[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



  FEDERAL EMPLOYEES GROUP LIFE INSURANCE PROGRAM: COULD WE DO BETTER?

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON THE CIVIL SERVICE

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM
                             AND OVERSIGHT
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 30, 1997

                               __________

                           Serial No. 105-32

                               __________


Printed for the use of the Committee on Government Reform and Oversight


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              COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois          TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland       ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
STEVEN SCHIFF, New Mexico            EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          PAUL E. KANJORSKI, Pennsylvania
ILEANA ROS-LEHTINEN, Florida         GARY A. CONDIT, California
JOHN M. McHUGH, New York             CAROLYN B. MALONEY, New York
STEPHEN HORN, California             THOMAS M. BARRETT, Wisconsin
JOHN L. MICA, Florida                ELEANOR HOLMES NORTON, Washington, 
THOMAS M. DAVIS, Virginia                DC
DAVID M. McINTOSH, Indiana           CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
JOE SCARBOROUGH, Florida             DENNIS J. KUCINICH, Ohio
JOHN B. SHADEGG, Arizona             ROD R. BLAGOJEVICH, Illinois
STEVEN C. LaTOURETTE, Ohio           DANNY K. DAVIS, Illinois
MARSHALL ``MARK'' SANFORD, South     JOHN F. TIERNEY, Massachusetts
    Carolina                         JIM TURNER, Texas
JOHN E. SUNUNU, New Hampshire        THOMAS H. ALLEN, Maine
PETE SESSIONS, Texas                 HAROLD E. FORD, Jr., Tennessee
MICHAEL PAPPAS, New Jersey                       ------
VINCE SNOWBARGER, Kansas             BERNARD SANDERS, Vermont 
BOB BARR, Georgia                        (Independent)
ROB PORTMAN, Ohio
                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                       Judith McCoy, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

                   Subcommittee on the Civil Service

                    JOHN L. MICA, Florida, Chairman
MICHAEL PAPPAS, New Jersey           ELIJAH E. CUMMINGS, Maryland
CONSTANCE A. MORELLA, Maryland       ELEANOR HOLMES NORTON, Washington, 
CHRISTOPHER COX, California              DC
PETE SESSIONS, Texas                 HAROLD E. FORD, Jr., Tennessee

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
                   George Nesterczuk, Staff Director
               Charli E. Coon, Professional Staff Member
                          Caroline Fiel, Clerk
          Cedric Hendricks, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 30, 1997...................................     1
Statement of:
    Brittain, Margery, vice-president, Group National Accounts, 
      MetLife; G. Scott Cahill, CLU, chief executive officer, 
      James B. Greene & Associates, Inc.; and Barnett I. 
      Chepenik, president, Lincoln Financial Group, Inc., 
      Chepenik & Associates, Inc.................................    41
    Flynn III, William E., Associate Director for Retirement and 
      Insurance, Office of Personnel Management..................     3
Letters, statements, etc., submitted for the record by:
    Brittain, Margery, vice-president, Group National Accounts, 
      MetLife, prepared statement of.............................    44
    Cahill, G. Scott, CLU, chief executive officer, James B. 
      Greene & Associates, Inc., followup questions and responses    87
    Chepenik, Barnett I., president, Lincoln Financial Group, 
      Inc., Chepenik & Associates, Inc., prepared statement of...    60
    Flynn III, William E., Associate Director for Retirement and 
      Insurance, Office of Personnel Management:
        Followup questions and responses.........................    38
        Prepared statement of....................................     7
    Ford, Hon. Harold E. Jr., a Representative in Congress from 
      the State of Tennessee, prepared statement of..............    82
    Morella, Hon. Constance A., a Representative in Congress from 
      the State of Maryland, prepared statement of...............    29

 
  FEDERAL EMPLOYEES GROUP LIFE INSURANCE PROGRAM: COULD WE DO BETTER?

                              ----------                              


                       WEDNESDAY, APRIL 30, 1997

                  House of Representatives,
                 Subcommittee on the Civil Service,
              Committee on Government Reform and Oversight,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:30 a.m., in 
room 2247, Rayburn House Office Building, Hon. John L. Mica 
(chairman of the subcommittee) presiding.
    Present: Representatives Mica, Pappas, Morella, Sessions, 
Cummings, Norton, and Ford.
    Staff present: George Nesterczuk, staff director; Charli E. 
Coon, professional staff member; Caroline Fiel, clerk; and 
Cedric Hendricks, minority professional staff member.
    Mr. Mica. Good morning. I would like to call to order this 
meeting of the House Civil Service Subcommittee. This morning 
we are going to be talking about Federal employees group life 
insurance. This is an investigations and oversight subcommittee 
of Government Reform and Oversight and we have a responsibility 
to look at various programs that affect our Federal employees.
    Today, I will start with an opening statement and then 
yield to the other side and then we will hear our witnesses. We 
have two panels with us today.
    I am going to reverse the order of the panels, just for 
notification.
    Today, we will examine the Federal Employees Group Life 
Insurance Program, more commonly referred to as FEGLI. The 
purpose of this hearing is to ensure that Federal employees are 
receiving adequate coverage at reasonable cost. We will also 
explore whether new options and alternative offerings now 
available in the life insurance marketplace and in the private 
sector may, in fact, be suitable for the benefit of our Federal 
employees.
    FEGLI provides basic and optional life insurance for 2.5 
million Federal employees and 1.5 million Federal retirees. 
Employees pay two-thirds of the basic insurance costs, and the 
agencies pay one-third. The cost of optional insurance coverage 
is borne entirely by the employees who elect such additional 
coverage. Approximately 90 percent of eligible Federal 
employees elect to participate in this program, so it is 
subscribed to pretty widely.
    The coverage consists of a term policy with a benefit which 
extends into retirement. After age 65, a reduced benefit is 
continued at no cost to the annuitants. The FEGLI program is 
administered by the Office of Personnel Management, which we 
will hear from in just a few minutes, and OPM sets and collects 
premiums, establishes the reserves and manages most of the 
funds.
    Metropolitan Life Insurance Co. serves as the primary 
insurer of FEGLI and has done so since the inception of the 
program in 1954. Metropolitan Life processes all life insurance 
claims filed and is reimbursed by the Federal Government for 
all claims paid. Under this arrangement, the Federal Government 
assumes all of the risks and essentially acts as a self-
insurer. This is a pertinent fact in considering any additional 
offerings or alternatives to the existing program.
    To help us in a program review, we will hear from witnesses 
representing OPM and MetLife, and we have also invited experts 
in the field of employee benefits to inform us about additional 
insurance options provided by large private sector employers.
    Again, this is one of our important oversight 
responsibilities in this subcommittee. Our intent is to review 
what has taken place and to provide some insights into what 
options are available to our employees so that we can give them 
the very best options that exist for life insurance or for 
other benefits. That's the intent of the hearing today.
    With those opening comments, I would like to yield now to 
our distinguished ranking member, Mr. Cummings, from Maryland.
    Mr. Cummings. Thank you very much, Mr. Chairman. I very 
much appreciate your convening this oversight hearing on the 
Federal Employees Health Benefits Program. It has been 2 years 
since such a hearing was held. So it is certainly an 
appropriate time for this subcommittee to review its operations 
again.
    The hearing record from 1994 indicates that there were no 
significant problems with FEGLI at that time. I am not aware of 
any complaints about the program and no one has, as yet, 
approached me with any recommendations for any reform.
    Mr. Chairman, I understand that one of your objectives 
today is to explore whether the creation of new benefit options 
would be appropriate. I note that OPM's testimony will indicate 
that it does not believe any are needed. I expect that the 
benefit experts on the first panel will have a different view.
    I look forward to the testimony of all of today's witnesses 
and the information you will provide about this very important 
employee benefit program. Thank you, Mr. Chairman.
    Mr. Mica. Thank you, Mr. Cummings.
    We actually did not hold a full hearing on the FEGLI. It 
came up incidental to discussions on the Federal Employee 
Health Benefits Programs. So this is the first one that I know 
of, at least since I have been Chair, and for some time on the 
program.
    I would like to yield to the gentlelady from the District, 
Ms. Norton.
    Ms. Norton. Thank you, Mr. Chairman. I want to thank 
Chairman John Mica for calling this hearing today on the 
Federal Employees Group Life Insurance Program. I have a 
particular interest in this program because I conducted the 
last oversight hearing on FEGLI in 1994, when I was Chair of 
the Subcommittee on Compensation and Employee Benefits of the 
Committee on Post Office and Civil Service.
    Frankly, it is one of the most popular Federal Employee 
Benefit Programs in which all Federal employees are eligible to 
participate. Currently, almost 2.5 million active Federal 
employees, as well as approximately 1.6 million retired Federal 
employees, are covered under the program.
    FEGLI is popular in part because it offers life insurance 
at very reasonable prices and without medical precertification. 
The tragic airplane crash involving the late Secretary of 
Commerce, Ron Brown, and 15 other Federal employees, offers 
testament to the importance of FEGLI.
    Many of the Federal employees were young. FEGLI was all 
some of them had for burial and other expenses, without which 
the grief and trauma to their relatives would have been even 
greater. Tragically, some did not even have FEGLI because they 
had opted out.
    Employees automatically get FEGLI unless they opt out. The 
tragic accident in Croatia points up the importance of this 
automatic coverage. The average Federal employee earns $35,000 
a year. FEGLI means that an amount about equal to this salary 
amount will be covered, an amount that will likely prove 
indispensable considering average employee salary levels.
    Although FEGLI is physically sound, I welcome this 
opportunity to examine the program to ensure that Federal 
employees are receiving adequate coverage at a reasonable 
price. I also welcome the opportunity to explore whether or not 
the range of optional benefits available under FEGLI should be 
expanded. I look forward to the testimony of today's witnesses. 
Thank you, Mr. Chairman.
    Mr. Mica. I thank the gentlelady. And there being no 
further Members present or opening statements, I would like to 
call the second panel up first today: Mr. William E. Flynn, 
Associate Director for Retirement and Insurance of the Office 
of Personnel Management. He is no stranger to this panel.
    Mr. Flynn, as is customary, we do swear in our witnesses--
are you the only one testifying?
    Mr. Flynn. Yes, I am, Mr. Chairman.
    Mr. Mica. We will swear you in.
    [Witness sworn.]
    Mr. Mica. The witness answered in the affirmative.
    Mr. Flynn, also as is customary, if you would like to 
summarize, you may. We don't have a timer today so you can take 
your time.
    The main thing we would like to hear is a report on the 
status of this program, your evaluation of its effectiveness, 
and its affordability for our Federal employees. Also, you have 
heard my comments about looking at some possible options, so we 
would welcome your commentary on that and other questions that 
we pose to you. Welcome back and you are recognized.

   STATEMENT OF WILLIAM E. FLYNN III, ASSOCIATE DIRECTOR FOR 
    RETIREMENT AND INSURANCE, OFFICE OF PERSONNEL MANAGEMENT

    Mr. Flynn. Thank you very much, Mr. Chairman and members of 
the subcommittee. I am pleased to be back today to discuss with 
you the Federal Employees' Group Life Insurance Program. 
Several of you have mentioned a number of the features of the 
program so I might very well shorten even further my remarks 
from the prepared statement that I know will be submitted for 
the record.
    This particular program has provided low cost life 
insurance to Federal employees and retirees since 1954. In the 
beginning, the program reflected essentially a one-size-fits-
all approach which accorded each eligible employee who did not 
waive participation automatic life insurance and accidental 
death and dismemberment protection essentially equal to 1 
year's salary. Today, the program offers an array of options to 
address individual circumstances. Enrollees have a choice of 
basic life insurance, six levels of additional life insurance, 
family insurance, three options for post-retirement basic 
coverage, and accelerated payment options for the terminally 
ill.
    Since the basic features of the program were addressed 
earlier, Mr. Chairman, I might just initially go on and talk 
about some things that we have done in the program more 
recently and address some of the matters you have raised 
regarding continued evolution of the program.
    Ms. Norton pointed out that this program provides important 
protection, particularly for new employees, and the tragic 
situation that occurs when new employees, for whatever reason, 
choose to waive that coverage. Employees can enroll in the 
program after they are initially hired by furnishing evidence 
of insurability or by making application during an open 
enrollment period.
    Only six such open enrollment periods have occurred in the 
history of the program, and two of those have been held since 
1993, which I might touch upon briefly. In 1993, OPM reduced 
the cost of basic and optional insurance. Premiums for basic 
life insurance decreased almost 11 percent and many enrollees 
over the age of 40 benefited from premium reductions for 
optional insurance.
    We reduced premiums because of low mortality and more 
favorable interest rates earned by the life insurance trust 
fund. During this particular open enrollment period, the 
percentage of employees electing basic coverage increased about 
1.5 percent from 88.4 to 89.9 percent, and more employees 
elected optional insurance. For example, enrollment in option 
B, which provides additional insurance in multiples of the 
employee's salary, rose from about 36 percent to about 46.5 
percent.
    Now, the most recent open enrollment period was limited to 
basic insurance and occurred in 1995. It coincided with the 
Living Benefits Act of 1994. That particular law allows payment 
of basic life insurance proceeds to an insured individual who 
is terminally ill and who has a life expectancy no longer than 
9 months.
    Since the inception of that program, 1,703 living benefit 
claims have been received; 1,301 have been approved; 904 of 
them were approved for annuitants and 397 for employees.
    Another option which has become recently available is the 
insured's right to irrevocably assign all insurance ownership 
to someone else. This option can be useful as a financial 
planning tool and it may also be used by terminally ill 
employees or retirees to transfer ownership of both basic and 
optional insurance in exchange for cash, representing a 
percentage of the anticipated insurance proceeds.
    In your invitation, Mr. Chairman, you asked several 
questions about the program and I might turn our attention to 
those just for a moment. When the program was established, 
OPM's predecessor agency, the Civil Service Commission, was 
given full discretion to purchase a life insurance policy from 
one or more insurers who met certain requirements. The law 
further required any primary insurer to reinsure portions of 
the total insurance with other companies in the group insurance 
market.
    After consultation with all eligible primary carriers, and 
with their concurrence, the Civil Service Commission contracted 
with Metropolitan Life Insurance Co. Metropolitan has been the 
program's prime insurer since then. The company processes all 
claims filed under the program, arranges participation of 
reinsurers, and provides conversion information when group 
eligibility terminates. Metropolitan's service to program 
beneficiaries, as well as to the Government, has been 
excellent.
    You also asked, Mr. Chairman, that we address the topic of 
risk. When the program first began in 1954, it immediately 
covered the lives of almost 2 million employees and had no 
reserves whatsoever. Because of that, a definite risk existed 
for Metropolitan Life and its reinsurers. By law, Metropolitan 
and the reinsurers were compensated for this underwriting 
service by payment of a risk charge. That charge has been 
renegotiated over the years, as the program accumulated 
reserves to cover claims, and in 1990 OPM and Metropolitan 
agreed to waive the risk charge indefinitely.
    This is similar to the way in which other large group 
insurance plans operate. Insurers set premiums for a group at a 
level to maintain a break-even point after claims and expenses, 
using assumptions relating to mortality, investment income, and 
the like. If assumptions for the group go awry and the insurer 
is unable to make necessary adjustments in premium, the insurer 
is nonetheless responsible for paying benefits.
    Today, the FEGLI fund has accumulated a balance that will 
likely cover most claims. Nonetheless, major adverse changes in 
mortality due to an epidemic or other calamity could occur so 
there always will be an irreducible minimum of risk in the 
program.
    And finally, Mr. Chairman, your letter of invitation asked 
if we considered providing alternative insurance options for 
employees. You mentioned a near 90 percent participation rate, 
and I would point out the current evolution of the program 
makes 10 options or benefit levels currently available. In 
light of this, we don't see any particular need for a basic 
restructuring of the program.
    We believe that the life insurance program has proven to be 
and is responsive to the changing needs of the Federal 
workforce. Nonetheless we look forward to working with you and 
other members of the subcommittee to ensure that this 
continues.
    And finally, Mr. Chairman, I have attached to my brief 
overview a chart which gives a snapshot of the current 
financial status of the program. You will note that there is 
just under $500 billion of insurance-in-force covering, as you 
mentioned earlier, about 4 million insured individuals and that 
the fund balance at the end of 1996 was a little over $17 
billion.
    That concludes my statement, Mr. Chairman. I would be happy 
to answer any questions you or other members of the 
subcommittee may have.
    [The prepared statement of Mr. Flynn follows:] 

