 multiples of the following amounts: $5,000 on the death of a

spouse and $2,500 on the death of an eligible child. Payments are made

to the insured individual.

6. Revise Sec. 870.301(b) and add a new Sec. 870.303 to subpart C

to read as follows:

Subpart C--Eligibility

Sec. 870.301 Eligibility for life insurance.

* * * * *

(b)(1) Optional insurance must be specifically elected; it is not

automatic.

(2) An employee may elect one or more types of Optional insurance

if:

(i) He/she has Basic insurance; and

(ii) He/she does not have a waiver of that type (or types) or

Optional insurance still in effect.

* * * * *

Sec. 870.303 Eligibility of foster children under Option C.

(a) Effective October 30, 1998, foster children are eligible for

coverage as family members under Option C.

(b) To qualify for coverage as a foster child, the child must meet

the following requirements:

(1) The child must live with the insured employee, annuitant, or

compensationer;

(2) The parent-child relationship (as defined in Sec. 870.101) must

be with the insured employee, annuitant, or compensationer, not the

biological parent;

(3) The employee, annuitant, or compensationer must be the primary

source of financial support for the child; and

(4) The employee, annuitant, or compensationer must expect to raise

the child to adulthood.

(c) A child placed in an insured individual's home by a welfare or

social service agency under an agreement by which the agency retains

control of the child or pays for maintenance does not qualify as a

foster child.

(d)(1) An insured individual wishing to cover a foster child must

sign a certification stating that the child meets all the requirements

and that he/she will notify the employing office or retirement system

if the child marries, moves out of the home, or stops being financially

dependent on the employee, annuitant, or compensationer.

(2) The employing office or retirement system must keep the signed

certification in the insured individual's file, along with other life

insurance forms.

(e) A foster child who moves out of the insured individual's home

to live with a biological parent loses eligibility and cannot again be

covered as a foster child unless:

(1) The biological parent dies;

(2) The biological parent is imprisoned;

(3) The biological parent becomes unable to care for the child due

to a disability; or

(4) The employee, annuitant, or compensationer obtains a court

order taking parental responsibility away from the biological parent.

7. Revise Sec. 870.402(c) to read as follows:

Sec. 870.402 Withholdings for Optional insurance.

* * * * *

[[Page 72462]]

(c)(1) Subject to the provisions for reemployed annuitants in

Sec. 870.707, the full cost of Optional insurance must be withheld from

the annuity of an annuitant and from the compensation of a

compensationer.

(2) The withholdings for Option A stop the month after the month in

which an annuitant or compensationer reaches age 65.

(3) For an annuitant or compensationer who elects Full Reduction

for any Option B or Option C multiples, the withholdings for those

multiples stop the month after the month in which he/she reaches age

65.

(4) For an annuitant or compensationer who elects No Reduction for

any Option B or Option C multiples, the withholdings for those

multiples continue, as long as he/she remains insured.

* * * * *

8. Revise Sec. 870.405 to read as follows:

Sec. 870.405 Direct premium payments.

(a) Since January 1, 1988, annuitants who retired under 5 U.S.C.

chapter 84 (Federal Employees' Retirement System) have been able to

make direct premium payments if their annuity became too small to cover

the premiums. Effective the first pay period beginning on or after

October 30, 1998, all employees, annuitants, and compensationers whose

pay, annuity, or compensation is insufficient to cover the withholdings

can make direct premium payments.

(b)(1) For an individual to be eligible to make direct premium

payments, the employing office or retirement system must determine that

the pay, annuity, or compensation, after all other deductions, is

expected to be insufficient on an ongoing basis, i.e., for the next 6

months or more.

(2) This section does not apply to employees in nonpay status.

Employees in nonpay status are governed by Sec. 870.404(c).

(c)(1) When the employing office or retirement system determines

that the pay, annuity, or compensation is insufficient, and will be

insufficient on an ongoing basis, it must notify the insured individual

(or the assignee, if the individual has assigned his/her insurance

under subpart I of this part) in writing and inform him/her of the

available choices.

(2) Within 31 days of receiving the notice (45 days for individuals

living overseas), the insured individual (or assignee) must return the

notice to the employing office or retirement system, choosing either to

terminate some or all of the insurance or to make direct premium

payments. An employee, annuitant, or compensationer is considered to

receive a mailed notice 5 days after the date of the notice.

(3) If an individual does not return the notice within the required

time frames, the employing office or retirement system will terminate

the insurance.

(d)(1) Terminated coverage stops at the end of the last pay period

for which premiums were withheld.

(2) An individual whose insurance terminates, either by choice or

by failure to return the notice, gets the 31-day extension of coverage

and right to convert, as provided in subpart F of this part.

(3)(i) When an employee's pay again becomes sufficient to allow

premium withholdings, the employing office will automatically reinstate

the terminated coverage.

(ii) An annuitant or compensationer whose coverage terminates

cannot have the coverage reinstated when the annuity or compensation

becomes sufficient to cover withholdings.

(e)(1) Employing offices and retirement systems must establish a

method for accepting premium payments for insured individuals who

choose to pay directly.

(2) Individuals who are paying directly must send the required

premium payment to the employing office or retirement system for every

pay period during which coverage continues. The insured individual must

make the payment after each pay period, according to the schedule

established by the employing office or retirement system.

(3)(i) When an employee's pay again becomes sufficient to allow

premium withholdings, he/she must stop making direct payments. The

employing office will begin to withhold premiums automatically.

(ii) An annuitant or compensationer who is making direct premium

payments must continue to pay directly, even if the annuity or

compensation becomes sufficient to allow withholdings.

(f) The employing office or retirement system must submit all

direct premium payments, along with its regular life insurance

premiums, to OPM according to procedures set by OPM.

(g)(1) If an individual on direct pay fails to make the required

premium payment on time, the employing office or retirement system must

notify the individual. The individual must make the payment within 15

days after receiving the notice (45 days if living overseas). An

individual is considered to receive a mailed notice 5 days after the

date of the notice.

(2) If an insured individual fails to make the overdue payment,

his/her insurance cancels. Cancellation is effective at the end of the

last pay period for which payment was received.

(3) An individual whose insurance cancels for nonpayment does not

get the 31-day extension of coverage or the right to convert provided

in subpart F of this part.

(4) Coverage that cancels for nonpayment is not reinstated when the

individual's pay, annuity, or compensation becomes sufficient to allow

withholdings, except as provided by paragraph (g)(5) of this section.

(5) If, for reasons beyond his/her control, an insured individual

is unable to pay within 15 days of receiving the past due notice (45

days if living overseas), he/she may request reinstatement of coverage

by writing to the employing office or retirement system within 30 days

from the date of cancellation. The individual must provide proof that

he/she was prevented from paying within the time limit for reasons

beyond his/her control. The employing office or retirement system will

decide if the individual is eligible for reinstatement of coverage. If

the employing office or retirement system approves the request, the

coverage is reinstated back to the date of cancellation, and the

individual must pay the back premiums.

9. Revise Sec. 870.506(a) to read as follows:

Sec. 870.506 Optional insurance: cancelling a waiver.

(a) When there is a change in family circumstances. (1) An employee

cannot cancel a waiver of Option A due to a change in family

circumstances.

(2) An employee who has waived Option B coverage can elect it, and

an employee who has fewer than 5 multiples of Option B can increase the

number of multiples, upon his/her marriage or divorce, upon a spouse's

death, or upon acquiring an eligible child. Exception: Acquiring a

foster child does not qualify an employee to elect or increase Option B

coverage.

(3) The number of multiples of Option B coverage that an employee

can obtain or add (which cannot exceed a total of 5) is limited to the

following:

(i) For marriage, the number of additional family members (spouse

and eligible children) acquired with the marriage;

(ii) For acquisition of children, the number of eligible children

acquired; and

(iii) For divorce or death of a spouse, the total number of

eligible children of the employee.

(4)(i) An employee who has waived Option C coverage can elect it,

and an

[[Page 72463]]

employee who has fewer than 5 multiples of Option C can increase the

number of multiples, upon his/her marriage or upon acquiring an

eligible child. An employee can also elect Option C coverage upon

divorce or death of a spouse, if the employee has any eligible

children.

(ii) An employee electing or increasing Option C coverage may elect

any number of multiples, as long as the total number of multiples does

not exceed 5.

(5)(i) Except as stated in paragraph (a)(5)(iii) of this section,

the employee must file an election under paragraph (a)(2) or (a)(4) of

this section with the employing office, in a manner designated by OPM,

along with proof of the event, no later than 60 days following the date

of the event that permits the election; the employee may instead file

the election before the event and provide proof no later than 60 days

following the event.

