[Federal Register Volume 64, Number 248 (Tuesday, December 28, 1999)]
[Rules and Regulations]
[Pages 72459-72466]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33367]


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OFFICE OF PERSONNEL MANAGEMENT

5 CFR Part 870

RIN: 3206-AI64


Federal Employees' Group Life Insurance Program: Life Insurance 
Improvements

AGENCY: Office of Personnel Management.

ACTION: Interim rule with request for comments.

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SUMMARY: The Office of Personnel Management (OPM) is issuing interim 
regulations to implement the Federal Employees Life Insurance 
Improvement Act, which was enacted October 30, 1998. This law made 
numerous changes to the Federal Employees' Group Life Insurance (FEGLI) 
Program. These changes include the elimination of maximums on Basic 
insurance and Option B, coverage of foster children under Option C, 
making the contractual incontestability provision statutory, providing 
for the direct payment of premiums for all employees and annuitants 
whose pay is too small for premium withholdings, allowing retiring 
employees to elect unreduced Option B and Option C coverage, 
establishing a three-year demonstration project for the portability of 
Option B, and increasing the coverage available under Option C.

DATES: Interim rules are effective January 27, 2000. Comments must be 
received on or before February 28, 2000.

ADDRESSES: Send written comments to Abby L. Block, Chief, Insurance 
Policy and Information Division, Office of Insurance Programs, 
Retirement and Insurance Service, Office of Personnel Management, P.O. 
Box 57, Washington, DC 20044; or deliver to OPM, Room 3425, 1900 E 
Street, NW, Washington, DC; or FAX to (202) 606-0633.

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

SUPPLEMENTARY INFORMATION: On October 30, 1998, Public Law 105-311, 112 
Stat. 2950, was signed into law. This law, the Federal Employees Life 
Insurance Improvement Act, changed many parts of the FEGLI Program. 
These regulations put the various new statutory provisions into place.

1. Elimination of Maximums

    An employee's Basic Insurance Amount is his/her annual rate of 
basic pay, rounded to the next higher thousand, plus $2,000. Each 
multiple of Option B coverage is equal to an employee's annual pay, 
rounded to the next higher thousand.
    Before the enactment of Public Law 105-311, the law limited both 
Basic insurance and the multiples of Option B insurance to the annual 
rate of pay for Level II Executive Schedule positions, rounded up (plus 
$2,000 for Basic). The maximum amount of Basic insurance was $139,000, 
and the maximum amount of an Option B multiple was $137,000.
    The new law removed those maximums. These regulations also provide 
that Option A coverage, which increased for employees in this 
situation, will no longer exceed $10,000.
    This provision of the law became effective the first pay period 
beginning on or after October 30, 1998.

2. Coverage of Foster Children

    Before the enactment of Public Law 105-311, foster children were 
not eligible for coverage under Option C. They became eligible as 
covered family members effective October 30, 1998.
    For ease of administration, we have made the requirements for 
coverage of foster children under Option C the same as the requirements 
for coverage of foster children under the Federal Employees Health 
Benefits Program. Those requirements are that the child be unmarried 
and under the age of 22 (or if over 22, incapable of self-support 
because of a disabling condition that started before the 22nd 
birthday), that the child be living with the employee or annuitant in a 
regular parent-child relationship, that the employee/annuitant be the 
principal source of support for the child, and that the employee/
annuitant expect to raise the child to adulthood. The employee/
annuitant must certify in writing that the child meets these 
requirements. Grandchildren can qualify as foster children only if they 
meet all the requirements.

3. Incontestability

    This provision allows an erroneous enrollment to stand if it has 
been in effect for at least 2 years. There was already such a provision 
in the FEGLI contract, but it did not apply if the employee or 
annuitant was excluded from coverage by law or if the employee's 
position was excluded by regulation. The contractual provision also did 
not require that the individual have paid premiums for the erroneous 
coverage before incontestability could apply. The new statutory 
provision applies to all situations in which an administrative error 
allows an employee or annuitant to be insured when the law or 
regulations would otherwise prohibit the election. If the erroneous 
coverage and applicable premium withholdings have been in place for at 
least 2 years before the error is discovered, the coverage is allowed 
to stand.
    This provision was effective for any findings of erroneous coverage 
made on or after October 30, 1998.

4. Direct Payment of Premiums

    Before the enactment of Public Law 105-311, all employees and 
compensationers and most annuitants whose pay/compensation/annuity was 
too small for premium withholdings had to terminate their FEGLI 
coverage. The only exception to this was FERS (Federal Employees' 
Retirement System) annuitants; these annuitants were allowed to make 
direct premium payments.
    Public Law 105-311 extends the right to make direct payment of 
FEGLI premiums to anyone with insufficient pay, compensation, or 
annuity. These regulations provide that this applies when the ``pay,'' 
after all other deductions, is insufficient on an ongoing basis, i.e., 
when the situation is expected to continue for at least 6 months.
    Insured individuals in this situation can choose either to 
terminate their FEGLI coverage or to make direct payments. Employees 
who choose to make direct payments must pay on a current basis; if they 
do not make the payments, the coverage cancels. Employees who choose to 
terminate are entitled to the 31-day extension of coverage and the 
right to convert. When the employee's pay again becomes sufficient for 
the premium withholdings, premiums will again be withheld from the 
employee's pay. Any

[[Page 72460]]

coverage that was terminated is automatically restored; coverage that 
was cancelled for nonpayment, however, will remain cancelled.
    Annuitants and compensationers who elect to make direct premium 
payments will remain on direct pay, even if their ``pay'' increases 
enough to allow withholdings.
    This provision became effective the first pay period beginning on 
or after October 30, 1998.

5. Election of Unreduced Options B and C at Retirement

    Before the enactment of Public Law 105-311, Option B and C coverage 
began to reduce for annuitants when they reached age 65. Both coverages 
reduced by 2% per month until there was no coverage left. This 
reduction was automatic, and annuitants had no choice about it. Because 
their coverage was reducing, annuitants paid no premiums after age 65.
    Public Law 105-311 allows annuitants to make an election at 
retirement as to whether they want their Option B and Option C coverage 
to reduce. (This also applies to persons becoming insured as 
compensationers.) If they choose No Reduction, they will continue to 
pay premiums appropriate to their age beyond age 65. OPM has set April 
24, 1999, as the effective date for this provision. This applies to 
persons separating for retirement or becoming insured as 
compensationers on or after that date.
    Under these regulations, retiring employees (and persons becoming 
insured as compensationers) will choose how many of the Option B 
multiples for which they are eligible and how many of the Option C 
multiples for which they are eligible they actually want to continue. 
They will also elect either Full Reduction or No Reduction for all of 
their multiples of each type of Optional coverage. Shortly before an 
individual's 65th birthday, he/she will receive a reminder notice, 
showing what coverage the annuitant/compensationer elected and what the 
premiums will be for coverage beyond age 65. The individual will then 
have an opportunity to change his/her election, including choosing to 
have some multiples reduce and others not reduce. For persons who are 
already over age 65 at the time of retirement or becoming insured as a 
compensationer, the reminder notice will be sent as soon as the 
retirement processing is complete.
    Public Law 105-311 also allows for an election opportunity for 
those who are already retired or insured as compensationers and who 
still have Option B coverage on the effective date (April 24, 1999). 
Those who are over age 65 and whose Option B coverage has already 
started reducing will elect whether to freeze their remaining Option B 
at the amount in force on the effective date. These annuitants/
compensationers will not have an election opportunity for Option C.

6. Portability

    Public Law 105-311 set up a 3-year demonstration project for the 
portability of Option B coverage which would otherwise terminate. This 
provision allows certain individuals to continue their group coverage 
at the group rate plus an administrative surcharge. Those eligible for 
portability of their Option B are separating employees and employees 
exceeding 12 months in nonpay status, who meet the same 5-year/1st 
opportunity requirement as employees who are retiring. Ported coverage 
reduces by 50% when the insured individual reaches age 70 and 
terminates when the individual reaches age 80.
    These regulations put in place the requirements and procedures for 
portability. OPM has set April 24, 1999, as the effective date for this 
provision.

7. Increased Option C Coverage

    Before the enactment of Public Law 105-311, Option C coverage was 
$5,000 for a spouse and $2,500 for each eligible child.
    Public Law 105-311 increased the coverage available under Option C 
to up to 5 multiples of the previous amounts. OPM has set April 24, 
1999, as the effective date for this provision.
    New employees and employees newly eligible on or after the 
effective date can elect the higher amounts within 31 days of becoming 
eligible. Employees who have a life event on or after April 24, 1999, 
can elect the higher amounts within 60 days after the life event. 
Employees who had a life event between October 30, 1998, and April 23, 
1999, were allowed to elect the increased coverage within 60 days of 
April 24, 1999; their increased coverage was effective April 24, 1999.

8. Open Season

    Public Law 105-311 required OPM to conduct an open season no later 
than 180 days after the date of enactment, with coverage elected during 
the open season effective 365 days after the start of the open season.
    OPM held an open enrollment period from April 24, 1999, through 
June 30, 1999. All eligible employees were able to elect or increase 
coverage. The effective date of open enrollment elections is the first 
pay period beginning on or after April 23, 2000, which follows a pay 
period in which the employee was in pay and duty status for the 
required amount of time.

9. Study and Report

    Public Law 105-311 also required OPM to conduct a study and submit 
a report to Congress on Federal employees' interest in other types of 
life insurance, specifically group universal life insurance, group 
variable universal life insurance, and additional voluntary accidental 
death and dismemberment insurance. OPM completed the study, which 
showed that there is some interest in these other life insurance 
products. OPM submitted its report to Congress May 4, 1999.

Waiver of Notice of Proposed Rulemaking

    In accordance with Sec. 553(b)(3)(B) of title 5 of the U.S. Code, I 
find that good cause exists for waiving the general notice of proposed 
rulemaking. This notice is being waived in order to implement 
legislation which has become effective.

Regulatory Flexibility Act

    I certify that this regulation will not have a significant economic 
impact on a substantial number of small entities because the regulation 
will only affect life insurance benefits of Federal employees and 
retirees.

Executive Order 12866, Regulatory Review

    This rule has been reviewed by the Office of Management and Budget 
in accordance with Executive Order 12866.

List of Subjects in 5 CFR Part 870

    Administrative practice and procedure, Government employees, 
Hostages, Iraq, Kuwait, Lebanon, Life insurance, Retirement.

Office of Personnel Management.
Janice R. Lachance,
Director.