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    Mr. Mica. Thank you, Mr. Flynn.
    I have a couple of questions to lead off. First of all, can 
you explain the negotiation process that you undertake with 
MetLife as it relates to service charges, administrative 
expenses and related costs? What kind of negotiation process 
goes on?
    Mr. Flynn. Well, we work with Metropolitan Life under an 
insurance contract that annually renews itself. Our 
negotiations cover a range of issues relating to performance, 
customer service, administrative expenses, and the like.
    Those negotiations have gone on every year. This year we 
have just concluded negotiations on administrative expenses 
where, for the first time in the program's history, we have 
agreed to a limitation on administrative expenses and a further 
limitation on the amount of indirect charges charged to the 
contract.
    So there is a negotiation that goes on back and forth 
that's related to the experience of the program, what we are 
trying to provide in terms of performance related to our 
customers, and what we think is reasonable and otherwise 
allowable under this particular contract.
    Mr. Mica. Well, I raise that question and I look back at 
some of the recent administrative expenses. MetLife's 
administrative expense in 1994 was $6.6 million and in 1 year 
in 1995 it jumped to $9.2 million, and that's a pretty 
significant increase.
    If I was in the private sector operating a business and I 
had an increase like that, it would certainly catch my 
attention.
    I found actually going out and looking at insurance 
availability and premiums that there has been more competition 
and you can get term insurance at much more competitive rates. 
What justified that huge increase in that period of time?
    Mr. Flynn. Mr. Chairman, if I might make perhaps three 
quick points with respect to that. First of all, these are the 
administrative expenses reported to us by Metropolitan. Our 
Inspector General has recently completed an audit of 
Metropolitan Life Insurance Co.'s FEGLI operations. That draft 
audit report has not yet been released, so these are reported 
administrative expenses and do not at this time reflect 
accepted administrative expenses.
    The second point that I would make is that, in 1995, as I 
mentioned earlier we did conduct an open enrollment period for 
the program and so there is an increase in costs for that year 
attributable to that.
    And I guess the final point that I would make is that the 
administrative expenses incurred in this program occur in two 
places: One, by the Metropolitan Life Insurance Co. and a small 
amount by OPM. Together, those administrative expenses amount 
to less than six-tenths of 1 percent of the total cost of the 
program including benefits and are not at all determining in 
terms of the premiums that are charged under the program.
    Mr. Mica. Well, it may be a small percentage of the total 
amount, but that's a pretty significant increase. I would be 
interested to see what that audit shows, because it did jump 
from $6.6 million to $9.2 million in 1 year.
    Then we get into operating expenses which went from $8 
million to $10.8 million for the same period. Any justification 
there or is that also under audit or review?
    Mr. Flynn. Well, the increase in operating expenses from $8 
million to $10 million is primarily reflected in the increase 
in Metropolitan's administrative expenses. The only other 
additional amounts in there deal with administrative costs and 
taxes for the Shenandoah plan, which covers people who were 
insured under beneficial plans prior to 1954, and some State 
tax payments. So the only real difference is about another 
$150,000 between those two numbers.
    But your point is well taken, Mr. Chairman. We want to make 
sure that we are getting full value for the administrative 
expenses. We will also look carefully at the report of the 
Inspector General as we continue our oversight of this program.
    Mr. Mica. Well, I think in the previous hearing that was 
held on FEGLI that the question came up about MetLife and 
reinsurers and really how much at risk they were, and it is my 
understanding that MetLife is reimbursed for claims expenses 
and in the event that claims exceed revenues, MetLife would be 
compensated for any losses through an increase in premiums the 
following year.
    Does that still hold true?
    Mr. Flynn. It is true, Mr. Chairman, that we negotiate 
premiums from the Government to MetLife each year based on the 
prior year's experience. And as I indicated in my statement, 
that is not at all dissimilar to the way in which large group 
plans operate. Again, not----
    Mr. Mica. But are----
    Mr. Flynn. Excuse me.
    Mr. Mica. I was just going to say, are they then really at 
risk? They are being reimbursed for their losses. Is there a 
true situation of risk here?
    Mr. Flynn. I would say, Mr. Chairman, that there is this 
irreducible minimum that I mentioned in my opening statement. 
It is also true, and I would acknowledge to you and to anyone 
who asks, that, absent some aberrant or unusual experience, and 
with the reserves available in the program and the anticipated 
premium income over the long-term, actuarial analyses of the 
program indicate that the premium income will be sufficient to 
cover the benefit expenses of the program.
    Mr. Mica. It sounds like a pretty good deal. You get all of 
your operating expenses, all of your administrative expenses. 
You say you have a risk, but you really don't have a risk. I am 
just wondering what kind of real exposure these folks have and 
why we don't have more competition.
    Mr. Flynn. Mr. Chairman----
    Mr. Mica. Is there any instance in which MetLife has 
incurred a loss since 1954?
    Mr. Flynn. Not that I am aware of, Mr. Chairman, but we 
could certainly provide that for the record. The one point that 
I might make about risk is that, at the inception of the 
program, as I mentioned, there was considerable risk to 
Metropolitan and its reinsurers and the compensation in 
recognition of that risk was in the form of a risk charge that 
up until the late 1980's was about $850,000 a year.
    When the reserve levels in the program got to such a point 
where the risk was minimized, we and Metropolitan Life 
negotiated and agreed to waive the risk charge indefinitely 
from that point forward.
    Mr. Mica. Was there reimbursement or something that took 
place where they had charged it and we got some of that back? 
There is no longer a risk charge and we got everything back 
that was due?
    Mr. Flynn. There is no longer a risk charge, that is true, 
Mr. Chairman.
    Mr. Mica. A final question here. I want to give the other 
panelists time to ask questions. Where is the $17.4 billion in 
the fund balance invested?
    Mr. Flynn. The overwhelming majority of that is invested in 
the U.S. Treasury in nonmarketable U.S. securities, Mr. 
Chairman.
    Mr. Mica. What percentage; 90 percent, 95 percent?
    Mr. Flynn. Even higher than that. I would say, with the 
exception of, oh, probably about $50 million, the entire 
balance is invested in the Treasury.
    Mr. Mica. Except for $50 million. And there has never been 
any thought of putting this in any other funds? Or this is also 
being used in deficit reduction or----
    Mr. Flynn. I believe that the statute that created the 
program, Mr. Chairman, directs the manner of investment in this 
program in Treasury.
    Mr. Mica. So is that originally in place?
    Mr. Flynn. I believe that's the case since the program was 
established.
    Mr. Mica. And there has never been any other 
consideration----
    Mr. Flynn. Not that I am aware of, Mr. Chairman.
    Mr. Mica. If we will put a little bit of that into our 
thrift savings plan and get a 20, 30 percent return, we have 
$17 billion. I tell you we would have some cash to deal with, 
wouldn't we? Maybe not all of it.
    You will have to excuse me. I come from the private sector 
so most of what you all do doesn't make sense to me. I just 
have to think it out in terms of how I would be handling either 
my money or my company's money.
    With those comments, I yield to our ranking member, Mr. 
Cummings. Thank you.
    Mr. Cummings. I am just curious. If another insurance 
company wanted to do this, how would they do it? In other 
words, if another insurance company wanted to be the insurer--
--
    Mr. Flynn. Uh-huh.
    Mr. Cummings [continuing]. How would they do it? And I 
guess, having run a law firm for 20 years and to be the 
managing partner and having to look at insurance and whatever, 
I am just curious as to how that would happen.
    Mr. Flynn. Let me try to answer how it would happen, and 
then perhaps comment on the implications of it happening, if I 
might.
    First, the law that established the program gave to OPM, or 
the Civil Service Commission, its predecessor agency, sole 
discretion to procure this insurance contract setting aside 
normal competitive procedures.
    Nonetheless, since then and in accordance with the terms of 
the statute that set up the program, we have developed what we 
call life insurance acquisition regulations that provide a 
mechanism for us to put this life insurance contract out for 
competition if we believe it is in the interest of the program 
to do so.
    Were that to be done, we would solicit proposals from 
insurance offerors. Those proposals would have to provide a 
benefit structure that is consistent with the benefit structure 
that is provided in law. The benefits that are available to 
Federal employees under this program aren't negotiated. They 
are, in fact, provided for in statute so an offeror would have 
to respond to the benefit levels that are set out in the 
statute and then we would begin a process of negotiation, 
resulting in an award. So it could easily be done that way.
    The question for us, as the employer, is whether or not 
there would be any particular benefit accruing to the 
Government as employer or to Federal employees resulting from 
doing so. Because the benefits are set out in law, and because 
OPM sets rates for the program based on the experience of the 
program, it doesn't appear likely that there would be any 
particular benefit in the employer/employee relationship from 
moving to a recompetition of the contract.
    But that opportunity is available and if the program should 
be changed substantially, where that might be something that 
would seem appropriate for us to do, it certainly would be 
something we would want to give serious consideration to.
    Mr. Cummings. So basically what we have here is a 
situation, based upon what you just said, that probably for the 
next 100 years it is quite possible that no matter what 
insurance company came along and said that we could do better, 
that they would probably be locked out unless you could find 
something--some kind of benefit to the employees or the 
employer; is that correct? I mean, based on--I mean, we have 
already gone 50----
    Mr. Flynn. Forty-three years.
    Mr. Cummings. Whatever.
    Mr. Flynn. Right.
    Mr. Cummings. Forty some years and I am just wondering. I 
mean, that's a long time. And the other question is: Have there 
been others--have there been--first of all, has it ever been 
put up for competition?
    Mr. Flynn. No, sir, it has not.
    Mr. Cummings. And second, when--have other companies 
expressed an interest or ever said that we can do better?
    Mr. Flynn. I believe there have been expressions of 
interest from time to time. But the question of doing better, 
sir, is one that I would sort of come at with preservation.
    Better in the context of this program can only mean we can 
operate more efficiently administratively. We already know, 
from our work with Metropolitan, that they get excellent 
reviews from the beneficiaries, employees, and retirees that 
they serve. Further, their administrative expenses, while we 
will always want to make sure that they are appropriate and 
allowable, represent a very minimal amount in terms of the 
overall cost of the program, and don't affect premiums.
    So ``better'' is a relative issue. Certainly, if someone 
were to come to us and say, substantively we believe this can 
be done better, we would certainly want to seriously look at 
that, but I don't think anybody has approached us that way.
    People have approached us from the standpoint of we think 
we have a better benefit design or things of that nature. But 
because these are set out in law----
    Mr. Cummings. Right.
    Mr. Flynn [continuing]. Those are not issues appropriate 
for our consideration in the context of a solicitation.
    We are very interested in better benefit designs, designs 
that meet the needs of the Government as employer and meet the 
needs of the individual employees and retirees in terms of 
their own financial circumstances.
    In fact, we have an effort underway to look at the 
evolution of benefit design, not just in life insurance, but in 
health care and other areas, to make sure that the Government 
stays competitive as an employer and recognizes the evolution 
and advances that have occurred in benefit design over the 
years. And we will certainly look at that in this particular 
program as well.
    Mr. Cummings. When you--when you say ``benefit design,'' 
what does that mean?
    Mr. Flynn. Well, for example, one of the things that we 
have been asked to consider is a benefit called various things, 
but sometimes referred to as universal life or variable 
universal life which provides, in addition to life insurance 
protection, a cash value at a certain point, a cash value that 
can be used as a lump sum, or can be converted to purchase an 
annuity and things of that nature. That's what I mean in terms 
of benefit design.
    And because we are an employer in the market, looking for 
talent, it is important for us to stay competitive vis-a-vis 
benefit design and with what other employers are doing, if 
that's helpful, sir.
    Mr. Cummings. Yes, that's very helpful.
    If you have a situation--I know the law lays out what the 
benefits ought to be. If a company came along and said, we can 
provide more benefits, that--I mean, does the law say you have 
to stay below a certain level, even if someone, a company came 
out and said, look, for the same amount of money we can throw 
in some extra benefits above the law, is that a ceiling that 
must be met?
    Mr. Flynn. It is a ceiling and a floor. The law specifies 
precisely what the benefit levels are, and additions to or 
subtractions from those levels would not be authorized under 
the framework of Federal Employees Group Life Insurance.
    Mr. Cummings. So the design, when you say design, that's 
something that fits within the floor and ceiling. It's just the 
way you do it; is that right?
    Mr. Flynn. Yes, sir, it's the way it is administered; 
that's correct.
    Mr. Cummings. Right. In other words, it is not above, it is 
not below, it is not more benefits, it is within--it is how you 
do it within the floor and ceiling?
    Mr. Flynn. To the precise specifications of the statute, 
yes, sir.
    Mr. Cummings. All right. You said a little bit earlier that 
the beneficiaries were satisfied. Is that right?
    Mr. Flynn. That's correct, sir; yes, sir.
    Mr. Cummings. And certainly we are very concerned about 
beneficiaries being satisfied.
    How did you come to that conclusion? Is there some kind of 
a survey that you all take over the years?
    Mr. Flynn. I would point to three things. The first thing 
that I would point to is the very large participation rate we 
have amongst employees and retirees.
    Second, the Metropolitan Life Insurance Co. has conducted 
surveys of beneficiaries and has seen satisfaction rates in the 
upper 90 percent ranges, 98, 99 percent. We also have our own 
independent survey underway this year and I expect that the 
results that we have seen in the past will be replicated in 
that survey as well.
    Mr. Cummings. To your knowledge, is this the first time 
that you have--that OPM has done such a survey?
    Mr. Flynn. It is the first time that we have gone out with 
our own independent survey of the Federal Employees Group Life 
Insurance Program.
    Mr. Cummings. Why is that? Why is this the first time? You 
are talking about 40-some years. It just seems to me that you 
would want to have known that and you wouldn't just rely on 
MetLife; you would want something independent. That's not to 
take away anything from MetLife. It just seems to me that, I 
mean, we have all kinds of audits in the Federal Government and 
everywhere I have been. It just seems to me that such a 
significant contract you would have done it before 40-some 
years.
    Mr. Flynn. I wouldn't disagree with you, sir. We have for 
the past 6 years now conducted surveys of our retirement 
program beneficiaries, and for the past 3 years our health 
benefit program enrollees. This will be the first year that we 
have done an independent survey of the Group Life Insurance 
Program. I would prefer, myself, that ones had been done 
previously.
    Another indicator, however, of the performance is the fact 
that we get virtually no complaints whatsoever about this 
program. We do look at the administrative performance of 
MetLife as a contractor to make sure that they are paying 
claims promptly and accurately and things like that. And those 
other indicators serve as a surrogate, but certainly not a 
complete substitute for the type of survey that you mentioned.
    Mr. Cummings. I have a number of questions, but I am just 
going to end right here and I will ask you the others a little 
bit later.
    When you--when you--tell us what kind of issues are raised 
when you do a survey. I mean, what kind of things are you 
looking for? What kind of complaints do you--would give you--
you know, set off the alarm bells? I am just curious.
    Mr. Flynn. Well, I think any complaint from any individual 
sets off an alarm bell. Surveys tell us whether or not those 
alarm bells arise from a systemic cause or from some program 
policy systemic issue. So we want to know what's going on with 
individual enrollees and their individual complaints, and we 
do. But we also want to understand--and surveys help us 
understand--whether or not we have a broader issue to deal with 
and how it ought to be dealt with.
    Mr. Cummings. All right. Thank you.
    Mr. Mica. I would like to yield now to Ms. Norton. Thank 
you.
    Ms. Norton. Thank you, Mr. Chairman. I should begin by 
disclosing that immediately before coming to Congress, I was on 
the board of the Metropolitan Life Insurance Co.
    Even recognizing that we all adhere to the if-it-ain't-
broke-don't-fix-it school of government, I think this hearing 
is important to hear about this program and about any 
improvements that might, in fact, be appropriate.
    There have only been six open enrollment periods 
apparently, according to your testimony, and two of those have 
been since 1993 alone. Why have there only been six and why 
have a third of those come only in the most recent period of 
the relationship?
    Mr. Flynn. Let me try and answer that by talking about our 
approach to open enrollment periods generally and then comment 
on the last two that we have had, one in 1993 and one in 1995.
    We consciously only have open enrollment periods when there 
is a significant event or a significant evolution of things 
that produces an event in the program that cause us to say, it 
is time to make this program offering available to everyone on 
either a restricted or unrestricted basis.
    One of the reasons we approach open enrollment periods that 
way is because our experience has been, particularly with open 
unrestricted enrollment periods, that you tend to get what is 
known as adverse selection surrounding that period. That is to 
say, people who have not participated in the program, who now 
find themselves with a fatal illness and with a shortened life 
expectancy, can come into the program when there is an open 
enrollment period and will increase the cost of the program in 
an unusual way until such time as that adverse selection works 
its way out of the program. So we try to avoid doing that for 
that reason.
    Ms. Norton. Wait a minute. Wait a minute. Let me understand 
this. Because some people who had opted, which is a very small 
group, people who had opted not to come into the program 
before----
    Mr. Flynn. That's right.
    Ms. Norton [continuing]. Will tend to want to come in 
because of an event in their own lives?
    Mr. Flynn. Because they have found themselves with, for 
whatever reason, a shortened life expectancy, which will 
increase the expense of the program because that's an unusually 
unhealthy group of people who opt into the program.
    I might just mention that in the unrestricted enrollment 
period that occurred in 1993, we believe we had adverse 
selection in the program at that time that cost the program 
about $50 million.
    Beyond that, as I mentioned, individual----
    Ms. Norton. That's an interesting point you make, because 
of the cost, on the one hand, to the program. And it would be a 
more compelling point to me if, in fact, the Government didn't 
start out with the presumption that everybody should be in the 
program anyway.
    Since you start out with the presumption that everybody 
ought to be covered, then the logic of that presumption is that 
even if they decide, you know, at a time which does not benefit 
the Government, that was the rule and now they are playing by 
the rule.
    Mr. Flynn. Well, I might make one other point that perhaps 
would give a partial answer to that. And that is, if someone 
initially waives participation in the program and then later 
makes a determination that they would like to participate after 
a waiting period, and if they can furnish a certificate of 
insurability, they are entitled to enroll in the program at 
that point.
    In addition, there are a number of qualifying life events, 
birth of a child, marriage, divorce, things of that nature, 
that enable people to come in or actually leave the program as 
well, which you can do at any time.
    But I understand the point you make, but it--when we do 
have open enrollment periods, that's the phenomena that we 
experience and it does increase the cost of the program in an 
unusual way at that point.
    The two most recent enrollment periods we had, as I 
mentioned, one was in 1993 and it was open and unrestricted 
because there was a broad reduction in premium rates for both 
basic insurance and optional insurance that seemed to us to 
make it appropriate to have an unrestricted open enrollment 
period.
    The open enrollment period in 1995 was restricted to basic 
insurance only and, as I mentioned, was designed to coincide 
with the implementation of the Living Benefits Act, which only 
applied to basic insurance. So it seemed appropriate to 
restrict it to basic.
    Ms. Norton. Yes. In the crash of--in Croatia, the Federal 
employees were disproportionately young and some had, as young 
people do, apparently regarded themselves as immortal. At least 
they were not ready until the next open enrollment period 
perhaps. They were not in--they did not have insurance. It was 
a terrible--it was a terrible thing for their families.
    Anybody who looks closely at this program in the beginning 
and understands its full benefits and perhaps a little more 
about life insurance, it seems to me, is almost compelled to 
make a decision to join, I mean, given even the cost.
    It seems to me there would be two groups of people who 
might not, ``get it''. One would be young people, younger 
people in the Government, and the other would be poorly 
educated people in the Government. What does the program do to 
make up for the fact that these may be disproportionately the 
people who don't get it or need further explanation?
    Mr. Flynn. Well, Ms. Norton, I couldn't agree with you 
more. Some of the Federal employees who were on Secretary 
Brown's airplane--and others that we never hear about--
tragically did not have insurance and so their families were 
not able to have life insurance benefits available to pay 
necessary funeral and other kinds of expenses.
    In part, to compensate for that, as you may know, the death 
gratuity benefit law was passed that provides some mitigation 
of that issue.
    One of the things that I think----
    Ms. Norton. Which might also have triggered at OPM the 
thought that to avoid that in the future something more needs 
to be done, since it is such a small number of people anyway 
who don't come into the program. So that's why I want to know 
what you all are going to do to avoid the Government having to 
come up with amounts.
    Mr. Flynn. I would mention a couple of things. First of 
all, there is automatic inclusion upon initial appointment, 
unless a specific waiver is executed by the newly hired 
employee.
    Ms. Norton. That's already there.
    Mr. Flynn. Yes, ma'am, it is.
    Ms. Norton. And nevertheless, there are people who are not 
covered.
    Mr. Flynn. There are people.
    Ms. Norton. What are you going to do beyond that?
    Mr. Flynn. Well, we do provide a Federal Employee Group 
Life Insurance booklet. We do provide employees with 
information during their orientation period when they are newly 
hired. There are benefits officers available at agencies. 
These, Ms. Norton, are all things that are in place.
    I haven't given any specific consideration to additional 
things that we might do, but we will certainly keep that in 
mind.
    Ms. Norton. I mean, this is not a big problem. It is just 
one that I would encourage you, particularly given the Ron 
Brown crash, to investigate whether or not----
    Mr. Flynn. Absolutely.
    Ms. Norton [continuing]. Poorly educated people or young 
people might need some extra counseling.
    People who retire can keep this insurance, I believe, until 
age 65, is that right, if they--continuing to pay their same 
employee shares and you continuing to pay your share?
    Mr. Flynn. Yes. There are a series of choices that are 
available to retirees, from the point in time they retire to 
age 65 and then after age 65.
    Ms. Norton. Do most retiring employees above the age of 
65--below the age of 65 tend to keep this benefit?
    Mr. Flynn. I think that can be answered in two ways. First, 
there is a very substantial number of retirees who take their 
life insurance into retirement.
    We do see, however, the participation in optional insurance 
in multiples of salary begin to decrease substantially as 
retirees' financial circumstances change and the need for that 
type of insurance declines, and given the fact that the 
premiums are age-based and so they become more expensive in 5-
year increments. We see a fairly substantially drop-off with 
that.
    Ms. Norton. Was this benefit provided as well to people who 
took buy-outs?
    Mr. Flynn. Yes. To the degree that they met the 
requirements for carrying their life insurance into retirement, 
which for most people would mean having had insurance for the 5 
years immediately preceding retirement, they would have been 
able to take that into retirement even with a buy-out.
    Ms. Norton. With the employer continuing to pay the 
employee's share?
    Mr. Flynn. For the basic insurance portion, yes.
    Ms. Norton. Yes.
    Mr. Flynn. Because for all optional insurance, of course, 
it is all employee paid.
    Ms. Norton. You say on page 4--you indicate on page 4 of 
your testimony that in 1993 you were able to reduce the 
employee's share of premiums almost 11 percent.
    Mr. Flynn. For basic insurance, that's correct.
    Ms. Norton. For basic, et cetera. And you gave some fairly 
impressive rates, even giving the low cost of the insurance, 
for the reduction.
    Is that the first time there has ever been an employee 
reduction?
    Mr. Flynn. No, ma'am. In fact, there have been a series of 
rate changes in the program since the program's inception.
    Ms. Norton. What triggers a reduction in premium cost to 
employees?
    Mr. Flynn. Well, it is essentially the experience of the 
program, and the claims that it pays out. There is also a trend 
that we have seen over the history of this program of decreased 
mortality for the group of people who are insured, and so that 
contributes to that.
    If I have it correctly--I don't see it right in front of 
me, but there have been at least a dozen or so premium changes 
in the program over the 43-year history of the program. The 
first----
    Ms. Norton. Improvements, changes downward?
    Mr. Flynn. The first two involved premium increases and 
ever since then they have been premium decreases.
    Ms. Norton. How many reinsurers are there?
    Mr. Flynn. There are currently 47 reinsurers participating 
in the program.
    Ms. Norton. Has that been the number all along?
    Mr. Flynn. No. They have been much higher. As recently as 
the late 1980's, I believe, there were 130 or so.
    Ms. Norton. No beneficiary need be named apparently, here, 
and according to the MetLife testimony that increases the 
costs, the administrative costs of the program.
    There must be a reason why that's there. It's very unusual.
    Mr. Flynn. You raise a very good point that I will relate 
back to a point you made earlier about educating people about 
the importance of this program and their responsibilities under 
it.
    No beneficiary need be named but, of course, we encourage 
very strongly that people review their designations of 
beneficiary, not only for the life insurance program, but for 
the retirement program as well, periodically, to make sure that 
those designations reflect their intent.
    When a designation is not made by an individual, there is, 
under Federal law, a standard order of precedence which begins 
to come in.
    Ms. Norton. What--let's say you were a private company. 
Would you have to name a beneficiary? Do all private companies 
make you name a beneficiary?
    Mr. Flynn. I don't know whether all private companies make 
you name a beneficiary. I think our position, as the employer, 
would be the same as any private company, and that is, we want 
people to designate a beneficiary. But I think even in private 
companies, there are occasionally problems with those 
designations that may cause order of precedence to take over.
    Ms. Norton. See, when you did the open enrollment and 
people who only come in when they have an adverse event and 
that increases the cost of the program, you don't want to do 
that and you try to keep that from happening.
    Now, not writing on a piece of paper who your beneficiary 
is increases the cost of the program. It is absolutely 
painless. And since this is mandatory and since everybody wants 
in, I cannot understand why we won't increase it 1 cent because 
somebody hadn't written down somebody's name somehow. I mean, 
there must be a policy reason for it. If there is a policy 
reason for it, then I can accept it. But if it is the cost of 
the program, simply because there is always a legal procession, 
a legal way to find a beneficiary, then I wouldn't understand 
that.
    Mr. Flynn. Ms. Norton, you raise absolutely a good point. 
If there is a way for us to get to that point, and it offers us 
the potential that we see in terms of reducing the 
administrative costs of the program, I would agree with you, we 
should be there and we ought to look for ways to get there.
    Ms. Norton. I wonder if you would provide for the record 
whether--or how much the cost of the program might be reduced 
administratively if people were only asked to put somebody's 
name down, their dog's name down, anybody's name down, and if 
you would give that information to the chairman of the 
committee. And perhaps if you find that there is a significant 
reduction in cost, would you consider passing that cost on?
    Mr. Flynn. Absolutely.
    [Note.--The requested information has not been made 
available to the subcommittee.]
    Ms. Norton. Reduction on. I am sorry.
    Mr. Mica. I thank the gentlelady and yield now to the early 
arrival on our side of the aisle, the distinguished gentlelady 
from Maryland, Mrs. Morella.
    [The prepared statement of Hon. Constance A. Morella 
follows:] 
[GRAPHIC] [TIFF OMITTED] T2717.012