(ii) This 60-day time limit may be extended if the individual is

not serving in a covered position on the date of the event or if the

individual separates from covered service prior to the end of the 60-

day time limit. This extension cannot exceed the 31-day time limit for

electing insurance following employment in a covered position or, for

an election under paragraph (a)(4) of this section, the 31-day period

following the 1st day on which the individual becomes eligible to

cancel a waiver of Basic insurance.

(iii) An employee making an election under paragraph (a)(4)(i) of

this section because of acquiring an eligible foster child must file

the election with the employing office no later than 60 days after

completing the required certification.

(iv) Employees who had a change in family circumstances between

October 30, 1998, and April 23, 1999, had until June 23, 1999, to make

an election under this section.

(6)(i) The effective date of Option B insurance elected under

paragraph (a)(1) of this section is the 1st day the employee actually

enters on duty in pay status on or after the day the employing office

receives the election.

(ii) The effective date of Option C coverage elected because of

marriage, divorce, death of a spouse, or acquiring an eligible child

other than a foster child is the day the employing office receives the

election, or the date of the event, whichever is later. Exception:

Coverage elected under paragraph (a)(5)(iv) of this section was

effective April 24, 1999.

(iii) The effective date of Option C coverage elected because of

acquiring a foster child is the date the employing office receives the

election or the date the employee completes the certification,

whichever is later.

10. Add new paragraph (e) to Sec. 870.601 to read as follows:

Sec. 870.601 Termination of Basic insurance.

* * * * *

(e) Except for employees, annuitants, and compensationers who elect

direct payment as provided in Sec. 870.405 of this part, Basic

insurance stops, subject to a 31-day extension of coverage, at the end

of the pay period in which the employing office or retirement system

determines that an individual's periodic pay, annuity, or compensation,

after all other deductions, is not enough to cover the full cost of

Basic insurance.

11. In Sec. 870.602 revise paragraphs (a), (c), and (e) to read as

follows:

Sec. 870.602 Termination of Optional insurance.

(a)(1) The Optional insurance of an insured employee stops when

his/her Basic insurance stops, subject to the same 31-day extension of

coverage.

(2) An employee who meets the requirements for portability, as

provided in subpart L of this part, may elect portability for his/her

Option B coverage, instead of having it terminate.

* * * * *

(c)(1) If an insured employee is not eligible to continue Optional

coverage as an annuitant or compensationer as provided by Sec. 870.701,

the Optional insurance stops on the date that his/her Basic insurance

is continued or reinstated under the provisions of Sec. 870.701,

subject to a 31-day extension of coverage.

(2) A compensationer who meets the requirements for portability, as

provided in subpart L of this part, may elect portability for his/her

Option B coverage, instead of having it terminate.

* * * * *

(e) Except for employees, annuitants, and compensationers who elect

direct payment as provided in Sec. 870.405 of this part, Optional

insurance stops, subject to a 31-day extension of coverage, at the end

of the pay period in which the employing office or retirement system

determines that an individual's periodic pay, annuity, or compensation,

after all other deductions, is not enough to cover the full cost of the

Optional insurance. If an individual has more than one type of Optional

insurance and his/her pay, annuity, or compensation is sufficient to

cover some but not all of the insurance, the multiples of Option C

terminate first, followed by Option A, and then the multiples of Option

B.

Sec. 870.703 [Removed]

Sec. 870.702 [Redesignated as Sec. 870.703]

12. Remove Sec. 870.703, redesignate Sec. 870.702 as Sec. 870.703,

and add a new Sec. 870.702 to read as follows:

Sec. 870.702 Amount of Basic insurance.

(a) The amount of Basic insurance an annuitant or compensationer

can continue is the BIA on the date insurance would otherwise have

stopped because of the individual's separation from service or

completion of 12 months in nonpay status. The amount of Basic insurance

in force is the BIA minus any reductions applicable under

Sec. 870.703(a).

(b)(1) For the purpose of paying benefits upon the death of an

insured individual under age 45 who is retired or receiving

compensation, the BIA will be multiplied by the appropriate age factor

shown in Sec. 870.202(c) of this part. Exceptions:

(i) If the insured individual retired or became insured as a

compensationer before October 10, 1980, or

(ii) If the insured individual elected a partial Living Benefit as

an employee under subpart K of this part.

(2)(i) For an annuitant or compensationer who elected a partial

Living Benefit as an employee, the amount of Basic insurance he/she can

continue is the post-election BIA, as shown in Sec. 870.203(a)(2) of

this part.