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

PART 870--FEDERAL EMPLOYEES' GROUP LIFE INSURANCE PROGRAM

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

    Authority: 5 U.S.C. 8716; subpart J also issued under section 
599C of Public Law 101-513, 104 Stat. 2064, as amended; 
Sec. 870.302(a)(3)(ii) also issued under sec. 153 of Public Law 104-
134, 110 Stat. 1321; Sec. 870.302(a)(3) also issued under sections 
11202(f), 11232(e), and 11246(b) and (c) of Public Law 105-33, 111 
Stat. 251 and section 7(e) of Public Law 105-274, 112 Stat. 2419.


[[Page 72461]]


    2. In Sec. 870.101, revise the definition of the first appearance 
of Child and add the definitions Portability Office, Ported coverage, 
and Regular parent-child relationship in alphabetical order to read as 
follows:


Sec. 870.101  Definitions.

* * * * *
    Child, as used in the definition of Family member for Option C 
coverage, means a legitimate child, an adopted child, a stepchild or 
foster child who lives with the employee or former employee in a 
regular parent-child relationship, or a recognized natural child. It 
does not include a stillborn child or a grandchild (unless the 
grandchild meets all the requirements of a foster child). The child 
must be under age 22 or, if age 22 or over, must be incapable of self-
support because of a mental or physical disability which existed before 
the child reached age 22.
* * * * *
    Portability Office means the office OPM designates to manage ported 
coverage and to collect premiums for ported coverage.
    Ported coverage means continued coverage that would otherwise have 
terminated.
* * * * *
    Regular parent-child relationship means that the employee or former 
employee is exercising parental authority, responsibility, and control 
over the child by caring for, supporting, disciplining, and guiding the 
child, including making decisions about the child's education and 
medical care.
* * * * *


Sec. 870.104  [Redesignated as Sec. 870.105]

    3. Redesignate Sec. 870.104 as Sec. 870.105 and amend it by 
revising paragraph (a), and add a new Sec. 870.104 to read as follows:


Sec. 870.104  Incontestability.

    (a) If an individual erroneously becomes insured, the coverage will 
remain in effect if at least 2 years pass before the error is 
discovered, and if the individual has paid applicable premiums during 
that time. This applies to errors discovered on or after October 30, 
1998.
    (b) If an employee is erroneously allowed to continue insurance 
into retirement or compensation, the coverage will remain in effect if 
at least 2 years pass before the error is discovered, and if the 
annuitant or compensationer has paid applicable premiums during that 
time. This applies to such errors discovered on or after October 30, 
1998.
    (c) If an individual who is allowed to continue erroneous coverage 
because of incontestability does not want the coverage, he/she may 
cancel the coverage on a prospective basis. There is no refund of 
premiums.


Sec. 870.105  Initial decision and reconsideration.

    (a) An individual may ask his/her agency or retirement system to 
reconsider its initial decision denying life insurance coverage, the 
opportunity to change coverage, the opportunity to assign insurance, or 
the opportunity to elect portability for Option B coverage.
* * * * *
    4. Revise Sec. 870.202(a)(1)(ii) to read as follows:


Sec. 870.202  Basic insurance amount (BIA).

    (a)(1) * * *
    (ii) $10,000; whichever is higher, unless an employee has elected a 
Living Benefit under subpart K of this part. Effective for pay periods 
beginning on or after October 30, 1998, there is no maximum BIA.
* * * * *
    5. Revise Sec. 870.205(a), (b)(1), and (c) to read as follows:


Sec. 870.205  Amount of Optional insurance.

    (a) Option A coverage is $10,000. Effective for pay periods 
beginning on or after October 30, 1998, Option A cannot exceed this 
amount. Exception: This does not apply to annuitants who retired with a 
higher amount of Option A before the removal of the maximum on Basic 
insurance (the first pay period beginning on or after October 30, 
1998).
    (b)(1) Option B coverage comes in 1, 2, 3, 4, or 5 multiples of an 
employee's annual pay (after the pay has been rounded to the next 
higher thousand, if not already an even thousand). Effective for pay 
periods beginning on or after October 30, 1998, there is no maximum 
amount for each multiple.
* * * * *
    (c) Effective April 24, 1999, Option C coverage comes in 1, 2, 3, 
4, or 5 multiples of the following amounts: $5,000 on the death of a 
spouse and $2,500 on the death of an eligible child. Payments are made 
to the insured individual.
    6. Revise Sec. 870.301(b) and add a new Sec. 870.303 to subpart C 
to read as follows:

Subpart C--Eligibility


Sec. 870.301  Eligibility for life insurance.

* * * * *
    (b)(1) Optional insurance must be specifically elected; it is not 
automatic.
    (2) An employee may elect one or more types of Optional insurance 
if:
    (i) He/she has Basic insurance; and
    (ii) He/she does not have a waiver of that type (or types) or 
Optional insurance still in effect.
* * * * *


Sec. 870.303  Eligibility of foster children under Option C.