[GRAPHIC] [TIFF OMITTED] T2717.013

    Mrs. Morella. Thank you. Thanks, Mr. Chairman.
    I am not going to really pose any significant questions 
now. I am going to wait for the next panel. But I do think it's 
very appropriate that you called this hearing. I knew FEGLI is 
a very popular program, but it is very appropriate that we 
periodically look at it and see how it is working and whether 
or not any changes are necessary and ask the appropriate 
questions.
    I wanted to thank you, Mr. Flynn, for meeting with me a bit 
ago with regard to a constituent, Mr. Godinsky, that had to do 
with legislation that I introduced to allow retirees with 
dependents with severe disabilities to retain their additional 
optional life insurance, and under the current system it is 
phased out.
    I remember that you said that at that time that it would be 
more appropriate to do it across the board rather than, you 
know, case-by-case, as it was appropriate.
    I wonder--your comments about why it would be, would it be 
less expensive or any comments you may have on that? Because I 
am going to ask the same question of MetLife.
    Mr. Flynn. Sure. Well, Mrs. Morella, in fact, when we met 
on this particular matter, it had to do with enabling 
individuals to continue their optional life insurance after the 
age of 65. And as we indicated in our meeting, we had no 
substantive objection to that inasmuch as the cost of all 
optional insurance is borne by the individual policyholder.
    It struck us, however, that inclusion in that proposal of 
some of the features associated with eligibility would require 
additional administrative cost on our part to make sure that 
only eligible people were electing to extend this optional 
insurance without any particular benefit for those costs of 
administration.
    So, we felt that perhaps the individual issue that you were 
interested in could best be handled by a broader and less 
administratively expensive provision that would enable the 
continuation of that optional insurance past the age of 65.
    Mrs. Morella. Again, thank you for your advice on that and 
for the meeting.
    Is there anything that you--I don't know whether you 
mentioned it before, any changes you would like us to look at, 
I mean, beyond what Delegate Norton has just mentioned? Are 
there things we should be looking at?
    Mr. Flynn. Well, there are a number of things that we have 
had discussions with others on. I know that you have a 
particular interest, and Ms. Norton had mentioned earlier, 
about designations of beneficiary and the need to keep them 
current. I know that you have a particular interest in those 
matters when it comes to marital divorce, separations and 
things like that----
    Mrs. Morella. Right. Right.
    Mr. Flynn. And looking for an easy way to administer court-
ordered divisions of property. I think that's an area where we 
probably would benefit from some additional discussions.
    Further, we do have some dissimilarities between, for 
example, the life insurance program and the health insurance 
program in terms of the definition of dependent children who 
are eligible for coverage. Some further discussion about 
clarifying and perhaps synchronizing those definitions would 
help as well.
    Also, I note from some of the testimony that has been 
prepared in advance by others that when you look at family 
insurance policies, and we do have a family insurance option in 
the life insurance program, generally speaking a $10,000 
benefit for spouses and a $5,000 benefit for dependent children 
seem to be sort of the norm. The Federal program benefits are 
about half that.
    Inasmuch as these benefits are primarily used to cover the 
cost of funeral and associated expenses, it might be worthwhile 
to look at whether or not the limits in the Federal program are 
adequate reflections of the cost of those items. But those are 
the kinds of things that I think are important.
    I mentioned before you arrived that we are also undertaking 
a large study of benefit practices across a broad range of 
programs and the evolution in those benefit practices among 
private employers to make sure that the Federal program stays 
competitive. And, of course, we will look at life insurance and 
life insurance variants as part of that as well.
    Mrs. Morella. Thank you very much. That was an excellent 
synopsis of those points. Thank you. Thank you, Mr. Chairman.
    Mr. Mica. Thank you. I yield now to our vice chairman, Mr. 
Pappas.
    Mr. Pappas. The late arrival.
    Thank you, Mr. Chairman.
    I am pleased to be here today to talk about an issue that I 
think is important to so many of our Federal employees and 
their families. And I guess I just have one or maybe two 
questions. But one is: Could you give me and the rest of the 
members of the committee an idea of the level of complaints 
that are received with the present system?
    Mr. Flynn. I would characterize the level of complaints 
received with the current system as virtually nonexistent. I 
think there are a number of reasons for that. We have very high 
accuracy rates. We have very responsive service levels and 
things of that nature.
    The complaints that I have seen more often than not, and 
they are literally the types of things over the past 3 years 
that you can count on your fingers and toes, have to do with 
issues in disagreement about who the appropriate beneficiary 
was and whether or not benefits were paid properly, that sort 
of thing. But, there are very, very small in number and 
generally things that can be worked out where needed.
    Mr. Pappas. Would it be safe to say, because I know that 
some have said that some of the younger people who could 
participate in this may not be, and going elsewhere because of 
the cost, could you provide your understanding as to why that 
may be taking place?
    Mr. Flynn. Sure, I will try and do that. If I could just, 
for a second, divide the program into the basic life insurance 
component and the optional life insurance component.
    If a young person looks at this program and tries to 
compare it to group term insurance that he or she might be able 
to purchase outside of Government, they are likely to see some 
differences. One of the reasons they are likely to see some 
differences is because, on the basic insurance side of the 
program, premiums are not age-based; it is a level premium 
regardless of your age. And so the older you are, the more you 
benefit from that, and the younger you are, the less you do.
    But part of the group insurance principle for basic 
insurance is that we provide that insurance to everybody, 
irrespective of their age, at the same rate.
    There are also some features of the Federal Employees Group 
Life Insurance Program basic component that are unlike features 
that you would find, say, from an insurance agent who is 
selling term life insurance. For example, we have already 
talked about underwriting and insurability, things of that 
nature.
    In addition, part of the cost of the premium for basic 
insurance goes to, in effect, pre-fund a post retirement 
insurance benefit after age 65 for which no premiums are 
collected once the individual reaches the age of 65. So young 
people will see that differential.
    And, in part, to respond to that, for people who are 
enrolled in the group life insurance program under the age of 
45, we provide additional insurance, starting at two times the 
basic insurance amount until age 35 and then gradually 
decreasing the extra coverage until someone reaches the age of 
45, as an inducement to participate in this program, even 
though the premiums might be a bit more than what they would 
pay outside.
    And then just finally, on the optional insurance side of 
the program, those premiums are age-based in 5-year increments 
and, in fact, for what they are, they are quite competitive 
with things that you would find outside Government.
    Mr. Pappas. Thank you. Thank you, Mr. Chairman.
    Mr. Mica. Thank you.
    Mr. Flynn, just a couple of questions. One of the things 
that has interested me is not only competition, but some other 
options in providing life insurance coverage for our employees 
at as reasonable a rate as could be available on the open 
market, or certainly we could put together a sizable group that 
would be fairly attractive.
    Do you think that FEGLI could compete with any other 
parallel program?
    Mr. Flynn. I think, Mr. Chairman, the answer to that is if 
you look at a comparable level of benefits, the premiums 
charged in this program for the benefits are extraordinarily 
competitive.
    Mr. Mica. OK. One of our responsibilities as an oversight 
committee is to look at any changes that we might recommend in 
the law. You said that you work under the constraint of law. I 
noticed the 1980 FEGLI law established the original optional 
insurance known as standard life and provides for, say, a 
$10,000 life insurance, an equal amount of accidental and 
dismemberment coverage. I am reading some of the provisions 
here under the OPM description of the program. But, again, the 
parameters, the benefits and some of this is set by law.
    I know we have made some changes and modifications. Do you 
have any other recommendations or could OPM look at this as 
something we should pay attention to in changing some of the 
benefits investments?
    We now have all the investments in one limited pot, as you 
described today. Can you look at that--or do you have any 
recommendations you might give us today?
    Mr. Flynn. Well, absolutely, Mr. Chairman. I mentioned to 
Mrs. Morella a few minutes ago several areas where I think some 
further discussion might be useful in this program, and also 
the study that we have underway looking at the evolution of 
benefit design practices by private employers. That may very 
well lead to some legislative proposals that we would be more 
than happy to discuss with the committee.
    Mr. Mica. Another thing, our panel looks at the whole 
picture of civil service and employment. At some recent 
hearings we saw how many part time, temporary employees and 
other employee activities that we haven't seen in the past, but 
we are going to see more of in the future. And many of these 
folks, I understand, don't have access to some of this 
coverage. Is that correct?
    Mr. Flynn. I believe this is correct, Mr. Chairman. 
Currently, virtually any Federal employee, except those who 
come in under temporary or intermittent appointments, are 
eligible to participate in the life insurance program. The 
nature of temporary appointments--temporary employment, if it 
is done properly--or the nature of intermittent employment, is 
such that one might argue against providing that coverage. But 
this is an area that I think does bear looking at.
    Mr. Mica. We have had instances.
    Mr. Flynn. Yes.
    Mr. Mica. I think Ms. Norton had an individual that was 
part time or temporary for years and years, and didn't we pass 
some special legislation?
    Ms. Norton. Yes, special legislation.
    Mr. Mica. Yes. But, there is a change in the private 
workforce. There is a change in the Federal public workforce. 
And we should be setting an example, not reacting to disaster.
    So I would like to have you all----
    Ms. Norton. Would the chairman yield?
    Mr. Mica. Yes.
    Ms. Norton. Has the law been changed so that we cannot, in 
fact, keep temporary employees on for--past a certain temporary 
period?
    Mr. Flynn. That's true, Mrs. Norton.
    Ms. Norton. What is that period?
    Mr. Flynn. I believe temporary appointments cannot exceed 1 
year. And if they do, there are certain provisions that go into 
effect so as to avoid the kind of situation that occurred with 
the gentleman that worked for the National Park Service.
    Mr. Mica. Well, we need to look at this whole area since we 
have new categories, and ascertain if there are areas that can 
be improved; also the possibility of opening up other options 
or even discussion of privatization investment of these funds, 
options to get a better return. Maybe we could reduce premiums, 
or increase benefits. I think we need to have some additional 
discussions with you in that direction.
    Are there additional questions? Mr. Cummings.
    Mr. Cummings. I want to followup on the question that Ms. 
Norton just asked. You said that we have these restrictions now 
with regard to what defining ``temporary'' is. Is that right?
    Mr. Flynn. That's correct, sir.
    Mr. Cummings. And you also said that the new--the 
provisions of this law--I take it that this is a law--would 
protect against certain situations from occurring; is that 
right?
    Mr. Flynn. That's correct, sir.
    Mr. Cummings. Now, I just want to go on that for just a 
moment. Do we have--say, for example, if that employee is there 
for more than a year, I want to know does he then become--does 
his title become something else other than temporary? And then 
how does the insurance--this whole life insurance situation 
work into that, if at all?
    Because I think that's what the chairman was sort of 
getting to, too. If you have an employee who has been there for 
a long period of time----
    Mr. Flynn. Right.
    Mr. Cummings [continuing]. And temporary is abused----
    Mr. Flynn. Right.
    Mr. Cummings [continuing]. And the person is there without 
benefits, just talk about that for a little while so I can 
understand it.
    Mr. Flynn. And if you don't mind, sir, what I would like to 
suggest, because appointments per se, whether they are full-
time or part-time or what have you, are not currently my 
particular area of expertise----
    Mr. Cummings. I understand that.
    Mr. Flynn. What I would like to do is coordinate with the 
office that deals with appointments and the benefit issues that 
are associated with that.
    Mr. Cummings. Sure.
    Mr. Flynn. And perhaps provide that for the record, if 
that's agreeable.
    Mr. Cummings. That would be good because, see, that goes to 
the very issue that the chairman was just talking about. I 
mean, if we have got people who are on longer and they, for all 
intents and purposes, become a permanent employee----
    Mr. Flynn. Right.
    Mr. Cummings [continuing]. I would like to see how the 
benefit structure works into that, if at all.
    And you will get back to us with that?
    Mr. Flynn. Yes, sir, we will.
    [Note.--The requested information has not been made 
available to the subcommittee.]
    Mr. Cummings. All right. One other thing, can you just tell 
us the role that State Street Bank plays in the payment of 
benefits?
    Mr. Flynn. My understanding, sir, is that the State Street 
Bank is the agent that the Metropolitan Life Insurance Co. uses 
following the disbursement of life insurance proceeds from the 
group life insurance program to the beneficiary.
    This program was established a couple of years ago. 
Essentially, if the proceeds to a beneficiary are over $7,500, 
those proceeds, with the beneficiary's agreement, are deposited 
into a money market account, immediately made available to the 
beneficiary, and I believe the State Street Bank administers 
that program for Metropolitan Life.
    Mr. Cummings. And so that relationship is one between 
Metropolitan Life and State Street and not OPM and State 
Street; is that right?
    Mr. Flynn. You are absolutely correct. That is a private 
relationship following the disbursement of the proceeds of the 
life insurance policy.
    Mr. Cummings. So you all--when you all talk about--you said 
that you all negotiate with MetLife. Does that issue--does that 
come up at all? Is that just like a part of the process, almost 
like it is their procedures and that you don't even get into 
that? Do you ever ask----
    Mr. Flynn. The establishment of this particular mechanism 
for paying beneficiaries----
    Mr. Cummings. Yes.
    Mr. Flynn [continuing]. Is something that came up between 
us and Metropolitan Life and is something that we agreed to. 
And the reason we did, quite honestly, was because it offered 
us a way to reduce the administrative expenses of the program. 
In addition, it offered to the beneficiaries more security than 
they had getting a check in the mail, and also gave them time 
to decide how best to use those proceeds and, while they were 
deciding, to earn some interest.
    Mr. Cummings. I noticed on one of our panels we have a 
representative from State--from MetLife coming on and maybe 
this is a better question to ask them, but is there any kind of 
competitive bidding, to your knowledge, with regard to that 
service that State Street performs? Because I am sure there are 
a lot of companies that would love to have that opportunity.
    Mr. Flynn. Not to my knowledge. That particular arrangement 
is a subcontracted arrangement. It wouldn't normally be 
something that we would have oversight of.
    Mr. Cummings. Can you tell us how many State Street earns 
by doing this? Do you have that information?
    Mr. Flynn. I do not, sir.
    Mr. Cummings. Will you get that to us, please?
    Mr. Flynn. I will.
    Mr. Cummings. All right. Thank you.
    Mr. Mica. Thank you. Mr. Pappas.
    Mr. Pappas. Mr. Chairman, I just have one other final 
question before we let you go. What is the beneficial plan and 
Shenandoah Life's role in it?
    Mr. Flynn. I am going to reach back into history, and if 
you don't mind, if my answer on reflection turns out not to be 
full enough I might augment that for the record.
    Mr. Pappas. OK.
    Mr. Flynn. But in 1954, when this program was established, 
Group Life Insurance, as an employer-sponsored benefit, was 
around in the country but was not anywhere near--didn't have 
anywhere near the degree of acceptance and universality that it 
does today. And because there was not a group life--employer-
sponsored group life insurance program available for Federal 
employees, there was--there were created a series of what we 
now characterize as beneficial associations; essentially, 
people paying in to a fund and that fund--the purpose of that 
fund would be to pay benefits, defray funeral expenses, what 
have you, for Federal employees who passed away, and their 
families.
    When this program was created, in addition to creating a 
single program to meet the life insurance needs of Federal 
employees, the obligations of these beneficial association 
programs sort of all got gathered into one and the Shenandoah 
Life Insurance Co. administered it in a closed system pay-it-
out kind of basis.
    That increasingly is a smaller and smaller part of the 
program and for all practical purposes is financially 
immaterial in terms of the effort that we have underway for 
life--for the Federal Employee Group Life Insurance Program.
    Mr. Pappas. Thank you.
    Mr. Mica. Ms. Norton has no further questions.
    Mrs. Morella.
    Mrs. Morella. No, Mr. Chairman.
    Mr. Mica. No further questions.
    Well, we want to thank you for being with us today. We have 
a number of questions from the panel that we would like a 
response from you and OPM, and also convey to Mr. King that 
this is an area we would like to further discuss with him as 
Director.
    Our goal here is just to ensure that we, you know, give the 
best possible premium both to the taxpayer and the best benefit 
to the employee and also responsibly oversee the program. So we 
thank you for being with us. You are excused.
    [The information referred to follows:] 
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    Mr. Mica. And I will call our second panel.
    Mr. Flynn. Thank you, sir.
    Mr. Mica. I would like to welcome Margery Brittain, vice 
president of the Group National Life Accounts at MetLife; G. 
Scott Cahill, CLU, chief executive officer of the James B. 
Greene & Associates; and Barnett Chepenik, president of the 
Lincoln Financial Group. If all of the witnesses could come up.
    As I explained to our previous panel member, this is an 
investigations and oversight committee, so if you will remain 
standing and raise your right hand.
    [Witnesses sworn.]
    Mr. Mica. The record will reflect that the witnesses 
answered in the affirmative.
    I would like to welcome all our panelists today and 
witnesses. We try to have our panel members and witnesses 
summarize their statements. If you have a lengthy statement 
that you would like to have entered into the record, we would 
be glad to do that.
    We have two small panels today so we won't hold you to the 
5-minute rule, but we appreciate your summarizing.
    And we are pleased to hear, first, from Ms. Brittain with 
Group National Accounts at MetLife. You are most welcome and 
you are recognized.

STATEMENTS OF MARGERY BRITTAIN, VICE-PRESIDENT, GROUP NATIONAL 
   ACCOUNTS, METLIFE; G. SCOTT CAHILL, CLU, CHIEF EXECUTIVE 
  OFFICER, JAMES B. GREENE & ASSOCIATES, INC.; AND BARNETT I. 
CHEPENIK, PRESIDENT, LINCOLN FINANCIAL GROUP, INC., CHEPENIK & 
                        ASSOCIATES, INC.

