This column discusses the requirements for a federal employee who is enrolled in the Federal Employees Group Life Insurance (FEGLI) Option A (Standard – $10,000), Option B (Multiple of Salary) and/or Option C (Family Coverage) to carry these optional coverages into retirement.
Also discussed are the choices retiring employees have as to how much of their Option A, Option B and Option C insurance they want to retain in retirement.
Eligibility Requirements to Keep FEGLI Optional Coverages into Retirement
A federal employee who is enrolled in the FEGLI basic insurance (the Basic Insurance Amount or BIA) and Option A, Option B, and/or Option C can continue enrollment in the FEGLI BIA and one, two or all three of the optional coverages when he or she retires if the retiring employee meets all of the following requirements:
• The employee is entitled to retire on an immediate annuity under a retirement system for civilian employees. Retiring on an immediate annuity includes the FERS “MRA+10” and the FERS “MRA+20” immediate retirement option.
• The employee has been continuously insured for the five years of service ending on the effective date of the employee’s retirement, or for the full period(s) of service during which the employee was eligible to be insured if less than five years in the FEGLI BIA, and Option A, Option B, and/or Option C. This is called the “all opportunity” requirement.
• The employee is enrolled in the FEGLI BIA, Option A, Option B, and/or Option C on the day of his or her retirement,
• The retiring employee did not convert his or her FEGLI life insurance coverage into an individual policy.
Note the following: (1) An immediate (CSRS or FERS) annuity is one that begins within 30 days after the date the employee separates from federal service; and (2) Any other life insurance an employee’s agency may offer in addition to, or in lieu of FEGLI, does not count toward the five-year requirement. Only FEGLI coverage counts for meeting the five-year requirement.
FEGLI Option A (Standard – $10,000)
The amount of Option A ($10,000) reduces when a retired employee becomes age 65 or retires, if later. There is no election to be made.
The amount of coverage reduces by two percent ($200 -2% of $10,000) each month until the amount has been reduced 75 percent to $2,500. The $2,500 is payable as a death benefit.
FEGLI Option B (Multiple of Salary)
FEGLI Option B is multiple (1,2,3,4 or 5 times) of an employee’s current year SF 50 salary, adjusted upward to the next $1,000. The following example illustrates:
Example 1. Peter, age 57, is enrolled in FEGLI BIA and also enrolled in Option B with five multiples of his salary. Peter intends to retire with 33 years of FERS service on September 30,2023. His current SF 50 salary is $119,300. His BIA is $119,300 rounded up to the next $1,000 ($120,000) plus $2,000, or $122,000. His Option B salary is $119,300 rounded up to the next $1,000, or $120,000. With five multiples of adjusted SF 50 salary, Peter has five times $120,000, or $600,000, of Option B FEGLI coverage.
An employee enrolled in Option B will be given the opportunity to make an election regarding post-age 65 reduction for Option B. At the time of retirement, the retiring employee must choose how many Option B multiples the employee wishes to continue into retirement and choose whether or not to reduce some or all of their multiples. The choices are Full Reduction, or none reduced – No Reduction, when the retiring employee reaches age 65 or retires, if the employee retires later than age 65. The retiring employee may also elect Full Reduction for some multiples or No Reduction for other multiples.
The election to choose fewer multiples that a retiring employee is eligible to continue is made on Form SF 2818 (Continuation of Life Insurance Coverage as an Annuitant).
Default Election
If a retiring employee does not make an election, the retiring employee will automatically continue all multiples for which the retiring employee is eligible to keep in retirement.
Full Reduction
If a retiring employee chooses Full Reduction, then the value of each multiple of Option B reduces by two percent of the original amount each month until the amount has been reduced by 100 percent. Option B insurance stops at 12:00 p.m. on the day before the 50th reduction. After that, no Option B life insurance benefits are payable upon the retiree’s death.
If the retiring employee elects Full Reduction, then Option B life insurance is free once the coverage starts to reduce. The following example illustrates:
Example 2. Jeanne retired with three multiples of Option B, each worth $90,000. Jeanne retired at age 60 and she elected Full Reduction for all of her multiples. When Jeanne reaches age 65, the value of each multiple will be reduced by $5,400 each month (3 times $90,000 times 2 percent). Option B coverage will be free once it starts to reduce. The reduction will continue until there is no coverage left under Option B (50 months starting with the second month after Jeanne becomes age 65). If Jeanne dies after the full reduction has been reached, no Option B life insurance proceeds will be paid.
No Reduction
If a retiring employee chooses No Reduction to their FEGLI Option B life insurance, then their Option B life insurance will not reduce during retirement. After age 65 or retirement (if that is later), then a retiring employee will continue to pay premiums appropriate to the annuitant’s age group.
FEGLI Option C (Family Coverage)
FEGLI Option C covers the lives of a spouse and eligible dependent children (children under the age of 22). When Option C is elected, all eligible family members are automatically covered. An employee may elect 1,2,3,4, or 5 multiples of coverage. Each multiple is equal to $5,000 for a spouse and $2,500 for each eligible dependent child. The following example illustrates:
Example 3. Henry elects three multiples of Option C. If Henry’s spouse dies then Henry receives $15,000 (three times $5,000). If one of Henry’s eligible dependent children dies, then Henry receives $7,500 (three times $2,500).
An employee enrolled in Option C will be given the opportunity to make an election regarding post-age 65 reduction for Option C. At the time of retirement, the retiring employee must elect how many Option C multiples the retiring employee wishes to continue into retirement. The employee also must choose whether to have all of their multiples reduced (Full Reduction) or none of them reduced (No Reduction) when the retiring employee reaches age 65, or retired, if later. The retiring employee may also elect Full Reduction for some multiples or No Reduction for other multiples.
The election to choose fewer multiples that a retiring employee is eligible to continue is made on Form SF 2818.
Default Election
If a retiring employee does not make an election, then the retiring employee continues all multiples of Option C that the retiring employee is eligible to keep in retirement.
Full Reduction
If a retiring employee chooses Full Reduction, then the value of each multiple of Option C is reduced each month by 2 percent of the original amount, until the original amount has been reduced by 100 percent. Option C insurance stops at 12:00 pm on the day before the 50th reduction. After that point of time, no benefits are payable to the annuitant upon a family member’s death. The following example illustrates:
Example 4. Jason, age 62, retires from federal service with five multiples of Option C on his spouse Lucy. Jason’s children are over age 22 and no longer enrolled in Option C. When Jason retired, he chose on Form SF 2818 Full Reduction for all of his multiples, each worth $5,000. When Jason reaches age 65, the value of each multiple will be reduced by $500 per month (five times $5,000 time two percent). Option C will be free once it starts to reduce. The reduction will continue until there is no coverage left under Option C (50 months starting the second month after Jason becomes age 65) If Jason’s spouse dies after the full reduction has been reached, Jason will not receive any life insurance proceeds.
No Reduction
If a retiring employe chooses No Reduction to their FEGLI Option C life insurance, then their Option C life insurance will not reduce during retirement. After age 65 (or retirement, if later), a retiring employee will continue to pay premiums appropriate to the annuitant’s age group.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER®, Chartered Life Underwriter, Chartered Financial Consultant, Registered Health Underwriter and Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019