    (a) Effective October 30, 1998, foster children are eligible for 
coverage as family members under Option C.
    (b) To qualify for coverage as a foster child, the child must meet 
the following requirements:
    (1) The child must live with the insured employee, annuitant, or 
compensationer;
    (2) The parent-child relationship (as defined in Sec. 870.101) must 
be with the insured employee, annuitant, or compensationer, not the 
biological parent;
    (3) The employee, annuitant, or compensationer must be the primary 
source of financial support for the child; and
    (4) The employee, annuitant, or compensationer must expect to raise 
the child to adulthood.
    (c) A child placed in an insured individual's home by a welfare or 
social service agency under an agreement by which the agency retains 
control of the child or pays for maintenance does not qualify as a 
foster child.
    (d)(1) An insured individual wishing to cover a foster child must 
sign a certification stating that the child meets all the requirements 
and that he/she will notify the employing office or retirement system 
if the child marries, moves out of the home, or stops being financially 
dependent on the employee, annuitant, or compensationer.
    (2) The employing office or retirement system must keep the signed 
certification in the insured individual's file, along with other life 
insurance forms.
    (e) A foster child who moves out of the insured individual's home 
to live with a biological parent loses eligibility and cannot again be 
covered as a foster child unless:
    (1) The biological parent dies;
    (2) The biological parent is imprisoned;
    (3) The biological parent becomes unable to care for the child due 
to a disability; or
    (4) The employee, annuitant, or compensationer obtains a court 
order taking parental responsibility away from the biological parent.
    7. Revise Sec. 870.402(c) to read as follows:


Sec. 870.402  Withholdings for Optional insurance.

* * * * *

[[Page 72462]]

    (c)(1) Subject to the provisions for reemployed annuitants in 
Sec. 870.707, the full cost of Optional insurance must be withheld from 
the annuity of an annuitant and from the compensation of a 
compensationer.
    (2) The withholdings for Option A stop the month after the month in 
which an annuitant or compensationer reaches age 65.
    (3) For an annuitant or compensationer who elects Full Reduction 
for any Option B or Option C multiples, the withholdings for those 
multiples stop the month after the month in which he/she reaches age 
65.
    (4) For an annuitant or compensationer who elects No Reduction for 
any Option B or Option C multiples, the withholdings for those 
multiples continue, as long as he/she remains insured.
* * * * *
    8. Revise Sec. 870.405 to read as follows:


Sec. 870.405  Direct premium payments.

    (a) Since January 1, 1988, annuitants who retired under 5 U.S.C. 
chapter 84 (Federal Employees' Retirement System) have been able to 
make direct premium payments if their annuity became too small to cover 
the premiums. Effective the first pay period beginning on or after 
October 30, 1998, all employees, annuitants, and compensationers whose 
pay, annuity, or compensation is insufficient to cover the withholdings 
can make direct premium payments.
    (b)(1) For an individual to be eligible to make direct premium 
payments, the employing office or retirement system must determine that 
the pay, annuity, or compensation, after all other deductions, is 
expected to be insufficient on an ongoing basis, i.e., for the next 6 
months or more.
    (2) This section does not apply to employees in nonpay status. 
Employees in nonpay status are governed by Sec. 870.404(c).
    (c)(1) When the employing office or retirement system determines 
that the pay, annuity, or compensation is insufficient, and will be 
insufficient on an ongoing basis, it must notify the insured individual 
(or the assignee, if the individual has assigned his/her insurance 
under subpart I of this part) in writing and inform him/her of the 
available choices.
    (2) Within 31 days of receiving the notice (45 days for individuals 
living overseas), the insured individual (or assignee) must return the 
notice to the employing office or retirement system, choosing either to 
terminate some or all of the insurance or to make direct premium 
payments. An employee, annuitant, or compensationer is considered to 
receive a mailed notice 5 days after the date of the notice.
    (3) If an individual does not return the notice within the required 
time frames, the employing office or retirement system will terminate 
the insurance.
    (d)(1) Terminated coverage stops at the end of the last pay period 
for which premiums were withheld.
    (2) An individual whose insurance terminates, either by choice or 
by failure to return the notice, gets the 31-day extension of coverage 
and right to convert, as provided in subpart F of this part.
    (3)(i) When an employee's pay again becomes sufficient to allow 
premium withholdings, the employing office will automatically reinstate 
the terminated coverage.
    (ii) An annuitant or compensationer whose coverage terminates 
cannot have the coverage reinstated when the annuity or compensation 
becomes sufficient to cover withholdings.
    (e)(1) Employing offices and retirement systems must establish a 
method for accepting premium payments for insured individuals who 
choose to pay directly.
    (2) Individuals who are paying directly must send the required 
premium payment to the employing office or retirement system for every 
pay period during which coverage continues. The insured individual must 
make the payment after each pay period, according to the schedule 
established by the employing office or retirement system.
    (3)(i) When an employee's pay again becomes sufficient to allow 
premium withholdings, he/she must stop making direct payments. The 
employing office will begin to withhold premiums automatically.
    (ii) An annuitant or compensationer who is making direct premium 
payments must continue to pay directly, even if the annuity or 
compensation becomes sufficient to allow withholdings.
    (f) The employing office or retirement system must submit all 
direct premium payments, along with its regular life insurance 
premiums, to OPM according to procedures set by OPM.
    (g)(1) If an individual on direct pay fails to make the required 
premium payment on time, the employing office or retirement system must 
notify the individual. The individual must make the payment within 15 
days after receiving the notice (45 days if living overseas). An 
individual is considered to receive a mailed notice 5 days after the 
date of the notice.
    (2) If an insured individual fails to make the overdue payment, 
his/her insurance cancels. Cancellation is effective at the end of the 
last pay period for which payment was received.
    (3) An individual whose insurance cancels for nonpayment does not 
get the 31-day extension of coverage or the right to convert provided 
in subpart F of this part.
    (4) Coverage that cancels for nonpayment is not reinstated when the 
individual's pay, annuity, or compensation becomes sufficient to allow 
withholdings, except as provided by paragraph (g)(5) of this section.
    (5) If, for reasons beyond his/her control, an insured individual 
is unable to pay within 15 days of receiving the past due notice (45 
days if living overseas), he/she may request reinstatement of coverage 
by writing to the employing office or retirement system within 30 days 
from the date of cancellation. The individual must provide proof that 
he/she was prevented from paying within the time limit for reasons 
beyond his/her control. The employing office or retirement system will 
decide if the individual is eligible for reinstatement of coverage. If 
the employing office or retirement system approves the request, the 
coverage is reinstated back to the date of cancellation, and the 
individual must pay the back premiums.
    9. Revise Sec. 870.506(a) to read as follows:


Sec. 870.506  Optional insurance: cancelling a waiver.

    (a) When there is a change in family circumstances. (1) An employee 
cannot cancel a waiver of Option A due to a change in family 
circumstances.
    (2) An employee who has waived Option B coverage can elect it, and 
an employee who has fewer than 5 multiples of Option B can increase the 
number of multiples, upon his/her marriage or divorce, upon a spouse's 
death, or upon acquiring an eligible child. Exception: Acquiring a 
foster child does not qualify an employee to elect or increase Option B 
coverage.
    (3) The number of multiples of Option B coverage that an employee 
can obtain or add (which cannot exceed a total of 5) is limited to the 
following:
    (i) For marriage, the number of additional family members (spouse 
and eligible children) acquired with the marriage;
    (ii) For acquisition of children, the number of eligible children 
acquired; and
    (iii) For divorce or death of a spouse, the total number of 
eligible children of the employee.
    (4)(i) An employee who has waived Option C coverage can elect it, 
and an

[[Page 72463]]

employee who has fewer than 5 multiples of Option C can increase the 
number of multiples, upon his/her marriage or upon acquiring an 
eligible child. An employee can also elect Option C coverage upon 
divorce or death of a spouse, if the employee has any eligible 
children.
    (ii) An employee electing or increasing Option C coverage may elect 
any number of multiples, as long as the total number of multiples does 
not exceed 5.
    (5)(i) Except as stated in paragraph (a)(5)(iii) of this section, 
the employee must file an election under paragraph (a)(2) or (a)(4) of 
this section with the employing office, in a manner designated by OPM, 
along with proof of the event, no later than 60 days following the date 
of the event that permits the election; the employee may instead file 
the election before the event and provide proof no later than 60 days 
following the event.
    (ii) This 60-day time limit may be extended if the individual is 
not serving in a covered position on the date of the event or if the 
individual separates from covered service prior to the end of the 60-
day time limit. This extension cannot exceed the 31-day time limit for 
electing insurance following employment in a covered position or, for 
an election under paragraph (a)(4) of this section, the 31-day period 
following the 1st day on which the individual becomes eligible to 
cancel a waiver of Basic insurance.
    (iii) An employee making an election under paragraph (a)(4)(i) of 
this section because of acquiring an eligible foster child must file 
the election with the employing office no later than 60 days after 
completing the required certification.
    (iv) Employees who had a change in family circumstances between 
October 30, 1998, and April 23, 1999, had until June 23, 1999, to make 
an election under this section.
    (6)(i) The effective date of Option B insurance elected under 
paragraph (a)(1) of this section is the 1st day the employee actually 
enters on duty in pay status on or after the day the employing office 
receives the election.
    (ii) The effective date of Option C coverage elected because of 
marriage, divorce, death of a spouse, or acquiring an eligible child 
other than a foster child is the day the employing office receives the 
election, or the date of the event, whichever is later. Exception: 
Coverage elected under paragraph (a)(5)(iv) of this section was 
effective April 24, 1999.
    (iii) The effective date of Option C coverage elected because of 
acquiring a foster child is the date the employing office receives the 
election or the date the employee completes the certification, 
whichever is later.
    10. Add new paragraph (e) to Sec. 870.601 to read as follows:


Sec. 870.601  Termination of Basic insurance.

* * * * *
    (e) Except for employees, annuitants, and compensationers who elect 
direct payment as provided in Sec. 870.405 of this part, Basic 
insurance stops, subject to a 31-day extension of coverage, at the end 
of the pay period in which the employing office or retirement system 
determines that an individual's periodic pay, annuity, or compensation, 
after all other deductions, is not enough to cover the full cost of 
Basic insurance.
    11. In Sec. 870.602 revise paragraphs (a), (c), and (e) to read as 
follows:


Sec. 870.602  Termination of Optional insurance.