    Ms. Brittain. Thank you, Mr. Chairman. I am very pleased to 
be here today to address the subcommittee's request for 
information, and as the chairman has indicated----
    Mr. Mica. Could you excuse me. Pull the mic up a little bit 
closer. Thank you.
    Ms. Brittain. Is that better?
    Mr. Mica. Yes.
    Ms. Brittain. I am very pleased to be here today so thank 
you, Mr. Chairman, for the warm welcome. As you have indicated 
in your introduction of me, I am part of MetLife's Group 
National Accounts Organization and I was recently made 
responsible for the contract which we have with OPM relative to 
the FEGLI program.
    I know you have requested information from us in the 
following three areas: MetLife's role in the program; a 
comparison of the Federal plan to group life plans offered by 
other large employers in the private and public sectors and 
information about alternative insurance options which are 
available in today's large group life insurance marketplace. 
And I would like to very briefly address each of these topics.
    First, MetLife's role in the FEGLI program. At the 
inception of the program in 1954, MetLife was chosen as the 
primary carrier because it was at the time the largest group 
life insurance carrier in the United States. MetLife has 
retained this leadership position over the years and today we 
have $1 trillion of group life insurance-in-force.
    The FEGLI program is administratively unique in four key 
respects: The program is unique in how the benefit plan is 
designed. The benefits are determined by law.
    The program is unique in terms of its size. MetLife pays 
approximately 85,000 FEGLI claims per year.
    The program is also unique because the customer comprises 
millions of individuals in hundreds of locations literally 
throughout the United States and around the world who are 
affiliated with multiple Government agencies.
    And also the program is unique because, and this was 
touched upon earlier, it does not require a beneficiary 
designation and this does significantly increase the complexity 
of FEGLI claim administration.
    For almost 43 years, MetLife has proven its commitment to 
providing outstanding service to FEGLI participants and their 
beneficiaries. We believe that continuing this relationship 
provides significant advantages to the program and to the 
Federal Government.
    MetLife's expertise has proven particularly valuable in 
handling the types of disasters that Ms. Norton mentioned in 
terms of the Department of Commerce airplane crash in Europe. 
We are also quite aware these days of the recent Oklahoma City 
bombing and, of course, we can all generate our own examples of 
other unfortunate events.
    Through its employees, MetLife provides the institutional 
memory that is especially critical for the effective operation 
of such a unique and complex group life insurance program.
    In consideration of the claim cost and the administrative 
tasks that we perform, MetLife is paid a monthly premium from 
the FEGLI fund. This premium is set annually by agreement of 
OPM and MetLife and it is intended to cover the estimated 
claims expense for the program, MetLife's allowable 
administrative expenses, the service charge to which MetLife is 
entitled, a small investment management fee and applicable 
Federal income taxes.
    To put the payments to MetLife in perspective, it is 
important to recognize that claims paid under the FEGLI program 
currently amount to approximately $1.6 billion per year. In 
fiscal year 1996, MetLife's administrative expenses amounted to 
approximately 0.6 percent, or six-tenths of 1 percent of paid 
claims.
    I would like to focus now on the subcommittee's request for 
information about life insurance programs provided by other 
large employers. For purposes of responding to this request, we 
reviewed a sample of our large group business and active 
prospect files for group life insurance programs.
    My written statement does summarize the results of our 
review in the following areas: Types of coverage and 
contributions; dependent life benefits, funding arrangements, 
program administration and the cost of the program.
    At this point, I would like to highlight three selected 
findings. First, in our review of the types of coverages and 
contributions, we found that the design of the FEGLI program is 
generally consistent with that of other large public sector 
employers. But it differs in some respects from the large 
private sector plans we have reviewed. Specifically, in the 
private sector, the vast majority of employers pay 100 percent 
of the cost for basic term life coverage equal to an employee's 
annual salary or earnings.
    Supplemental life benefits offered in the private sector 
are typically employee pay all, as is the current FEGLI plan 
and many public sector plans, but in the private sector 
supplemental life benefits often include group universal life 
coverage.
    Second, in our review of evidence of insurability or 
medical underwriting requirements among the programs that we 
looked into, we found that in both public and private sector 
plans open enrollments are rare. By contrast, the FEGLI program 
offered open enrollments in 1985, 1993 and 1995.
    And third, unlike the practices which prevail in the group 
health insurance environment, both private sector and public 
sector employers typically select only one insurance company to 
administer their group life program. This is primarily because 
of the absence of the delivery of care component from the group 
life insurance programs and the specific desire for consistent 
claim administration and cost efficiency.
    Finally, turning to alternatives available in the large 
group marketplace, my written statement identifies four trends 
of note.
    At this point, I would just like to comment that as the 
company of choice for 55 out of the Fortune 100 corporations, 
it is MetLife's perspective that those employers with the most 
successful employee benefit plans are those which design the 
plans to address both the individual employer's workforce needs 
and its business needs.
    I appreciate very much the opportunity to present these 
comments to the subcommittee on behalf of MetLife. Thank you.
    [The prepared statement of Ms. Brittain follows:] 

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    Mr. Mica. We thank you for your testimony. And we will now 
hear from Scott Cahill, chief executive officer of the James B. 
Greene & Associates. You are recognized.
    Mr. Cahill. Thank you, Mr. Chairman. Mr. Chepenik is going 
to give our testimony.
    Mr. Mica. OK. We will hear then from Mr. Chepenik.
    Mr. Chepenik. Thank you, Mr. Chairman and distinguished 
members of this subcommittee. Good morning.
    For the record, I am president of Chepenik & Associates and 
affiliated with the Lincoln Financial Group.
    We thank you for the opportunity to give testimony to this 
committee. As I understand it, our charge is twofold: To 
compare the FEGLI program with life insurance programs offered 
by large employers in the private sector and to discuss any 
financially feasible alternative insurance options for civil 
service employees.
    We have prepared a chart titled ``Compare the FEGLI Program 
with the Life Insurance Programs Offered by Large Employers in 
the Private Sector'' to be used as a guide during the portion 
of this testimony.
    Our research in the FEGLI program consists of a fiscal 1993 
statistical abstract and a paper entitled, ``Federal Employees 
Group Life Insurance,'' dated April 1997.
    The private sector data comes primarily from three sources: 
Our data on Fortune 500 companies, group life insurance 
carriers that cater to those companies and a report from 
actuaries that we consult with frequently.
    Please note that for this discussion that some companies 
have gone on to full flex comp strategy whereby each employer 
is awarded flex funds equal to some percentage of their base 
salary. They are then able to use those funds to purchase 
benefits that meet their particular personal needs. We have 
disregarded data from companies who use a full flex approach to 
benefits.
    If you will refer to the chart, we can look at the benefits 
and options and compare the FEGLI program to the private 
sector. If I may direct you to the basic life, which is term 
insurance, you can see that the FEGLI program provides a one-
time salary with $136,000 maximum benefit. Notation one at the 
bottom refers to the fact that employees under age 45 receive a 
greater benefit than one-time salary under the basic FEGLI 
program. This is very uncommon in the private sector.
    If you look at the private sector, we see that the basic 
term life insurance is also typically one-time salary. However, 
we are able to get the maximum guarantee issue amount up to $1 
million as indicated by notation No. 2 at the bottom.
    Through skilled negotiation, we are able to provide the 
most competitive underwriting concessions, optional benefits 
and costs to the client companies.
    Under the FEGLI program, the basic term benefit is funded 
33 percent by the employer and 67 percent by the employee. In 
the private sector, we typically see the employer paying 100 
percent of the basic term cost.
    The first optional benefit is optional term life. 
Typically, it is a multiple of salary on a guaranteed issue 
basis. This seems to be consistent between the FEGLI and 
private sector programs and both are funded similarly. However, 
in the private sector, we usually negotiate for an annual open 
enrollment. This allows each participant the opportunity to buy 
up or down annually on their optional insurance. Under the 
FEGLI program, this appears to take place periodically.
    The Dependent Insurance Program under FEGLI provides $5,000 
for the spouse and $2,500 for each child regardless of the 
number of children. This benefit is funded 100 percent by the 
employee. In the private sector, we have seen benefits vary 
from no dependent benefit to up to $200,000 on the spouse. We 
feel the dependent insurance plan in the FEGLI program is 
competitive with that found in the private sector. However, 
there is an opportunity to tailor a program to offer additional 
competitive life insurance benefits purchased at the work site.
    The next item is post-retirement benefits. The FEGLI 
program has three options: 25 percent of final pay, 50 percent 
of final pay and 100 percent of final pay. The FEGLI program 
appears to be competitive with the private sector. The trend in 
the private sector has been to move away from providing post-
retirement life insurance benefits.
    Since there is a tremendous, if not increasing, need and 
demand for post-retirement insurance benefits, the private 
sector has been addressing this with very competitive permanent 
type life insurance policies referred to as group universal and 
variable life insurance policies.
    The next item is optional permanent life insurance. The 
FEGLI program, to the best of our knowledge, does not offer a 
permanent product. This is defined as one that would have cash 
value.
    The group universal and variable life products are shown 
under the private sector. These are 100 percent funded by the 
employee and can be tailored to the employee's need. We often 
see these policies fully funded during the employee's working 
life so the employee would retire with a cash value policy that 
would potentially require no future premium deposits. These 
policies also have a feature to annuitize should the retiree 
decide to receive an income stream from the policy as opposed 
to providing a death benefit for his or her heirs.
    The next benefit is accelerated benefits. Under the FEGLI 
program, this appears to only apply to the basic life and is 
funded in the same proportion. The private sector typically 
provides accelerated benefits for both basic and optional 
benefits.
    The basic is 100 percent employer-funded and the optional 
is 100 percent employee-funded. There are still a few insurers 
that do not offer the accelerated benefits, but overall the 
competitive group carriers are offering this option.
    The last item is the conversion. The conversion option is 
available under both programs and is funded by the employee in 
both situations. Group conversion policies are typically the 
least competitive that we see. This is due to the fact that 
they are almost exclusively adverse selected; i.e., if someone 
is--if someone can purchase a policy elsewhere, they will 
because it will be less costly. Therefore, only the uninsurable 
or the highly rated individuals seek group conversions.
    The group universal and group variable products are 
automatically convertible at the same group discounted rates 
and avoid the need for the conversion feature. From this 
discussion, I think we have learned that an optional group 
permanent life insurance policy would be financially feasible 
since it would be funded by employee contributions.
    As we look to the private sector, we see significant 
participation rates and good retention shown with the low lapse 
rates, indicating that the private is well received by the 
participants.
    With this data and discussion before you, Scott Cahill and 
myself would be pleased to entertain questions and enjoy an 
open discussion on this information.
    [The prepared statement of Mr. Chepenik follows:] 

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    Mr. Mica. Thank you for your testimony and also for your 
work in preparing this comparison for us.
    I would like to ask a couple of questions first of Ms. 
Brittain. Can you summarize for us the major differences 
between the management of FEGLI and the life insurance programs 
that you manage for large employers in the private sector such 
as General Motors? What is the difference?
    Ms. Brittain. Sure. I would be happy to do that. I think 
one of the earlier questions in part of the interchange and the 
testimony of Mr. Flynn discussed the issue of benefit plan 
design. I think one of the greatest differences here is that 
the benefit programs, the actual amounts payable to individuals 
who choose to participate in a program, are defined by law. 
That's very unique. We have no equivalent, that I am at all 
aware of, in the private sector.
    So contrary to a normal interchange, with some of our 
largest clients, where there are regular discussions about new 
benefit offerings or benefit redesign, we find that this 
particular customer has some constraints, by definition of the 
program, that really make that not an agency-only type of 
decision.
    So that is very different in terms of our interaction as an 
insurance carrier, with our customer, as well as in terms of 
the program management. There are not a lot of benefit 
revisions that we are regularly placing.
    However, having said that, we have heard the testimony this 
morning about the evolution of the program and that is very 
typical compared to the private sector, where for large groups 
some number of years ago, the one-size-fits-all concept was 
very typical in benefit plan design, and we do see the 
evolution toward more employee choice. And certainly that is 
something that has occurred with the benefits provided to 
Federal employees.
    However, as we just heard, in the private sector, that 
employee choice component now includes more permanent type 
insurance, cash value type insurance kinds of benefits.
    Mr. Mica. Does OPM seek your professional advice regarding 
additional options and alternatives they may want to consider 
for Federal employees?
    Ms. Brittain. Yes, they do, on a regular basis. We are also 
aware that they are conducting the survey not just for the life 
insurance program, but for all benefits, and that's often 
helpful for us to hear about if there might be a change in 
health benefit offerings or so forth, if that triggers an idea 
of how we could gain some consistencies and clarifications for 
Federal employees eligible for multiple programs.
    Mr. Mica. And you also suggest to OPM certain options that 
are being offered by private employers?
    Ms. Brittain. We do and on a regular basis we are actively 
looking at that.
    Mr. Mica. Do they have enough flexibility within the 
confines of the law to adequately pursue some of those options, 
or do you find limitations?
    Ms. Brittain. Well, the law is very specific, and I 
understand it governs the program.
    Mr. Mica. I know. But should we have more flexibility given 
the range of new options and the evolution of insurance 
coverage and benefits? Are we dealing with antiquated 
restraints? Could we do a better job if we went back and 
modified some of these provisions?
    Ms. Brittain. The private sector does have more flexibility 
and we have seen the trends that large employers, such as the 
Federal Government, have implemented. So I think that would be 
something that this committee could look at.
    Mr. Mica. So you think we could go back and look at how the 
law is written and the constraints that we have----
    Ms. Brittain. Yes.
    Mr. Mica [continuing]. That we make you operate under?
    Now, you mentioned some of your expenses in your testimony. 
You said you have an investment management fee on page 4. I 
heard you quote that was one of the expenses you charge off. 
What is that for?
    Ms. Brittain. Yes. We manage a very small portion of the 
funds that support or back the FEGLI program and we receive a 
fee which really just covers our expenses for managing that 
program. It is 2\1/2\ basis points and it is roughly in the 
neighborhood of $100,000.
    Mr. Mica. Also, I think you heard my question to Mr. Flynn, 
about the increase in the administrative costs from 1994 to 
1995, which he said, is currently under review. Is there any 
reason why there should be a 30 percent increase? Was there 
something exceptional that occurred in that period?
    And also in operating expenses, you also had a significant 
increase, from $8 million to $10.8 million. Any light you could 
shed on that for the subcommittee?
    Ms. Brittain. Sure. I can comment on the differential 
between the $6.6 million that was referenced in 1994 and the 
$9.2 million referenced for 1995. The larger totals relative to 
operating expenses go beyond the MetLife expenses, and I think 
Mr. Flynn could perhaps best shed further light on that. But 
the MetLife expenses did increase significantly, as reported to 
OPM, in 1995 as compared to 1994. And there are two reasons for 
that.
    One, significantly more work was done in 1995 because of 
the open enrollment and, two, there was a bookkeeping timing 
issue so that some of the charges that otherwise would have 
been applied in 1994 did not get applied to the program until 
1995.
    Regardless of that, though, I would like to also comment 
about the area of administrative expenses. It is certainly, in 
the business that I conduct in the private sector, a focal 
point for all of my clients, and we give that serious 
attention. We have, as the committee has been informed this 
morning, instituted an administrative expense ceiling for the 
current fiscal year for the FEGLI program. And we are also, as 
a company, and I think this has been widely made public, 
aggressively re-engineering our business and restructuring our 
support staff so that we can reduce our administrative costs.
    Mr. Mica. I have sort of an open-ended question for Mr. 
Cahill and Mr. Chepenik. You have had an opportunity to look at 
the FEGLI program, so what one or two things would you 
recommend that we change that would improve the program, just 
general observations you might convey to the subcommittee? Mr. 
Cahill, anything?
    Mr. Cahill. Yes, sir, Mr. Chairman. After speaking with 
three actuaries, several benefits departments and our own 
knowledge in working in the private sector, large group life 
carrier cases, we have come to the conclusion that I think you 
would like to consider or may need to consider some group 
permanent type of life insurance policy that will allow the 
employees to dial up or dial down their death benefits for 
themselves and then also some portable features for their 
spouses and children.
    That would solve some of the problems that Mrs. Morella 
alluded to earlier as far as conversion after age 65, the 
optional piece. So that's the biggest piece.
    A lot of other things I didn't understand as far as the 
pricing structure. It seems that the current pricing structure 
could allow for adverse selection, the fact that it overcharges 
the young and undercharges the older. But I don't understand 
enough to make that charge.
    Mr. Mica. Thank you. Mr. Chepenik, did you have anything 
you wanted to add?
    Mr. Chepenik. No. I think I will go with the comments that 
Mr. Cahill has made.
    Mr. Mica. Thank you. I will yield now to the ranking 
member, Mr. Cummings.
    Mr. Cummings. Yes.
    Mr. Cahill and Mr. Chepenik, talk about open enrollment and 
how significant that is. I mean, in--you briefly talked about 
it in your statement. But talk about the private sector and do 
you have any concerns with regard--what are your concerns, if 
any, with regard to the open enrollment situation with regard 
to this program?
    Mr. Chepenik. I will go first, and I think Mr. Cahill 
probably will add to this.
    We typically, in handling a large group, annually from a 
competitive standpoint, negotiate with that incumbent carrier 
in getting an open enrollment. If we don't have success with 
the incumbent carrier, if necessary, as a last resort, we 
always have the option to change to a new carrier, which 
automatically gives us an open enrollment. And it is usually 
not--most large cases do not change on a yearly basis. They 
often go long-term. So it gives us the ability to negotiate.
    One of the advantages you do have, I guess, in the private 
sector is that you--as evidenced from both testimonies, that 
most of the employers in the private sector do pay 100 percent 
of the at least basic life costs, rather than the two-thirds/
one-third. So that you have got a nucleus to start with. Even 
if you don't have 100 percent paid for, you always have the 
attention of the insurance companies and they are willing to 
negotiate.
    So it is price-driven and the ability to reopen the door to 
add those few people, or whatever percentage, typically less 
than 25 percent that might have declined the coverage.
    Mr. Cummings. So I take it that you all--you consider that 
having flexibility with open enrollment to be of some 
significance; is that right?
    Mr. Chepenik. Very, very significant.
    Mr. Cummings. Did you have something, Mr. Cahill?
    Mr. Cahill. No. I agree with those comments.
    Mr. Cummings. Do you think--you have heard the testimony 
with regard to the program with regard to open enrollment. I 
mean, do you think that this is too restrictive?
    Mr. Chepenik. I would--the three of us, one person behind 
us who is not testifying today, and Mr. Cahill and myself spent 
8 hours yesterday talking about the program. We would--we wish 
they had the opportunity to make recommendations on changing. 
We didn't realize the Government really sets down the basic 
guidelines, because we would probably bring some ideas to the 
negotiation table to redesign and make some more modern items, 
modern techniques, provided in a new design program.
    Mr. Cummings. So am I hearing you right that at this 
moment, there are some--there are things that you would 
recommend; you are not necessarily prepared to make the 
recommendations right at this moment? Is that--am I hearing you 
right? Would you be kind enough to get those recommendations to 
us when you can?
    Mr. Chepenik. Gladly.
    Mr. Cummings. We would appreciate that.
    Let me go to you, Ms. Brittain. Following up on something 
that the chairman was talking about, he asked you about 
possible recommendations for benefits and he talked about--he 
questioned you about the constraints of the law. And I am just 
wondering, are there things that we could do in changing the 
law to loosen the constraints and at the same time increase 
benefits without increasing premiums?
    Ms. Brittain. I would be happy to comment on that. Thank 
you for the question.
    I think that some of the things that might be considered if 
you were looking to increase benefits without increasing 
premiums, the one point that was mentioned was the relatively 
low maximum amount of term insurance that's currently provided 
under this program, as compared to the size of the program. 
That is something where the size of the program, I think, could 
support a much higher maximum benefit with no significant 
increase in cost.
    That would certainly get to those individuals who are 
looking to protect earnings, for example, in the event of their 
demise and need family members to pay off mortgages or pay 
education costs or things of that nature if the benefit itself 
doesn't cover their total earnings or the appropriate ratio 
that they are looking for or could find elsewhere. That's an 
important matter.
    Similarly, there was testimony provided about dependent 
life benefits. That is something that would need to be priced 
out specifically, but a lot of discussion was given about 
family members, the changing workforce, the two-career earners 
that we have now. That is something that while there may or may 
not be a cost, if there is a cost, it would certainly be very 
insignificant compared to the costs that are currently borne by 
the program. And that is something where the benefit level is 
not, for the most part, although as reported, and a MetLife 
survey agrees with this, there is a wide variety of family 
coverage out there. There are many private sector plans that 
have more significant benefits for family members.
    A third thing that I would like to comment on, in terms of 
costs overall, certainly if employees of the Federal Government 
are in need of permanent insurance or are in need of savings 
vehicles, investment vehicles, greater flexibility of options, 
a program such as a group universal life program sounds ideal.
    It is, I think, important to note, however, when we are 
talking about costs, that in addition to claim costs we also 
have administrative costs, and there are two features about 
group universal life programs that do generate some additional 
costs.
    One is that education piece that I know Ms. Norton is 
particularly interested in, and that is that the program is 
significantly different and more complex than what has 
currently been in place. There is also a lot of flexibility, by 
definition, with that type of arrangement. But the mechanics to 
support it, particularly thinking about things like payroll 
deduction, if you have multiple payrolls, if those payroll 
systems are not able to easily extract premium funds and so 
forth, especially variable premium funds, and get the insured 
the coverage that he or she thinks they are purchasing when 
they sign up for the benefits, that will dampen or, in fact, 
perhaps if the administrative issues are significant enough, 
negatively impact the success of that type of a program.
    I am not saying that those should be limiting factors, but 
I would just like to, while we are focused on costs, bring up 
the point, because I think it is something that should be 
reviewed in conjunction with any other aspect of that 
particular program.
    Mr. Cummings. Let me ask you this: Are there any--I am sure 
each program is unique, but are there situations with MetLife 
where people are paying about the same amount of premiums, but 
getting greater benefits, say with the private sector?
    Ms. Brittain. Yes, there are, but I would like to comment 
as to why that might be the case. As we discussed a little 
earlier today, in the concept of group insurance, particularly 
in the large group insurance environment, the mortality of the 
group, the actual claims and the amount of those claims--as a 
function of the individuals that are insured and access those 
benefits--really determines the largest portion of the cost of 
the program. It virtually is the cost of the program.
    So many large employers who have restructured and might 
have entered new industries, such as telecommunications or 
entertainment industries or so forth, whose workforce is very 
young, very healthy, as a predominant factor, often who have 
individuals who are very young and very healthy in high level 
positions and so with the highest level of benefits, those 
types of programs offer more insurance for the price that might 
be similar to the Federal Government Group Life Insurance 
Program.
    Mr. Cummings. Well, let me ask you a little different way. 
With a similar situation that we have with FEGLI, do we have 
anything comparable at MetLife, I mean, that where people are 
getting more benefits for the dollar?
    Ms. Brittain. In our private sector business, we do see 
many times basic life insurance being entirely paid for by the 
employer. And that could have a positive impact on the cost. 
The reason for this being that everyone would then 
automatically be covered in the program and that would include 
generally those younger, healthier employees that it was 
mentioned earlier are the ones that either through a lack of 
understanding of the importance of these benefits or for 
whatever other reasons they might choose, in the case of the 
current program, actually opt out of that program.
    Having said that, I think it is important to note that the 
90 percent participation, while in no way taking away the 
attention that we must pay to those individuals who opt out and 
do not participate, is a very high participation rate for a 
program where the employee bears two-thirds of the costs.
    Mr. Cummings. Just one last question. You said that the 
no--and I may have missed this during the discussion.
    Ms. Brittain. OK.
    Mr. Cummings. You said that the no beneficiary designation 
increases your costs. Is that right?
    Ms. Brittain. I said it makes the program more difficult to 
pay claims for, and I think by definition that would increase 
our costs, yes.
    Mr. Cummings. Can you talk about--I mean, do most people 
designate a beneficiary or is it--I mean, would you know what 
percentage that might be?
    Ms. Brittain. I wouldn't know the percentage, but I can 
find that out and provide that to you. But certainly, if a 
beneficiary is designated and if the beneficiary designation is 
properly completed, because there is some need for review to 
make sure that it is an effective and appropriate designation, 
then the payment of claims process is much more simple.
    In the event that there is no beneficiary designation, 
again--and this is prescribed, this procedure is prescribed--
there has to be a complex step 1, step 2, step 3 approach to 
determine who is actually entitled to the benefits. Certainly 
if that were eliminated, either through increased education or 
through any other mechanism, I think that that would benefit 
the program.
    Mr. Cummings. Thank you very much.
    Mr. Mica. Thank you. I yield to the gentlelady from 
Maryland, Mrs. Morella.
    Mrs. Morella. Thank you. Thank you all for testifying. I 
value it.
    I want to ask you, Ms. Brittain, about--tell me more about 
your money market plan for beneficiaries.
    Ms. Brittain. Certainly.
    Mrs. Morella. And if you can get also into the investment 
concept that you alluded to earlier. I am curious about it.
    Ms. Brittain. OK. Briefly, it has been a tradition in group 
insurance benefits, which we know were introduced relatively 
some time ago in the early fifties, to offer beneficiaries what 
is referred to as settlement options.
    And the purpose of this is that a life insurance program 
typically gives the average beneficiary, at a point of very 
difficult trauma, grief and so forth, an amount of money that 
might be greater than any sum that that individual might have 
ever dealt with at one time. And it does so at a time when the 
person is probably least equipped to make the best decision as 
to what to do with those funds.
    In the past, in the early fifties and sixties and 
seventies, basically State laws, and I am simplifying for ease 
of our discussion, required insurance companies to offer a 
series of settlement options, such as an annuity or a limited 
time payout of those large life insurance proceeds.
    We surveyed our book of business during the seventies and 
early eighties and found that very few beneficiaries were 
taking advantage of those settlement options. In fact, we found 
that the vast majority of beneficiaries were leaving checks for 
a huge amount of money in desk drawers, unattended to, because 
they couldn't cope with them. Or the reverse, they were making 
instantaneous investment decisions that were not well thought 
out, that they regretted and that they could not easily undo.
    So we created a settlement option, which has now been 
replicated and is in fact pretty much the industry standard, 
where when the claim is paid, when the group program has 
acquitted its obligations, instead of offering a beneficiary a 
lump sum check with no interest generated on that check until 
the time that they positively elect to do something with it and 
make a decision about what they want to do, we offer a money 
market option.
    And what that does is basically give the beneficiary a 
checkbook instead of a check. It generates interest at 
competitive rates until the funds are taken out of that money 
market option.
    If the beneficiary has plans for the funds, maybe there was 
a long illness and residual medical expenses must be paid, or 
maybe there is an investment plan, or an estate plan, all they 
need do is write a check on that money market option for any or 
all of the funds and negotiate it at any bank or investment 
company, as they would a check would their own personal 
checking account. So there is no restriction on their use of 
the funds.
    On the other hand, if they are confronted by a sudden 
tragedy, such as the Croatian situation that we encountered, or 
any of the private tragedies that are not always headline news, 
they have the time that they need to decide what to do with 
those funds.
    Mrs. Morella. Is it popular?
    Ms. Brittain. Yes, it is very popular. In fact, we 
specifically surveyed, at OPM's request, the FEGLI 
beneficiaries and we got a 99 percent satisfaction rate--I 
believe the distinction was 90 percent were highly satisfied 
and 99 percent were somewhat or highly satisfied.
    Mrs. Morella. Excellent. Excellent. That's splendid.
    Let me throw in something that may be somewhat 
controversial. And that is the idea of you know how our Federal 
Employee Health Benefit Program allows all the options. There 
are a myriad of possible plans that you can utilize in 
companies. Would you like to comment? I mean, I know what your 
answer is but would you give us some reasons why you think that 
might not be the best idea? And I assume that that is going to 
be your stance.
    Ms. Brittain. I think what would not be the best idea, as I 
understand health plans--I am not an expert there--but I 
understand that there is an annual open enrollment period 
amongst all the plans. And the reason that I would not be in 
favor of that, and I know there is a differing opinion here----
    Mrs. Morella. I am going to ask them also to respond to it.
    Ms. Brittain. Is basically because of the experience that 
we have seen and because of the different nature of group life 
insurance programs as compared to group health insurance 
programs.
    Life insurance programs, as complex as things like the 
order of precedence ruling for the OPM program in lacking 
beneficiary designations, as complex as that might be, 
adjudicating life insurance claims does not impact the ultimate 
result to the beneficiary as long as it is done accurately and 
in a timely fashion.
    Whereas in the health care arena, the actual method in 
which care is delivered and in which the benefits are received 
is very different, for example, in an HMO environment than it 
may be in an indemnity environment when you get into issues 
like choice of providers and preventive care and other 
different reimbursement items.
    So in a life insurance environment, basically employee 
choice is more in terms of what are their personal life 
insurance needs or savings objectives. And usually that is 
defined or the amount of choices or the amount of available 
insurance is defined by the employer, basically saying what do 
we know about our workforce and what do we know about our 
administrative capabilities?
    So in that context, I very much favor or would recommend to 
any large employer a life insurance program that does offer 
choice of benefit levels.
    Specifically addressing the issue of whether that choice 
should be offered annually on an open basis to all potential 
participants, I would offer the following: We heard testimony 
this morning about the fact that individuals who opt out of 
coverage and then specifically select life insurance coverage 
generally do so when they know about adverse health status. And 
you see that in the cost of the plan.
    We also know that there are provisions in most plans, and 
the FEGLI program includes this, that for individuals who might 
not have particular levels of coverage but have life events 
that would normally require a reassessment of their needs, such 
as marriage or divorce or birth or adoption of a child, they 
have the option to at that time, without medical evidence of 
insurability, change their selection.
    To, without medical evidence of insurability, annually 
invite participants who are not currently in the program to 
assess their needs really will attract to the program those 
individuals who feel strongly that their beneficiaries will 
need their benefits.
    That may be a choice, but what we have found is that the 
cost, both of the enrollment itself, and of the resulting 
claims, particularly in a program where participation levels 
are relatively high, is not necessarily sufficient to address 
the cost to the program.
    Mrs. Morella. Gentlemen, would you like to comment on that, 
whether there should be more competition within the system?
    Mr. Cahill. The annual open enrollment is a benefit to the 
employee and it helps them decide what they need, how much and 
when. It is done typically on a short period of time before the 
annual renewal of the contract. I do agree that it would be 
adverse selection and, as Mr. Flynn stated earlier, there was 
about a $50 million hit in the last open enrollment.
    Over time, if you have an open enrollment, over time that 
number will not be as significant at each open enrollment 
because it becomes commonplace as opposed to people having a 
pent up demand to get on the plan the next time they have the 
opportunity. And in the private sector, if one carrier won't do 
it, we will find one that will.
    Mrs. Morella. Very interesting.
    Mr. Chepenik. I would like to just add to that.
    Mrs. Morella. Expand on that. Thank you.
    Mr. Chepenik. Life insurance is a lot less complicated than 
health insurance. Under an HMO program, a federally qualified 
HMO, it is required that you have an open enrollment on an 
annual basis, and somebody having health problems coming in to 
work for a new employer, having a major problem or pregnancy, 2 
months later goes into the HMO, has no pre-existing condition 
and gets instant coverage. And so probably often where exposure 
could exist on the HMO side and on the health side than it 
would on the life. A comment that Mr. Cahill used, over time 
life insurance should level itself out. So it is a very key 
tool for negotiation for the consultants, the agents, as we 
negotiate with the private insurers. It assists and it works.
    Ms. Brittain. Can I offer an additional comment on that?
    Mrs. Morella. Yes, you may.
    Ms. Brittain. Some of the experience that we have seen in 
the private sector from employers who began early on when group 
universal life was offered, to offer on a regular basis 
employee-pay-all life insurance annually, with or without 
multiple carriers, although almost entirely it has been with 
single carriers, found that a number of those programs got into 
trouble very quickly.
    The mortality assumptions that had been built in did not 
anticipate the cost of selection against the program. And what 
this did was put a number of employers very much in a bind 
because, keep in mind, these are typically employee-pay-all 
programs.
    So here they did a fine job of trying to offer state-of-
the-art benefits, communicating extensively because it is a 
more complex benefit than the traditional group term benefit, 
and then found themselves having to go back to employees and 
request premium increases.
    What happens in that kind of a situation, and I think we do 
have some health care parallels there, is that the individuals 
who are healthiest, who can get a better deal elsewhere, are 
quickly enticed to do that, which leaves then an even less 
attractive risk for the program and, again, tends to accelerate 
the cost increase. To move the program to try to avoid the cost 
increase, move it by administrator or underwriter or insurance 
company, may in some instances postpone the inevitable, but I 
don't believe that it would prevent it.
    I think we could provide some case studies or examples if 
that would be of interest to the subcommittee.
    Mrs. Morella. I appreciated your response.
    Let me just pick up on what I had mentioned to Mr. Flynn, 
that I had in the last Congress introduced legislation to allow 
retirees with dependents with severe disabilities to retain 
their optional life insurance, which they can't do now. And he 
did say that he thought it should be applied to the entire 
retiree population without restricting it. And I just wondered 
from MetLife your response to that?
    Ms. Brittain. We would agree with that assessment.
    Mrs. Morella. You would agree with that?
    Ms. Brittain. Yes.
    Mrs. Morella. You have no problem with having that 
extended?
    Ms. Brittain. No.
    Mrs. Morella. And I guess just finally, since that was such 
a fast answer, I will just indicate that I think Mr. Flynn, 
when he first made his comments, talking about what possible 
changes might take place, looking at your comparison here, with 
regard to the amount that dependents get, it says that in the 
private sector it varies greatly.
    My recollection from his testimony was that maybe we need 
to look at that because we may not be on the Federal level 
paying as much as we should.
    So I just wondered, could you synchronize that for me? You 
say ``varies greatly.'' You make individual determinations and 
what do you factor into the determinations? And do you think it 
should be increased? I mean, if it varies greatly, I don't 
understand this increase. There must be some range you are 
talking about. So OK. Explain that.
    Mr. Chepenik. Varies greatly, there are some employers, 
large and small, that don't offer any dependent life coverage. 
And where we said that we have carriers that provide up to 
$200,000 of group life coverage for the spouse and, of course, 
typically at 50 percent value, so if a spouse--if an employee 
had a one-time salary and a spouse which, in the private 
industry could equate to $300,000, $400,000, $500,000 in life 
insurance, if the spouse had $200,000, the child would have 
$100,000. If the spouse had $50,000, typically it is one half 
of the coverage.
    So often you will see $10,000 at least for a spouse and 
$5,000 for the children; $25,000 for a spouse, $10,000 or 
$15,000 for the children. So they are typically higher amounts 
offered in the private sector than you have today. Why we say 
offers--varies greatly is because there is some companies that 
don't offer any.
    Scott, would you like to respond?
    Mr. Cahill. We couldn't compartmentalize this benefit like 
we could the one-time salary basic because it is truly all over 
the board.
    Mrs. Morella. You said you could not compartmentalize?
    Mr. Cahill. Yes, the spousal benefit and try and put a 
simple answer for you in this format.
    Mrs. Morella. OK.
    Mr. Cahill. It would take every company--in a random 
sampling of probably 6 or 8 large employers on Monday, there 
were no two that had the same but they all had the same basic.
    Mrs. Morella. You are saying that you look at what the 
benefits are going to be for the spouse and the client and make 
a determination through that, the companies make a 
determination?
    Mr. Chepenik. It is typically negotiated with the employer. 
The Human Resources Department is where we would start and 
management of the company, where they have set so many dollars 
aside and have asked for an analysis of the benefits, what 
could be offered. And we would then propose, we could offer a 
one-time salary for life insurance and then propose a few 
different levels of dependent coverage, and it is from a 
negotiations standpoint that the employer might say, great, we 
will take the one-time salary.
    Can you get us $500,000 of guaranteed issue? And the answer 
would be, yes, and we will show them what it would cost to give 
them $100,000 of spousal coverage and a lesser amount for their 
children and what it would cost for $50,000. And some employers 
will say, great, let's take the $50,000 and we will pay for the 
life insurance and provide this much offered to the employees, 
and the employees would in turn then select and pay for that 
spousal coverage. So it really becomes an individually 
negotiated item with each employer.
    Mrs. Morella. Sounds like a dice game.
    Do you think that--do you think that, therefore, we should 
keep it the way it is? Or do you think it should be open to 
some changes?
    Mr. Cahill. I think there is opportunity to evaluate it.
    Mrs. Morella. Evaluate it?
    Mr. Cahill. I believe that's the same comment Ms. Brittain 
and Mr. Flynn came to.
    Mrs. Morella. OK. Great. Good. Well, I want to thank you 
all. Thank you, Mr. Chairman.
    Mr. Mica. Thank you, Mrs. Morella.
    I recognize now, Ms. Norton.
    Ms. Norton. Thank you, Mr. Chairman.
    To get to the bottom line, the fact is that the 
Government's program, even given some tradeoffs, is not, from 
an employee point of view, not as good as private sector 
programs, the way in which the Government has constrained its 
costs and options and benefits; is that not the case?
    Mr. Chepenik. That would be a correct statement.
    Ms. Norton. I just put that on the record because of the 
notion that somehow Federal employees are robbing the bank, 
that I was, frankly, a little surprised to look at the chart 
and to follow your testimony to find that the Government has 
been--the Government has been at some pains, it would appear, 
to make sure that it was not a leader in this regard, where it 
sets the example for the rest of the country, but that it was 
following the leaders in the private sector.
    Considering the size of the employer we are talking about, 
I think that ought to be noted for the record and for those who 
claim that Federal employees are somehow robbing the bank.
    When you talk about improvements that could be made in the 
program, I have some confusion as between Ms. Brittain's 
testimony and the improvements that you two gentlemen speak of. 
Are you talking--she seems to say that she thinks some things 
could--improvements could be made without adding to premiums. 
Are we talking about no-cost improvements in the program? 
Because obviously we can all think of ways to improve the 
program.
    But are we talking about ways to improve the program with 
no additional cost to the Government and no additional cost to 
the employee? I would like each of you to answer that.
    Ms. Brittain.
    Ms. Brittain. Certainly. As I mentioned, I believe that the 
size of the program that is currently in place could probably--
at virtually no cost----
    Ms. Norton. I am sorry. I cannot hear you.
    Ms. Brittain. As I mentioned, I believe that the size of 
the program as currently in place could support a higher 
benefit level at virtually no cost to the employer or to 
employees than is currently in place, and that would certainly 
satisfy needs if there are individuals who do not feel they get 
as much income replacement as they believe they need in the 
event of the death of a primary breadwinner.
    Ms. Norton. Is the reason that that does not occur 
automatically constraints of law?
    Ms. Brittain. That's my understanding.
    Ms. Norton. So if there were certain changes in the law, 
employees could get enhanced benefits without costing the 
Government anymore--without accruing anymore costs to the 
Government?
    Ms. Brittain. I believe that's a correct example.
    Ms. Norton. Would you provide to this committee those 
options?
    Ms. Brittain. Sure.
    Ms. Norton. Mr. Cahill, Mr. Chepenik, do you want to 
respond to that, too? You also are talking about improvements 
of the kind Ms. Brittain has indicated with no cost to the 
Government and no additional premium cost to the employee?
    Mr. Cahill. We believe that there are opportunities to 
change the structure of the benefits and it would take 
actuarial evaluation. Ms. Brittain has access to that data that 
we don't, and if she says it could be done with little or no 
cost, I would go with that.
    She did make a good point on the group universal, where 
there is a cost even if it would be employee-funded, a cost of 
the payroll deduction and the enrollment, things like that. And 
that is a discussion on who is going to bear that cost, whether 
it be the carrier or the employer.
    Ms. Norton. I don't want to get--the reason I am intrigued 
about what you had to say during your testimony, Ms. Brittain, 
is because I really do not want to get into a situation where 
we are talking about more cost to the Government, because that 
is a nonstarter.
    But, Mr. Chairman, at a time when Federal employees find 
year after year that they essentially are, if you will forgive 
the pejorative, giving back part of the statutory pay raise, 
the notion that there may be enhanced benefits out there at no 
cost to the Government and with no premium cost to the employee 
is, it seems to me, very, very much worth following up, 
particularly given the next 5 years, the years where the 
employee is already behind the private sector and obviously 
deliberately behind the private sector, it would seem to me 
that we had an obligation to maximize at least this benefit, 
particularly given the very large employee participation in 
this benefit.
    Mr. Mica. Absolutely. Thank you.
    Did you have additional questions?
    Ms. Norton. I have--yes, I have just two more questions.
    One, I want to know how the reinsurers are chosen and I 
want to know how the bank is chosen.
    Ms. Brittain. I can address both of those items, Ms. 
Norton. In terms of the reinsurers, to be a participant 
reinsurer you have to meet qualifications, again, either by law 
or by regulation. I can certainly get for the record what those 
qualifications are. I believe that they consist of things such 
as being licensed to do business in something like 47 or 48 
States and the District; reaching a certain financial solvency 
level; having a certain number of assets in the program.
    Ms. Norton. You are giving me qualifications. Is there any 
other----
    Ms. Brittain. No.
    Ms. Norton. Whoever comes forward gets to be one, to be 
qualified?
    Ms. Brittain. To my understanding, if they meet the 
qualifications that are clearly defined, then they are welcome 
to participate.
    Ms. Norton. So everybody--there is something like 47 or 48, 
you testified, were reinsurers?
    Ms. Brittain. Yes.
    Ms. Norton. So essentially everybody can be an insurer?
    Ms. Brittain. If they meet the qualifications, yes.
    Ms. Norton. Yes, all right. How about the bank, how was 
that chosen?
    Ms. Brittain. MetLife, in creating the new settlement 
option, the money market option that we spoke about earlier, 
needed to find an agent that would perform the banking 
functions under that kind of an arrangement that MetLife does 
not have the capability to do. And so they did a search of the 
marketplace to canvas for capabilities as well as cost-
effectiveness of providing those services.
    State Street Bank was chosen at that time, and I don't know 
the specific time period, but it was probably over 10 years 
ago. It's my understanding that State Street Bank now provides 
those services for most of the insurance companies in the 
industry that offer that type of benefit.
    Ms. Norton. I was astonished, finally, to read on the last 
page of your testimony, Ms. Brittain, that mortality rates in 
Government entities are generally 10 percent higher than those 
of other groups, which translates, I take it, into Government 
employees die faster or sooner than other employees. I wish you 
would comment on why that is the case.
    Ms. Brittain. Certainly. That is a result of a review of 
our book of business. And we think that particularly in the 
book of business that we have, the Government entities that we 
insure, for most of them, the complexion of the group is older 
workers, male workers. The experience that we have seen is that 
there are higher dollar amounts and more frequent claims on 
those groups than on groups in dissimilar industries.
    Ms. Norton. So Federal employees are older workers?
    Ms. Brittain. Government entities in general that we 
insure, that book of business demonstrates that there are more 
claims on that book of business that we insure, for any 
governments that we insure, than the non-Government entities.
    Ms. Norton. It is very interesting because--and, again, I 
realize we are dealing with a different entity here, different 
denomination, apples and oranges, but in health insurance, of 
course, where these same employees are insured, same diversity, 
more exposure, that apparently is not--or at least the 
insurance premiums have been going down every year. Is that the 
case with health insurance? Let me ask you, compared with--
where you compare our health insurance with others, where we 
have, of course, a great deal of competition as we do not here 
have, within the policies offered.
    Ms. Brittain. I cannot comment on the experience of health 
insurance for Government and non-Government employees. MetLife 
is no longer in the medical insurance business. But I can 
mention, and I cannot say that this is a direct tie, but as all 
the panelists here have mentioned, in the private sector 
typically that basic insurance coverage is fully paid for by 
the employer. So there is no opting out. And there are 
typically more younger, healthier individuals in the benefit 
mix. So I think those two--that fact and the mortality fact, I 
think, really need to be viewed together.
    I think you are seeing in the experience in the life 
insurance programs another impact of that contribution rate 
that's being charged to government entities typically, or other 
public groups.
    Ms. Norton. It is interesting because the implication of 
what you are saying is that if the Federal Government paid for 
everybody's health insurance, with no opting out, paid 100 
percent, then it would cost the Government less!
    Ms. Brittain. Potentially, in the long run it could save 
money.
    Ms. Norton. I want the record to put an exclamation point 
behind that matter that is now in the record.
    Thank you very much, Mr. Chairman.
    Mr. Sessions [presiding]. Thank you so much. The chairman 
has stepped out so I will preside in his absence.
    It was my turn, anyway, to ask questions so he felt that 
that was probably pretty appropriate.
    Thank you for taking time to be here. I think you have gone 
through a good number of questions and the one thing that did 
not--was not readily available to me when the question was 
asked probably by our chairman or Mrs. Morella, I really don't 
remember, but when we talked about what private or other non-
Government services, products would be available as opposed to 
the Government, we kind of, in my opinion, didn't specifically 
ask what are those things that are offered out there to other 
people that is different than would be available for the 
Federal Government life insurance?
    Can you just let me enumerate with that, either of you, 
please?
    Mr. Chepenik. Sure. The group variable universal life or a 
group-type product which has cash value, would be an item that 
could be offered. That, to our knowledge, is not being offered 
currently in any governmental program. It could be offered with 
multiple options; on a long-term basis would save--an employee 
could have multiple cash at the end when they decide to retire, 
10 years, 20 years, 30 years and make it as flexible as 
possible and make it as competitive as possible so that the 
decision made today doesn't mean that you have got to live with 
that decision 20 years from now.
    It needs to be a flexible product. That's one item that is 
not offered and that we think could be, and it could be done by 
employee's money.
    Mr. Sessions. That is something that we, the Congress, or 
the laws or rules that we have laid in place has put--has made 
it impossible or is that simply not a part of the product 
offering that we have decided?
    Mr. Chepenik. I would give my best guess. I would probably 
have to ask Ms. Brittain. I don't believe that it is dealt with 
in the law. I don't know that there is a restriction. I just 
don't think it has been looked at or offered. I haven't seen 
the law and can't interpret it, but I would imagine it is 
probably not restrictive. It has merely told you what you can 
have. It probably hasn't said that if you offer this benefit to 
the employees, it could be done.
    Mr. Sessions. OK. So the question, which I think you know 
what it is, is what I am trying to get at is, is to determine, 
within the contract, within the pricing structure, to where we 
put no one at risk, are there benefits or is more flexibility--
could it be allowed and is there an impediment to that? And 
what would your suggestion be, please? Did I say that right?
    Mr. Chepenik. I think you said it very distinguishably.
    Mr. Sessions. Since I am the chairman, we will say I did. 
When Mr. Mica comes back, he will have a decision probably on 
it. Please.
    Ms. Brittain. Sure. I would be happy to comment on that. My 
recommendation would be that you separate your question into 
two issues. One would be, if the Federal Government were 
created today with the workforce of today and projected for the 
future, what are the benefits that would be of most value to 
the workforce and also, keeping in mind the chairman's 
assignment, the best possible deal also for the taxpayers?
    I think if we had the answer to that question, we could 
certainly go backward in terms of what is currently available 
and where are the differences. And I believe that from Mr. 
Flynn's testimony that is underway with the broad review that 
he has already initiated, and I believe results are expected in 
the fairly near future there.
    Second, I think, on a technical aspect, it is my 
understanding that the law defines what benefits are available 
under the FEGLI program, that it can be amended, and I believe 
it has been amended, to offer changes. But I don't believe that 
benefits, called a part of the FEGLI program, can be offered 
without a change in the law.
    Mr. Sessions. So you believe that in the instance that was 
given with the cash value that that would be a change of the 
law as it relates to the product that you are offering via the 
Federal law?
    Ms. Brittain. It is my belief that to introduce a cash 
value or a permanent life feature under the FEGLI program would 
require a change in the law.
    Mr. Sessions. Let me ask your opinion, then, as the 
representative from MetLife. How would you--what would be your 
evaluation? If we did think about changing the law and offering 
this, would it substantially alter in any way your ability to 
either provide that product or unreasonably change your 
offering that you know today?
    Ms. Brittain. MetLife is a leader in the area of group 
universal life and we also were the first major insurance 
company to introduce group variable universal life, so we 
believe we have a product array that could meet any large 
employer's needs.
    Having said that, that is very different from the product 
that is currently in place and it would require different 
pricing and an extensive actuarial analysis once the plan 
design were determined.
    Mr. Sessions. Would you prefer that my comments be taken as 
a suggestion that you look at that or would you like for me to 
write you to ask for that?
    Ms. Brittain. I think a suggestion is fine.
    Mr. Sessions. Because I am interested in when we do come to 
some consensus about what might be better, that I believe that 
Federal employees, as well as the taxpayer, be given some 
evaluation of what we are doing.
    So I tell you what I will do. We will followup with a 
letter asking for this to be done so that you look at and give 
some evaluation.
    Ms. Brittain. Thank you.
    Mr. Sessions. Good.
    Mr. Chepenik. A second item that you addressed, as far as 
what other benefit could be offered within the same dollar 
amount, I think is broken out in two pieces, and that MetLife 
indicated that it could be done. And without specific numbers, 
we couldn't put the exact numbers, but an example, instead of 
the Government spending any more money, possibly the employee 
would reduce the employee's cost and end up with the same 
benefit, if there are apparently some extra dollars that could 
be placed in from the actuarial study.
    Mr. Sessions. Good. Thank you. Thank you so much.
    I will followup with that letter.
    Mr. Chairman, even your counsel admitted to me that I got 
too comfortable in your chair. So now that you are back, sir, 
let me be more submissive in my role and thank you for allowing 
me the opportunity for that time. Thank you, sir.
    Mr. Mica [presiding]. Thank you, Mr. Sessions. You are 
going to do very well on this subcommittee.
    Mr. Ford, you are recognized.
    Mr. Ford. Thank you, Mr. Chairman. Let me underscore my 
freshman colleague's point. He looked darn comfortable in your 
chair in your absence.
    Mr. Mica. I feel like I am being eyed from both sides here.
    Mr. Ford. Let me thank the panelists and again thank the 
chairman. I join with Congressman Sessions. I would like to 
followup with you on that issue as well. I have some questions 
and concerns, and I think we may be on the same page there.
    I apologize for not being here for the majority of the 
hearing, Mr. Chairman. We had a markup dealing with the Careers 
Act on the Education Committee, and I do apologize.
    Just one very quick question, dealing with portable life 
insurance and the magnitude of the cost, if any, or the extent 
of the cost, if any, associated with providing portable life 
insurance. If one of the panelists might be able to respond?
    Mr. Cahill. The group universal is portable.
    Mr. Ford. Oh, it is portable?
    Mr. Cahill. Yes.
    Mr. Ford. You answered it very succinctly. I appreciate it.
    With regard--one other question. With regard to what Mr. 
Sessions has talked about in terms of that--you talked about 
how it would substantially alter the product which is offered 
now. In terms of cost, could you--I hesitate to ask you to 
speculate as to what the costs associated with that might be, 
but could you give us some idea of, when you talk in terms of 
substantial alterations, what that might constitute?
    Ms. Brittain. I don't feel comfortable giving an estimate 
of new charges versus current charges because there is a wide 
variety of group universal life plan design programs that could 
be offered. But to get at the issue, I think there are two 
components of why the cost structure is different.
    One is that the benefit to the participants is not just 
term insurance. It is term insurance plus cash accumulation. So 
there is a different nature of what we are insuring. There is 
also separately a different administrative structure that's 
required. In the current term insurance environment, it is a 
very simple payroll deduction type of an arrangement.
    With the group universal life product, where there are cash 
value features, there are typically administrative transactions 
that don't exist under group term. Some examples of those are 
changing variable deductions. This month, I want to contribute 
more; last month, I contributed too much so I want to 
contribute less. That takes some followup to make sure that 
that is done appropriately.
    Also, there are typically loan or withdrawal provisions, 
one of the major attractions of that benefit. And usually, 
depending on how the benefit is designed and what those 
features are, then the cost is a function of the projection of 
how many loans, how many withdrawals, how would that work? So 
that's why the plan design really has to come first before the 
pricing structure, but that is why there is a differential 
there in the pricing.
    Mr. Ford. Thank you. Mr. Chairman, I would just ask if I 
could submit my opening statement for the record, if that is 
permissible?
    Mr. Mica. Yes. Without objection, so ordered.
    [The prepared statement of Hon. Harold E. Ford, Jr., 
follows:] 
[GRAPHIC] [TIFF OMITTED] T2717.035