(ii) For the purpose of paying benefits upon the death of an

insured annuitant or compensationer under age 45 who elected a partial

Living Benefit as an employee, the BIA will be multiplied by the age

factor in effect on the date OFEGLI received the completed Living

Benefit application.

13. Redesignate Secs. 870.704, 870.705, and 870.706 as

Secs. 870.706, 870.707, and 870.708 respectively, and add new

Secs. 870.704 and 870.705 to read as follows:

Sec. 870.704 Amount of Option A.

(a) The amount of Option A coverage an annuitant or compensationer

can continue is $10,000.

(b) An annuitant's or compensationer's Option A coverage reduces by

2 percent of the original amount each month up to a maximum reduction

of 75 percent. This reduction starts at the beginning of the 2nd month

after the date the insurance would otherwise have stopped or the

beginning of the 2nd month after the date of the insured's 65th

birthday, whichever is later.

[[Page 72464]]

Sec. 870.705 Amount and election of Option B and Option C.

(a) The number of multiples of Option B and Option C coverage an

annuitant or compensationer can continue is the highest number of

multiples in force during the applicable period of service required to

continue Option B and Option C.

(b)(1)(i) At the time an employee retires or becomes insured as a

compensationer, he/she must elect the number of allowable multiples he/

she wishes to continue during retirement or while receiving

compensation.

(ii) An employee who elects to continue fewer multiples than the

number for which he/she is eligible is considered to have cancelled the

multiples that are not continued.

(iii) Employees separating for retirement and employees becoming

insured as compensationers on or after April 24, 1999, must also elect

either Full Reduction or No Reduction for all of the multiples being

continued.

(iv) An employee who does not make a reduction election is

considered to have chosen Full Reduction.

(2)(i) Prior to reaching age 65, an annuitant or compensationer can

change from No Reduction to Full Reduction at any time. Exception: If

the individual has assigned his/her insurance as provided in subpart I

of this part, only the assignee can change from No Reduction to Full

Reduction for the Option B coverage.

(ii) Prior to reaching age 65, an annuitant or compensationer can

change from Full Reduction to No Reduction at any time.

(3)(i) After reaching age 65, an annuitant or compensationer can

change from No Reduction to Full Reduction at any time. Exception: If

the individual has assigned his/her insurance as provided in subpart I

of this part, only the assignee can change from No Reduction to Full

Reduction for the Option B coverage. If an individual age 65 or over

changes to Full Reduction, the amount of insurance in force is computed

as if he/she had elected Full Reduction initially. There is no refund

of premiums.

(ii) Except as provided in paragraph (b)(4) of this section, after

reaching age 65, an annuitant or compensationer cannot change from Full

Reduction to No Reduction.

(4)(i) Shortly before an annuitant or compensationer's 65 birthday,

the retirement system will send a reminder about the election he/she

made and will offer the individual a chance to change the election. At

that time, the annuitant or compensationer can choose to have some

multiples of Option B and Option C reduce and some not reduce.

(ii) If the individual is already 65 or older at the time of

retirement or becoming insured as a compensationer, the retirement

system will send the reminder and give the opportunity to change the

election as soon as the retirement processing or compensation transfer

is complete.

(iii) If the individual assigned his/her insurance as provided in

subpart I of this part, and if the employee elected No Reduction for

Option B coverage at the time of retirement or becoming insured as a

compensationer, the retirement system will send the reminder notice for

Option B coverage to the assignee.

(iv) An annuitant or compensationer who wishes to change his/her

reduction election must return the notice by the end of the month

following the month in which the individual turns 65, or if already

over age 65, by the end of the 4th month after the date of the letter.

An annuitant or compensationer who does not return the election notice

will keep his/her initial election.

(c)(1) For each multiple of Option B and/or Option C for which an

individual elects Full Reduction, the coverage reduces by 2 percent of

the original amount each month. This reduction starts at the beginning

of the 2nd month after the date the insurance would otherwise have

stopped or the beginning of the 2nd month after the insured's 65th

birthday, whichever is later. At 12:00 noon on the day before the 50th

reduction, the insurance stops, with no extension of coverage or

conversion right.

(2) For each multiple of Option B and/or Option C for which an

individual elects No Reduction, the coverage in force does not reduce.

After age 65 the annuitant or compensationer continues to pay premiums

appropriate to his/her age.

(d)(1) Employees who were already retired or insured as

compensationers on April 24, 1999, and who had Option B, were given an

opportunity to make an election for Option B.