    (a)(1) The Optional insurance of an insured employee stops when 
his/her Basic insurance stops, subject to the same 31-day extension of 
coverage.
    (2) An employee who meets the requirements for portability, as 
provided in subpart L of this part, may elect portability for his/her 
Option B coverage, instead of having it terminate.
* * * * *
    (c)(1) If an insured employee is not eligible to continue Optional 
coverage as an annuitant or compensationer as provided by Sec. 870.701, 
the Optional insurance stops on the date that his/her Basic insurance 
is continued or reinstated under the provisions of Sec. 870.701, 
subject to a 31-day extension of coverage.
    (2) A compensationer who meets the requirements for portability, as 
provided in subpart L of this part, may elect portability for his/her 
Option B coverage, instead of having it terminate.
* * * * *
    (e) Except for employees, annuitants, and compensationers who elect 
direct payment as provided in Sec. 870.405 of this part, Optional 
insurance stops, subject to a 31-day extension of coverage, at the end 
of the pay period in which the employing office or retirement system 
determines that an individual's periodic pay, annuity, or compensation, 
after all other deductions, is not enough to cover the full cost of the 
Optional insurance. If an individual has more than one type of Optional 
insurance and his/her pay, annuity, or compensation is sufficient to 
cover some but not all of the insurance, the multiples of Option C 
terminate first, followed by Option A, and then the multiples of Option 
B.


Sec. 870.703  [Removed]


Sec. 870.702  [Redesignated as Sec. 870.703]

    12. Remove Sec. 870.703, redesignate Sec. 870.702 as Sec. 870.703, 
and add a new Sec. 870.702 to read as follows:


Sec. 870.702  Amount of Basic insurance.

    (a) The amount of Basic insurance an annuitant or compensationer 
can continue is the BIA on the date insurance would otherwise have 
stopped because of the individual's separation from service or 
completion of 12 months in nonpay status. The amount of Basic insurance 
in force is the BIA minus any reductions applicable under 
Sec. 870.703(a).
    (b)(1) For the purpose of paying benefits upon the death of an 
insured individual under age 45 who is retired or receiving 
compensation, the BIA will be multiplied by the appropriate age factor 
shown in Sec. 870.202(c) of this part. Exceptions:
    (i) If the insured individual retired or became insured as a 
compensationer before October 10, 1980, or
    (ii) If the insured individual elected a partial Living Benefit as 
an employee under subpart K of this part.
    (2)(i) For an annuitant or compensationer who elected a partial 
Living Benefit as an employee, the amount of Basic insurance he/she can 
continue is the post-election BIA, as shown in Sec. 870.203(a)(2) of 
this part.
    (ii) For the purpose of paying benefits upon the death of an 
insured annuitant or compensationer under age 45 who elected a partial 
Living Benefit as an employee, the BIA will be multiplied by the age 
factor in effect on the date OFEGLI received the completed Living 
Benefit application.
    13. Redesignate Secs. 870.704, 870.705, and 870.706 as 
Secs. 870.706, 870.707, and 870.708 respectively, and add new 
Secs. 870.704 and 870.705 to read as follows:


Sec. 870.704  Amount of Option A.

    (a) The amount of Option A coverage an annuitant or compensationer 
can continue is $10,000.
    (b) An annuitant's or compensationer's Option A coverage reduces by 
2 percent of the original amount each month up to a maximum reduction 
of 75 percent. This reduction starts at the beginning of the 2nd month 
after the date the insurance would otherwise have stopped or the 
beginning of the 2nd month after the date of the insured's 65th 
birthday, whichever is later.

[[Page 72464]]

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

    (a) The number of multiples of Option B and Option C coverage an 
annuitant or compensationer can continue is the highest number of 
multiples in force during the applicable period of service required to 
continue Option B and Option C.
    (b)(1)(i) At the time an employee retires or becomes insured as a 
compensationer, he/she must elect the number of allowable multiples he/
she wishes to continue during retirement or while receiving 
compensation.
    (ii) An employee who elects to continue fewer multiples than the 
number for which he/she is eligible is considered to have cancelled the 
multiples that are not continued.
    (iii) Employees separating for retirement and employees becoming 
insured as compensationers on or after April 24, 1999, must also elect 
either Full Reduction or No Reduction for all of the multiples being 
continued.
    (iv) An employee who does not make a reduction election is 
considered to have chosen Full Reduction.
    (2)(i) Prior to reaching age 65, an annuitant or compensationer can 
change from No Reduction to Full Reduction at any time. Exception: If 
the individual has assigned his/her insurance as provided in subpart I 
of this part, only the assignee can change from No Reduction to Full 
Reduction for the Option B coverage.
    (ii) Prior to reaching age 65, an annuitant or compensationer can 
change from Full Reduction to No Reduction at any time.
    (3)(i) After reaching age 65, an annuitant or compensationer can 
change from No Reduction to Full Reduction at any time. Exception: If 
the individual has assigned his/her insurance as provided in subpart I 
of this part, only the assignee can change from No Reduction to Full 
Reduction for the Option B coverage. If an individual age 65 or over 
changes to Full Reduction, the amount of insurance in force is computed 
as if he/she had elected Full Reduction initially. There is no refund 
of premiums.
    (ii) Except as provided in paragraph (b)(4) of this section, after 
reaching age 65, an annuitant or compensationer cannot change from Full 
Reduction to No Reduction.
    (4)(i) Shortly before an annuitant or compensationer's 65 birthday, 
the retirement system will send a reminder about the election he/she 
made and will offer the individual a chance to change the election. At 
that time, the annuitant or compensationer can choose to have some 
multiples of Option B and Option C reduce and some not reduce.
    (ii) If the individual is already 65 or older at the time of 
retirement or becoming insured as a compensationer, the retirement 
system will send the reminder and give the opportunity to change the 
election as soon as the retirement processing or compensation transfer 
is complete.
    (iii) If the individual assigned his/her insurance as provided in 
subpart I of this part, and if the employee elected No Reduction for 
Option B coverage at the time of retirement or becoming insured as a 
compensationer, the retirement system will send the reminder notice for 
Option B coverage to the assignee.
    (iv) An annuitant or compensationer who wishes to change his/her 
reduction election must return the notice by the end of the month 
following the month in which the individual turns 65, or if already 
over age 65, by the end of the 4th month after the date of the letter. 
An annuitant or compensationer who does not return the election notice 
will keep his/her initial election.
    (c)(1) For each multiple of Option B and/or Option C for which an 
individual elects Full Reduction, the coverage reduces by 2 percent of 
the original amount each month. This reduction starts at the beginning 
of the 2nd month after the date the insurance would otherwise have 
stopped or the beginning of the 2nd month after the insured's 65th 
birthday, whichever is later. At 12:00 noon on the day before the 50th 
reduction, the insurance stops, with no extension of coverage or 
conversion right.
    (2) For each multiple of Option B and/or Option C for which an 
individual elects No Reduction, the coverage in force does not reduce. 
After age 65 the annuitant or compensationer continues to pay premiums 
appropriate to his/her age.
    (d)(1) Employees who were already retired or insured as 
compensationers on April 24, 1999, and who had Option B, were given an 
opportunity to make an election for Option B.
    (i) Annuitants and compensationers who were under age 65 were 
notified of the option to elect No Reduction. The retirement system 
will send these individuals an actual election notice before their 65th 
birthday, as provided in paragraph (b)(4) of this section.
    (ii) Annuitants and compensationers who were age 65 or older, and 
who still had some Option B coverage remaining, were given the 
opportunity to stop further reductions. These individuals had until 
October 24, 1999, to make the No Reduction election. The amount of 
Option B coverage retained was the amount in effect on April 24, 1999. 
Those annuitants and compensationers who elected No Reduction were 
required to pay premiums retroactive to April 24, 1999.
    (2) Employees who were already retired or insured as 
compensationers on April 24, 1999, could not elect No Reduction for 
Option C.
    14. Add Sec. 870.801(d)(3)(v) to read as follows:


Sec. 870.801  Order of precedence and payment of benefits.

* * * * *
    (d) * * *
    (3) * * *
    (v) For employees and former employees who have ported Option B 
coverage, the appropriate office is the Portability Office.
* * * * *
    15. Revise Sec. 870.802(b) and (g)(1) to read as follows:


Sec. 870.802  Designation of beneficiary.

* * * * *
    (b) A designation of beneficiary must be in writing, signed by the 
insured individual, and witnessed and signed by 2 people. The 
appropriate office must receive the designation before the death of the 
insured.
    (1) For employees, the appropriate office is the employing office.
    (2) For annuitants and compensationers, the appropriate office is 
OPM.
    (3) For employees and former employees who have ported Option B 
coverage, the appropriate office is the Portability Office.
* * * * *
    (g)(1) A designation of beneficiary is automatically cancelled 31 
days after the individual stops being insured. Exception: If the 
individual elects portability for Option B, a valid designation remains 
in effect.
* * * * *
    16. Revise Sec. 870.902 to read as follows:


Sec. 870.902  Making an assignment.

    (a) To assign insurance, an insured individual must complete an 
approved assignment form. Only the insured individual can make an 
assignment; no one can assign on behalf of an insured individual.
    (b) The individual must submit the completed and signed form to the 
appropriate office indicating the intent to irrevocably assign all 
ownership of the insurance. The form must also be witnessed and signed 
by 2 people.
    (1) For employees, the appropriate office is the employing office.

[[Page 72465]]

    (2) For annuitants and compensationers, the appropriate office is 
OPM.
    (3) For employees and former employees who have ported Option B 
coverage, the appropriate office is the Portability Office.
    17. Revise Sec. 870.907(c) to read as follows:


Sec. 870.907  Termination and conversion.

* * * * *
    (c) An assignment terminates 31 days after the insurance 
terminates, unless the insured individual is reemployed in or returns 
to a position in which he/she is entitled to coverage under this part 
within 31 days after the insurance terminates. Exception: If an 
employee elects portability for Option B coverage, an assignment 
remains in effect. If the individual returns to Federal service, Basic 
insurance and any Option A insurance acquired through returning to 
service is subject to the existing assignment.
    18. A new subpart L is added to read as follows:

Subpart L--PORTABILITY

870.1201  Portability permitted.
870.1202  Eligibility.
870.1203  Amount of insurance.
870.1204  Cost of insurance.
870.1205  Electing portability for Option B.
870.1206  Termination and cancellation of ported coverage.
870.1207  Designations, assignments, and court orders.
870.1208  Return to active service.

Subpart L--Portability


Sec. 870.1201  Portability permitted.

    (a) Effective April 24, 1999, until April 24, 2002, eligible 
employees may elect portability for Option B coverage that would 
otherwise terminate.
    (b) An individual cannot elect portability for Basic insurance, 
Option A, or Option C.


Sec. 870.1202  Eligibility.

    (a) An employee is eligible to elect portability for Option B if:
    (1) His/her coverage is terminating due to separation or completion 
of 12 months in nonpay status; and
    (2) He/she has had Option B for the 5 years of service immediately 
before the date the coverage would otherwise terminate, or for the full 
period(s) of service during which he/she was eligible to have Option B, 
if less than 5 years.
    (b) If the employee has assigned his/her coverage as provided in 
subpart I of this part, it is the assignee who has the right to elect 
portability.


Sec. 870.1203  Amount of insurance.

    (a) An employee can elect portability for up to the highest number 
of Option B multiples that meet the requirements of 
Sec. 870.1202(a)(2).
    (b)(1) An individual with ported coverage can reduce the number of 
multiples at any time. Exception: If the individual assigned his/her 
coverage as provided in subpart I of this part, only the assignee has 
the right to reduce the number of multiples.
    (2) An individual with ported coverage cannot increase the number 
of multiples.
    (c) Salary changes have no effect on the amount of Option B 
coverage in force for an individual with ported coverage.
    (d) The amount of ported coverage in force reduces by 50 percent at 
the beginning of the 2nd calendar month after the individual reaches 
age 70 or, if the individual is 70 or older at the time he/she elects 
portability, the 2nd month after the effective date of the ported 
coverage.


Sec. 870.1204  Cost of insurance.

    (a)(1) The cost of ported coverage is the cost shown in 
Sec. 870.402(e).
    (2) In addition to the premium payments for Option B, individuals 
with ported coverage must pay a monthly administrative fee, in an 
amount set by OPM.
    (b) The Portability Office will establish a schedule for the 
premium payments. An individual with ported coverage must make payment 
to the Portability Office on a timely basis.


Sec. 870.1205  Electing portability for Option B.

    (a) The employing agency must notify the employee/assignee(s) of 
the loss of coverage and the right to elect portability for Option B 
either before or immediately after the event causing the loss of 
coverage.
    (b)(1) The employee/assignee(s) must submit the request to elect 
portability to the employing office and to the Portability Office 
within 60 days following the date of the terminating event (74 days if 
living overseas). A mailed notification or request is considered to be 
received 5 days after the date of the notification/request.
    (2) An employee/assignee who fails to request portability within 
the required time frame is considered to have refused coverage.
    (3) Ported coverage is effective the day after coverage as an 
employee ends.


Sec. 870.1206  Termination and cancellation of ported coverage.

    (a)(1) Ported coverage stops April 24, 2002, subject to the 31-day 
extension of coverage and right to convert, as provided in subpart F of 
this part.
    (2) Ported coverage stops at the beginning of the 2nd calendar 
month after the individual reaches age 80 or, if the individual is age 
80 or older at the time he/she elects portability, the 2nd month after 
the effective date, subject to the 31-day extension of coverage and 
right to convert, as provided in subpart F of this part.
    (b)(1) An individual with ported coverage can cancel coverage at 
any time. Exception: If the individual assigned his/her coverage as 
provided in subpart I of this part, only the assignee can cancel 
coverage.
    (2) If an individual with ported coverage does not make a premium 
payment on time, the Portability Office will send him/her a notice 
stating that coverage will continue only if the individual makes 
payment within 15 days after receiving the notice (45 days if living 
overseas). If the individual does not make payment within this time 
frame, Option B coverage cancels.
    (3) An individual whose ported coverage cancels, whether 
voluntarily or for nonpayment, does not get the 31-day extension of 
coverage or the right to convert.


Sec. 870.1207  Designations, assignments, and court orders.

    (a)(1) If an employee has a valid designation of beneficiary on 
file at the time he/she elects portability, that designation remains in 
effect.
    (2) An individual with ported coverage who wishes to file a 
designation of beneficiary must submit the form to the Portability 
Office.
    (3) If an individual with ported coverage returns to Federal 
service, any designation of beneficiary remains in effect.
    (b)(1) If an employee assigns his/her coverage before electing 
portability for Option B, that assignment remains in effect.
    (2) If an individual with ported coverage wishes to make an 
assignment, he/she must submit the form to the Portability Office.
    (3) If an individual with ported coverage returns to Federal 
service, any assignment of coverage remains in effect. Basic insurance 
and any Option A coverage acquired through the return to service are 
subject to the existing assignment.
    (c)(1) If the employing office received a valid court order on or 
after July 22, 1998, that court order remains valid for the ported 
coverage.
    (2) Anyone wishing to submit a court order relating to an 
individual with ported coverage must submit it to the Portability 
Office.

[[Page 72466]]

    (3) If an individual with ported coverage returns to Federal 
service, any valid court order on file remains in effect.
    (d) When an individual submits a request to elect portability for 
Option B coverage, the employing office must send the originals of all 
designations, assignments, and court orders on file to the Portability 
Office.


Sec. 870.1208  Return to active service.

    (a)(1) When an individual with ported coverage returns to Federal 
service, the agency must notify the Portability Office.
    (2) The Portability Office must terminate the ported coverage and 
send the originals of all designations, assignments, and court orders 
to the new employing office.
    (b) The employee will get back the number of multiples of Option B 
he/she had before the terminating event. Exceptions:
    (1) A person who cancels a multiple or multiples of Option B 
coverage after electing portability will get back only the number of 
multiples remaining.
    (2) A person whose ported coverage cancels for nonpayment of 
premiums will not get back any Option B coverage automatically.

[FR Doc. 99-33367 Filed 12-27-99; 8:45 am]
BILLING CODE 6325-01-P