    Mr. Ford. Thank you.
    Mr. Mica. Well, I have a couple of concluding questions 
here. First of all, Ms. Brittain, there is $17 billion in the 
trust fund, which has accumulated over the years. It is 
invested in nonnegotiable certificates of indebtedness or U.S. 
Treasury, all but a minuscule amount.
    Is this reserve adequate, in your estimation?
    Ms. Brittain. Well, MetLife plays no role in establishing 
what the reserve is.
    Mr. Mica. Right.
    Ms. Brittain. But certainly, as we know, the claims are 
roughly $1.6 billion a year, and with a reserve of 17-point-
some billion dollars, that more than covers a year's claims. 
The reserve is also designed to mitigate changes in agency or 
employee contributions, as well as to take into account that 
retirees, assuming that they follow through with the current 
benefit structure and do not elect to enhance that, pay no cost 
to continue their benefits. And certainly if the retiree 
population is growing, we might see increased claims.
    Mr. Mica. It is now earning a minimum return. I don't know 
if you would like to comment, but with a trust fund of that 
size--there may be some investment restrictions now, as far as 
law, but it seems kind of money, you could at least take a 
portion of that money and invest it for a higher return than 7, 
8 percent, whatever the current one is.
    Ms. Brittain. I was struck by your comments earlier, Mr. 
Chairman, about the private sector and owning your own business 
and how you might invest your funds. Most of our clients are 
aggressively monitoring what their funds are and the investment 
return they have.
    Most of our clients are not in the same position as the 
Federal Government would be with the additional investment and 
Treasury-related and deficit-related questions, so beyond that 
I don't believe I can comment.
    Mr. Mica. Well, I happen to have a MetLife IRA account and 
I have them divided up into three different categories. Some 
are very secure CDs and others, the wild card, and others in 
blue chips. And I can't recall my exact return for the last 4 
or 5 years, but it is pretty phenomenal.
    Ms. Brittain. Glad to hear that.
    Mr. Mica. It is from the private sector. But just looking 
at those statements, I have about doubled in about 5 years with 
MetLife handling my money. And here I see $17 billion sitting 
there, which concerns me that our public employees aren't 
receiving some benefit or the Government isn't receiving a 
better benefit.
    So part of the constriction is set by Congress, and we need 
to go back and look at that.
    You also have 90 percent participation, you said. What 
percentage of participation do you have in this State Street 
Bank arrangement? Are they controlling all the funds that go to 
a beneficiary or into an account?
    Ms. Brittain. I would be happy to address that. State 
Street Bank administers the individual money market accounts. 
They keep the records. They clear the checks that pass through 
the money market account. They do not have any funds. MetLife 
retains the funds on behalf of those beneficiaries that elect 
to keep the money market option.
    Mr. Mica. Is there 100 percent participation of those?
    Ms. Brittain. Basically, any claim that is paid under the 
FEGLI program where the proceeds are $7,500 or more--that is, 
with the exception of some retiree claims, virtually every 
claim that is adjudicated. And once the claim is paid, then the 
automatic option for the beneficiary is the creation of the 
money market account.
    Mr. Mica. So you say automatic option.
    Ms. Brittain. Or the automatic process.
    Mr. Mica. Is that 100 percent?
    Ms. Brittain. Yes, 100 percent of claims $7,500 or more, 
with very strange administrative exceptions, such as if 
somebody designates multiple beneficiaries in a unique legally 
sanctioned way, but basically I think it is fair to say that 
100 percent of claims of $7,500 or more.
    Mr. Mica. Mr. Cummings asked about the relationship between 
State Street Bank and MetLife. You don't bid that? Is that put 
out for any kind of offering? You just negotiated a deal with 
them to do this?
    Ms. Brittain. It is regularly reviewed. I know when we 
began the program, no one else had it and they were best suited 
from our search for companies that could do this program, and I 
assume that that was either a bid or an RFI process. They have 
become the standard provider of this service in the industry. 
Nonetheless, MetLife regularly reviews the marketplace 
capabilities there.
    Mr. Mica. Now, does MetLife get anything back in return for 
their participation?
    Ms. Brittain. MetLife pays State Street for the services 
they provide.
    Mr. Mica. They do?
    Ms. Brittain. Yes.
    Mr. Mica. There is no arrangement where any money goes back 
to----
    Ms. Brittain. No. There is no transfer of dollars. The 
dollars that the beneficiaries elect to keep with MetLife 
through their money market option account are managed by 
MetLife's investment department and part of our general 
account.
    Mr. Mica. And the money that you are paying State Street, 
is that one of the costs that we are assuming, that you pass on 
to us?
    Ms. Brittain. No. There is no cost for the money market 
option. That is incorporated in our overall cost of doing 
business. There is no charge to the programs that participate.
    Mr. Mica. So there is no money that changes hands----
    Ms. Brittain. No, there is no----
    Mr. Mica [continuing]. Between MetLife, State Street or?
    Ms. Brittain. No. State Street is paid a fee for the 
services that they provide.
    Mr. Mica. And you don't charge that off?
    Ms. Brittain. And we don't charge that off.
    Mr. Mica. OK. I think we asked in our questions, and I am 
not sure if you got it or not, but--now, we talked about 
private sector and maybe I am trying to compare apples and 
oranges--I hope not, because I think we need to be headed in 
that direction--but big States and big municipalities, do you 
have any record of experience, what kinds of premiums?
    I think we asked this question, and I don't know if you can 
answer it here, but I would like to see what employees in big 
municipal or governmental settings are paying, what benefits 
they are getting, what kind of coverages in comparison. Can you 
provide us with that?
    Ms. Brittain. Yes. I can comment on that now, actually.
    Mr. Mica. If you would.
    Ms. Brittain. Most of the public sector benefit plans are 
similar to the FEGLI benefit plans, and I would preface this by 
saying this is based on our review of our own public sector 
plans and any active prospect files that we have. And in saying 
that they are similar, I would focus on two points.
    One is in terms of the basic term insurance, most of the 
public sector plans that we are aware of do not have a fully 
employer-provided basic term life insurance. The employees do 
contribute some portion of the cost just as the FEGLI program 
requires.
    Also in the area of supplemental life insurance, to our 
knowledge most of the large public plans that we are aware of, 
do offer supplemental benefits which account for employees 
making elections and paying all of the costs. But those 
supplemental benefits are typically optional term insurance, 
just as the FEGLI program is.
    We do not see currently any penetration or any significant 
penetration of the kind of cash value or group universal life 
coverage that we have just discussed as characteristic in the 
private sector.
    Mr. Mica. The final question. Now, when we started this 
some 40 some years ago, MetLife was the big big provider, 
carrier, whatever you call it.
    Ms. Brittain. Top dog?
    Mr. Mica. Top dog. Are there others that have this 
capability today? Where do you all rank? Are there others that 
could compete to provide this service with the same type of 
asset base?
    Ms. Brittain. Well, MetLife and its affiliates have some 
$300 billion of assets under management. We also have 
approximately $1 trillion of group life insurance-in-force. 
That certainly makes us far and wide an industry leader.
    Having said that, I would like to put that in perspective. 
Our share of the FEGLI program is approximately $175 billion of 
insurance. So the difference between $1 trillion and $175 
billion clearly shows us that a lot of companies in the 
marketplace have chosen us.
    We were very pleased when the Travelers Insurance Co. 
decided to exit the group or employer-provided benefits arena; 
that we had the opportunity to decide if we wanted to purchase 
that business. We did purchase that business and it is a 
competitive world so we had to prove our capabilities to those 
former Travelers' clients and we were able to do that and 
retained, beyond our highest expectations, those clients.
    So we believe that we are uniquely positioned to provide 
this coverage and also that we are an industry leader.
    We also, though, function in a private world. We welcome 
competition and we are out there every day proving our merit. 
So for our largest client, which the Federal Government is, we 
certainly expect that interviews like this and our ongoing 
relationships with OPM and the FEGLI participants, who I 
realize may include many of you and certainly your staffs, will 
continue to get the good reviews that we have gotten so far.
    Mr. Mica. Thank you for your testimony.
    Mr. Cahill, are there any folks that can provide the same 
kind of services today as opposed to 1954, from your experience 
or knowledge?
    Mr. Cahill. I would certainly believe that there are other 
carriers that could provide the same service. And after reading 
the information, I believe that was also available in 1954, but 
the reason stated was they were chosen because they were the 
largest at the time.
    Mr. Mica. Did either of you have anything else you would 
like to contribute at this point? Mr. Chepenik.
    Mr. Chepenik. No. It has been a very informative process 
for us, as we view this, and this is my first opportunity at 
something like this. And I guess I would just say that 
negotiation is probably the key part of any process, and look 
back at our own block of business, between myself and Mr. 
Cahill and Mr. Farb, and it is constantly looked at on a yearly 
basis and negotiated on a regular basis and not just with the 
existing carrier. That's what keeps it competitive and makes it 
possible to provide options.
    Mr. Mica. I want to thank both of you and Mr. Cahill, Mr. 
Farb, for coming at your own expense, putting your neck out. I 
think the life insurance industry is a pretty cozy group, from 
what I have learned. Sometimes we ask people to step forward 
and make comments or evaluations and we do that in the light of 
competition.
    As you have learned some things today, the two new 
panelists, I guess all of--you may also be new, but this is the 
process. We are only temporarily here on behalf of the 
taxpayers. And also this subcommittee represents the public 
employees, of which we just happen to be temporary public, 
part-time public, employees on a brief, at least the elected 
folks, on a brief retainer here, a 24-month contract. So we are 
trying to do the best we can.
    I am convinced, after the hearing, that we can do a better 
job in providing possibly lower premiums, at least better 
coverage and benefits from what I have heard, and will charge--
and Mr. King is going to get a letter from me today or tomorrow 
asking for what corrections we might or modifications we might 
make to law; what improvements might be recommended. You are 
going to get a letter, too, from me, for MetLife, for 
suggestions that can be volunteered from the private sector.
    While we can't always improve the compensation over and 
above what meager increases Congress can provide, we can look 
at these benefit programs and see what can be done to provide a 
little better coverage at lower premiums and costs to our 
employees, and also to the taxpayer.
    So if there is no further comment or business before the 
subcommittee this morning, this meeting is adjourned. Thank 
you.
    [Whereupon, at 12:30 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:] 

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