(i) Annuitants and compensationers who were under age 65 were

notified of the option to elect No Reduction. The retirement system

will send these individuals an actual election notice before their 65th

birthday, as provided in paragraph (b)(4) of this section.

(ii) Annuitants and compensationers who were age 65 or older, and

who still had some Option B coverage remaining, were given the

opportunity to stop further reductions. These individuals had until

October 24, 1999, to make the No Reduction election. The amount of

Option B coverage retained was the amount in effect on April 24, 1999.

Those annuitants and compensationers who elected No Reduction were

required to pay premiums retroactive to April 24, 1999.

(2) Employees who were already retired or insured as

compensationers on April 24, 1999, could not elect No Reduction for

Option C.

14. Add Sec. 870.801(d)(3)(v) to read as follows:

Sec. 870.801 Order of precedence and payment of benefits.

* * * * *

(d) * * *

(3) * * *

(v) For employees and former employees who have ported Option B

coverage, the appropriate office is the Portability Office.

* * * * *

15. Revise Sec. 870.802(b) and (g)(1) to read as follows:

Sec. 870.802 Designation of beneficiary.

* * * * *

(b) A designation of beneficiary must be in writing, signed by the

insured individual, and witnessed and signed by 2 people. The

appropriate office must receive the designation before the death of the

insured.

(1) For employees, the appropriate office is the employing office.

(2) For annuitants and compensationers, the appropriate office is

OPM.

(3) For employees and former employees who have ported Option B

coverage, the appropriate office is the Portability Office.

* * * * *

(g)(1) A designation of beneficiary is automatically cancelled 31

days after the individual stops being insured. Exception: If the

individual elects portability for Option B, a valid designation remains

in effect.

* * * * *

16. Revise Sec. 870.902 to read as follows:

Sec. 870.902 Making an assignment.

(a) To assign insurance, an insured individual must complete an

approved assignment form. Only the insured individual can make an

assignment; no one can assign on behalf of an insured individual.

(b) The individual must submit the completed and signed form to the

appropriate office indicating the intent to irrevocably assign all

ownership of the insurance. The form must also be witnessed and signed

by 2 people.

(1) For employees, the appropriate office is the employing office.

[[Page 72465]]

(2) For annuitants and compensationers, the appropriate office is

OPM.

(3) For employees and former employees who have ported Option B

coverage, the appropriate office is the Portability Office.

17. Revise Sec. 870.907(c) to read as follows:

Sec. 870.907 Termination and conversion.

* * * * *

(c) An assignment terminates 31 days after the insurance

terminates, unless the insured individual is reemployed in or returns

to a position in which he/she is entitled to coverage under this part

within 31 days after the insurance terminates. Exception: If an

employee elects portability for Option B coverage, an assignment

remains in effect. If the individual returns to Federal service, Basic

insurance and any Option A insurance acquired through returning to

service is subject to the existing assignment.

18. A new subpart L is added to read as follows:

Subpart L--PORTABILITY

870.1201 Portability permitted.

870.1202 Eligibility.

870.1203 Amount of insurance.

870.1204 Cost of insurance.

870.1205 Electing portability for Option B.

870.1206 Termination and cancellation of ported coverage.

870.1207 Designations, assignments, and court orders.

870.1208 Return to active service.

Subpart L--Portability

Sec. 870.1201 Portability permitted.

(a) Effective April 24, 1999, until April 24, 2002, eligible

employees may elect portability for Option B coverage that would

otherwise terminate.

(b) An individual cannot elect portability for Basic insurance,

Option A, or Option C.

Sec. 870.1202 Eligibility.

(a) An employee is eligible to elect portability for Option B if:

(1) His/her coverage is terminating due to separation or completion

of 12 months in nonpay status; and

(2) He/she has had Option B for the 5 years of service immediately

before the date the coverage would otherwise terminate, or for the full

period(s) of service during which he/she was eligible to have Option B,

if less than 5 years.

(b) If the employee has assigned his/her coverage as provided in

subpart I of this part, it is the assignee who has the right to elect

portability.

Sec. 870.1203 Amount of insurance.

(a) An employee can elect portability for up to the highest number

of Option B multiples that meet the requirements of

Sec. 870.1202(a)(2).

(b)(1) An individual with ported coverage can reduce the number of

multiples at any time. Exception: If the individual assigned his/her

coverage as provided in subpart I of this part, only the assignee has

the right to reduce the number of multiples.

(2) An individual with ported coverage cannot increase the number

of multiples.

(c) Salary changes have no effect on the amount of Option B

coverage in force for an individual with ported coverage.

(d) The amount of ported coverage in force reduces by 50 percent at

the beginning of the 2nd calendar month after the individual reaches

age 70 or, if the individual is 70 or older at the time he/she elects

portability, the 2nd month after the effective date of the ported

coverage.

Sec. 870.1204 Cost of insurance.

(a)(1) The cost of ported coverage is the cost shown in

Sec. 870.402(e).

(2) In addition to the premium payments for Option B, individuals

with ported coverage must pay a monthly administrative fee, in an

amount set by OPM.

(b) The Portability Office will establish a schedule for the

premium payments. An individual with ported coverage must make payment

to the Portability Office on a timely basis.

Sec. 870.1205 Electing portability for Option B.

(a) The employing agency must notify the employee/assignee(s) of

the loss of coverage and the right to elect portability for Option B

either before or immediately after the event causing the loss of

coverage.

(b)(1) The employee/assignee(s) must submit the request to elect

portability to the employing office and to the Portability Office

within 60 days following the date of the terminating event (74 days if

living overseas). A mailed notification or request is considered to be

received 5 days after the date of the notification/request.

(2) An employee/assignee who fails to request portability within

the required time frame is considered to have refused coverage.

(3) Ported coverage is effective the day after coverage as an

employee ends.

Sec. 870.1206 Termination and cancellation of ported coverage.

(a)(1) Ported coverage stops April 24, 2002, subject to the 31-day

extension of coverage and right to convert, as provided in subpart F of

this part.

(2) Ported coverage stops at the beginning of the 2nd calendar

month after the individual reaches age 80 or, if the individual is age

80 or older at the time he/she elects portability, the 2nd month after

the effective date, subject to the 31-day extension of coverage and

right to convert, as provided in subpart F of this part.

(b)(1) An individual with ported coverage can cancel coverage at

any time. Exception: If the individual assigned his/her coverage as

provided in subpart I of this part, only the assignee can cancel

coverage.

(2) If an individual with ported coverage does not make a premium

payment on time, the Portability Office will send him/her a notice

stating that coverage will continue only if the individual makes

payment within 15 days after receiving the notice (45 days if living

overseas). If the individual does not make payment within this time

frame, Option B coverage cancels.

(3) An individual whose ported coverage cancels, whether

voluntarily or for nonpayment, does not get the 31-day extension of

coverage or the right to convert.

Sec. 870.1207 Designations, assignments, and court orders.

(a)(1) If an employee has a valid designation of beneficiary on

file at the time he/she elects portability, that designation remains in

effect.

(2) An individual with ported coverage who wishes to file a

designation of beneficiary must submit the form to the Portability

Office.

(3) If an individual with ported coverage returns to Federal

service, any designation of beneficiary remains in effect.

(b)(1) If an employee assigns his/her coverage before electing

portability for Option B, that assignment remains in effect.

(2) If an individual with ported coverage wishes to make an

assignment, he/she must submit the form to the Portability Office.

(3) If an individual with ported coverage returns to Federal

service, any assignment of coverage remains in effect. Basic insurance

and any Option A coverage acquired through the return to service are

subject to the existing assignment.

(c)(1) If the employing office received a valid court order on or

after July 22, 1998, that court order remains valid for the ported

coverage.

(2) Anyone wishing to submit a court order relating to an

individual with ported coverage must submit it to the Portability

Office.

[[Page 72466]]

(3) If an individual with ported coverage returns to Federal

service, any valid court order on file remains in effect.

(d) When an individual submits a request to elect portability for

Option B coverage, the employing office must send the originals of all

designations, assignments, and court orders on file to the Portability

Office.

Sec. 870.1208 Return to active service.

(a)(1) When an individual with ported coverage returns to Federal

service, the agency must notify the Portability Office.

(2) The Portability Office must terminate the ported coverage and

send the originals of all designations, assignments, and court orders

to the new employing office.

(b) The employee will get back the number of multiples of Option B

he/she had before the terminating event. Exceptions:

(1) A person who cancels a multiple or multiples of Option B

coverage after electing portability will get back only the number of

multiples remaining.

(2) A person whose ported coverage cancels for nonpayment of

premiums will not get back any Option B coverage automatically.

[FR Doc. 99-33367 Filed 12-27-99; 8:45 am]

BILLING CODE 6325-01-P