This is the third of four columns discussing life insurance.
This column discusses the requirements for a federal employee who is enrolled in the Federal Employees Group Life insurance (FEGLI) “Basic Insurance” (equal to the employee’s current SF 50 salary adjusted slightly upward) to continue their FEGLI “Basic Insurance” – referred to as the Basic Insurance Amount or BIA – into retirement and the choices they have as to how much of their BIA they want to retain in retirement.
Eligibility Requirements to Continue FEGLI BIA in Retirement
A federal employee who is enrolled in the FEGLI BIA can continue enrollment in the FEGLI BIA 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. As discussed below, this includes the “MRA+10” and the “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. This is called the “all opportunity” requirement.
• The employee is enrolled in the FEGLI BIA on the day of his or her retirement, and
• 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.
Breaks in Service
Breaks in service are not counted when determining the five continuous years of service requirement. This is because the individual was not eligible to be enrolled in FEGLI during the break in service. The following example illustrates:
Example 1. Robert elected FEGLI BIA when he entered federal service on 3/14/1982. He resigned from federal service on 9/30/2006 and returned to federal service on 8/24/2008. When he returned to service, he re-enrolled in FEGLI BIA. He then retired from federal service at the age of 57 on 12/31/2012. The break in service between 9/30/2006 and 8/24/2008 does not count against Robert when determining Robert’s eligibility to continue FEGLI BIA in retirement. The five years of service needed to continue FEGLI in Robert’s case are 8/24/2008 – 12/31/2012 and 2/7/2006 – 9/30/2006. Since Robert had FEGLI during that time, Robert met the five-year requirement for continuing his coverage into retirement.
“MRA + 10” and “MRA + 20” FERS Annuitants
A FERS employee who retires under the “Minimum Retirement Age” (MRA) + 10” or the “MRA + 20” provisions also qualify as an immediate retirement. This is true even though the FERS employee separated from service and postponed receipt of his or her FERS annuity. Note that a postponed MRA + 10 or a MRA + 20 retirement is not the same as a deferred retirement.
When a FERS employee separates from federal service under the postponed MRA + 10 or MRA + 20 retirement option, his or her FEGLI BIA insurance will be suspended. When the employee later applies for his or her FERS annuity and is eligible to continue the FEGLI BIA insurance (meaning the departed employee was enrolled in the FEGLI BIA during the five-year period ending on the day that the employee separated from federal service), then the employee can reapply for his or her suspended FEGLI BIA insurance.
When the separated employee applies for his or her postponed annuity, then assuming the separated employee is eligible to continue FEGLI insurance in retirement, then OPM will send the separated employee a notice of eligibility and Form SF 2818 (Continuation of Life Insurance Coverage as an Annuitant or Compensationer). The BIA insurance will be reinstated effective the date the separated employee’s FERS annuity starts or the date OPM receives the separated employee’s application for the FERS annuity, whichever is later.
Amount of FEGLI BIA Insurance Post-Retirement
The amount of a retiring employee’s FEGLI BIA can continue as an annuitant is the retiring employee’s BIA on the date of the employee’s separation for retirement.
Those retiring employees who are eligible to continue their BIA into retirement must complete Form SF 2818. On Form SF 2818, the retiring employee chooses whether to continue his or her FEGLI BIA into retirement. If the decision is to continue BIA insurance, then retiring employee must elect the amount of BIA to keep after age 65 (or starting the day after retiring from federal service if later than age 65). The choices are 75 percent reduction, 50 percent reduction, or no reduction.
Note the following:
(1) Those retiring employees who do not want to continue their FEGLI BIA insurance into retirement must indicate this on Form SF 2818;
(2) If a retiring employee chooses not to continue FEGLI BIA insurance into retirement, then none of the FEGLI Optional Insurance cannot be continued into retirement; and
(3) If a retiring employee chooses to continue FEGLI BIA insurance into retirement and had previously elected a partial living benefit, then the retiring employee must elect no reduction.
Default FEGLI BIA Insurance into Retirement
If a retiring employee is eligible to retain FEGLI BIA insurance in retirement makes no election, then the retiring employee will automatically have the 75 percent reduction (see below). The only exception is an employee who previously elected a partial living benefit.
FEGLI BIA Insurance 75 Percent Reduction
If a retiring employee elects a 75 percent reduction to his or her FEGLI BIA insurance, then when the retiring employee becomes age 65 or retires (whichever happens later) the retiring employee’s BIA coverage reduces by 2 percent of the original BIA (the BIA on the day that the employee retired) each month, until the amount has been reduced by 75 percent. When the reduction is complete, the remaining 25 percent of the BIA is payable as a death benefit.
The following example illustrates:
Example 2. Elizabeth retired from federal service at age 56 with a final SF 50 salary of $64,365. Her BIA therefore is: $64,365 rounded up to the next $1,000, or $65,000, plus $2,000 for a total of $67,000. She elected 75 percent reduction. When Elizabeth reaches age 65, the amount of her BIA will reduce by 2 percent of $67,000, or $1,340 per month. Once this reduction starts (the month after Elizabeth becomes age 65) she will pay no premiums. The reduction continues until Elizabeth’s BIA equals $16,750 ($67,000 x 25 percent). This is the amount of BIA that will be payable if Elizabeth dies after the full reduction of 75 percent has been reached.
FEGLI BIA Insurance 50 Percent Reduction
If a retiring employee elects a 50 Percent Reduction, then when the retiring employe becomes age 65 or retires, whichever is later, the employee’s BIA coverage reduces by 1 percent of the BIA each month until the amount has been reduced by 50 percent. When the reduction is complete, the remaining 50 percent of the BIA is payable as a death benefit. The following example illustrates:
Example 3. Frank retired from federal service at age 60 with a final SF 50 salary of $79,750. His BIA therefore is $79,750 rounded up to the next $1,000, or $80,000, plus $2,000 for a total of $82,000. When Frank reaches age 65, the amount of his BIA in force will be reduced by $820 ($82,000 times one percent). He will continue to pay a premium for the 50 percent reduction. The reduction will continue until $41,000 of his BIA remains. This is the amount that will be payable if Frank dies after the 50 percent reduction has been reached.
FEGLI BIA Insurance No Reduction
If a retiring employee elects no reduction, then the retiring employee’s BIA insurance – the amount on the date the employee retires – does not reduce when the employee becomes age 65 or retires, whichever is later. The full BIA is payable as a death benefit.
Change of Election
Once retired from federal service, a retired employee – now an annuitant – may make certain changes to their reduction election to his or her FEGLI BIA life insurance. The changes are shown in the following table: