[Federal Register Volume 71, Number 222 (Friday, November 17, 2006)]
[Rules and Regulations]
[Pages 66827-66828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-19273]



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 Rules and Regulations
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  Federal Register / Vol. 71, No. 222 / Friday, November 17, 2006 / 
Rules and Regulations  

[[Page 66827]]



OFFICE OF PERSONNEL MANAGEMENT

5 CFR Parts 550 and 892

RIN 3206-AJ88


Allotments From Federal Employees

AGENCY: Office of Personnel Management.

ACTION: Interim rule with request for comments.

-----------------------------------------------------------------------

SUMMARY: The Office of Personnel Management (OPM) is issuing interim 
regulations dealing with the use of OPM's allotment authority to allow 
for pretax salary reductions as part of OPM's flexible benefits plan. 
Using an allotment from an employee's pay to the employing agency 
allows certain payments (e.g., employee health insurance premiums, 
contributions to a flexible spending arrangement, and contributions to 
a health savings account) to be paid with pretax dollars, as provided 
under section 125 of the Internal Revenue Code. In addition, these 
regulations include certain policy clarifications and changes to make 
the regulations more readable.

DATES: Effective Date: The interim regulations are effective on 
December 18, 2006.
    Comment Date: Comments must be received on or before January 16, 
2007.

ADDRESSES: Send or deliver written comments to Jerome D. Mikowicz, 
Acting Deputy Associate Director for Pay and Performance Policy, Office 
of Personnel Management, Room 7H31, 1900 E Street, NW., Washington, DC 
20415-8200, by FAX at (202) 606-0824; or by e-mail at [email protected].

FOR FURTHER INFORMATION CONTACT: Gene Holson by telephone at (202) 606-
2858; by fax at (202) 606-0824; or by e-mail at [email protected].

SUPPLEMENTARY INFORMATION:

Definitions

    In Sec.  550.301, we are revising the definition of employee to 
clarify that it covers only those who meet the definition of employee 
in 5 U.S.C. 2105.

Allotments to Financial Organizations

    We are removing Sec.  550.361, which covers allotments for savings, 
because these provisions cite the Department of the Treasury's 
regulations in 31 CFR part 209. As we explained in the supplementary 
information accompanying a final rule published on September 26, 2001 
(66 FR 49085), the Department of the Treasury removed 31 CFR part 209 
effective on January 27, 1997. (See 61 FR 68155, December 27, 1996.) In 
that final rule, we removed the reference to part 209 in Sec.  
550.311(a)(5). However, we neglected to remove the related rules in 
Sec.  550.361, which we are doing now. We are also removing the 
language in current Sec.  550.311(a)(6), which deals with an allotment 
for savings for an employee assigned to a post of duty outside the 
continental United States and references obsolete Sec.  550.361. 
Finally, we are revising Sec.  550.311(a)(5) to remove an obsolete 
limitation restricting mandatory allotments to ``savings accounts.'' 
The revised language is broadly stated to encompass any allotments to 
``an employee's personal account(s) at a financial organization'' 
(e.g., a checking account or savings account).

Pretax Salary Reductions as Part of OPM's Flexible Benefits Plan

    On September 26, 2001, the Office of Personnel Management (OPM) 
published final regulations (66 FR 49085) allowing an employee to pay 
his or her Federal Employees Health Benefits (FEHB) premiums through an 
allotment from the employee's pay to the employing agency. Use of this 
allotment mechanism allows FEHB premiums to be paid with a pretax 
salary reduction as part of a ``cafeteria plan'' (i.e., flexible 
benefits plan) established under section 125 of the Internal Revenue 
Code. Because pretax salary reductions lower an employee's taxable 
income, they reduce his or her tax burden.
    Most employees in the executive branch of the Federal Government 
are covered by OPM's cafeteria plan, the Federal Flexible Benefits Plan 
(FedFlex). (Certain executive branch agencies with independent 
compensation authority have established their own flexible benefits 
plans.) Also, employees of Federal agencies outside the executive 
branch or whose pay is not issued by an executive branch agency, and 
who are otherwise qualified, can participate in FedFlex if their 
employer agrees to adopt FedFlex. The initial FedFlex benefit, FEHB 
premium conversion, was implemented in October 2000. In 2003, OPM 
expanded FedFlex by offering flexible spending arrangements (FSAs). In 
late 2006, enrollment will begin for FedFlex dental and vision 
benefits. In 2007, employees enrolled in high deductible health plans 
with health savings accounts will be able to make allotments for pretax 
contributions to their health savings accounts through FedFlex. To 
ensure that all current and future allotments necessary for 
participation in FedFlex programs are eligible for pretax treatment, 
OPM is amending its allotment regulations at 5 CFR part 550, subpart C. 
Interim Sec.  550.311(a)(7) broadens the current language at Sec.  
550.311(a)(8) addressing FEHB premiums to include any allotment 
effecting a salary reduction as part of FedFlex. We are making 
conforming changes to Sec.  550.312(f) and Sec.  892.301.

Order of Precedence for Deductions

    We are removing Sec.  550.313, which deals with the order of 
precedence for deductions from pay when there is insufficient pay to 
cover all deductions. The introduction of new pretax benefits under 
FedFlex creates additional complexities for agencies in determining the 
proper order of precedence for allotments when there is insufficient 
pay to cover all deductions. As part of its leadership role for the e-
Payroll initiative, OPM has begun issuing payroll policy guidance to 
agencies to ensure timely, accurate, and uniform payroll practices 
across Government. In the near future, OPM will issue payroll policy 
guidance regarding the order of precedence for deductions when there is 
insufficient pay to cover all deductions. We believe OPM's payroll 
policy guidance under the e-Payroll initiative, rather than 
regulations, provides the flexibility needed to respond to the 
introduction of new types of allotments such as those for FedFlex 
benefits.

[[Page 66828]]

Waiver of Notice of Proposed Rule Making

    Pursuant to section 553(b)(3)(B) of title 5 of the United States 
Code, I find that good cause exists for waiving the general notice of 
proposed rule making. An opportunity for public comment prior to 
issuing this rule is impracticable and contrary to the public interest. 
These regulations are needed to ensure that agencies treat employee 
premiums for dental and vision benefits offered beginning in December 
2006 as pretax salary reductions under Federal tax law. OPM's allotment 
regulations are the vehicle for converting these premiums into salary 
reductions that qualify for pretax treatment as part of a flexible 
benefits plan under section 125 of title 26, United States Code. In 
enacting the Federal Employee Dental and Vision Benefits Enhancement 
Act of 2004 (Pub. L. 108-496, December 23, 2004), Congress anticipated 
that these dental and vision premiums would be paid on a pretax basis 
and described this pretax treatment as a major advantage of the new 
benefits. (See Senate Report 108-393.)

Regulatory Flexibility Act

    I certify that these regulations will not have a significant 
economic impact on a substantial number of small entities because they 
will apply only to Federal agencies and employees.

E.O. 12866, Regulatory Review

    The Office of Management and Budget has reviewed this rule in 
accordance with E.O. 12866.

List of Subjects in 5 CFR Parts 550 and 892

    Administrative practice and procedure, Claims, Government 
employees, Wages, Health insurance, and Taxes.

Office of Personnel Management.
Linda M. Springer,
Director.

0
Accordingly, OPM is amending 5 CFR parts 550 and 892 as follows:

PART 550--PAY ADMINISTRATION (GENERAL)

Subpart C--Allotments From Federal Employees

0
1. The authority citation for subpart C of part 550 continues to read 
as follows:

    Authority: 5 U.S.C. 5527; E.O. 10982, 3 CFR 1959-1963 Comp., p. 
502.


0
2. In Sec.  550.301, the definition of employee is revised to read as 
follows:


Sec.  550.301  Definitions.

* * * * *
    Employee means an employee of an agency who satisfies the 
definition of that term in 5 U.S.C. 2105.
* * * * *

0
3. In Sec.  550.311, paragraph (a)(8) is removed, and the introductory 
text of paragraph (a), as well as paragraphs (a)(5)-(7) and (b) are 
revised to read as follows:


Sec.  550.311  Authority of agency.

    (a) Mandatory allotments. An agency must permit an employee to 
make--
* * * * *
    (5) Two or more allotments to an employee's personal account(s) at 
a financial organization;
    (6) An allotment for child support and/or alimony payments under 
Sec.  550.361; and
    (7) Any allotment effecting a salary reduction as part of a 
flexible benefits plan established by the Office of Personnel 
Management in conformance with section 125 of title 26, United States 
Code.
    (b) Discretionary allotments. In addition to those allotments 
provided for in paragraph (a) of this section, an agency may permit an 
employee to make an allotment for any legal purpose deemed appropriate 
by the head of the agency (or designee). This paragraph does not 
constitute an independent authority for an agency to permit pretax 
allotments in addition to those authorized by the Office of Personnel 
Management as described in paragraph (a)(7) of this section.

0
4. In Sec.  550.312, paragraph (f) is revised to read as follows:


Sec.  550.312  General limitations.

* * * * *
    (f) Notwithstanding the requirements in paragraphs (a) and (c) of 
this section, an agency may make an allotment for an employee's share 
of Federal Employees Health Benefits premiums under Sec.  550.311(a)(7) 
and part 892 of this chapter without specific authorization from the 
employee, unless the employee specifically waives such allotment. 
Agency procedures for processing employee waivers must be consistent 
with procedures established by the Office of Personnel Management. (See 
part 892 of this chapter.)


Sec.  550.313  [Removed]

0
5. Section 550.313 is removed.


Sec.  550.361  [Removed]

0
6. Section 550.361 is removed.


Sec. Sec.  550.371 and 550.381  [Redesignated as Sec. Sec.  550.361 and 
550.371]

0
7. Sections 550.371 and 550.381 are redesignated as 550.361 and 
550.371, respectively.

PART 892--FEDERAL FLEXIBLE BENEFITS PLAN: PRE-TAX PAYMENT OF HEALTH 
BENEFITS PREMIUMS

Subpart C--Contributions and Withholdings

0
8. The authority citation for part 892 continues to read as follows:

    Authority: 5 U.S.C. 8913; 5 U.S.C. 1103(a)(7); 26 U.S.C. 125.


Sec.  892.301  [Amended]

0
9. Section 892.301 is amended by removing the reference 
``550.311(a)(8)'' and adding the reference ``550.311(a)(7)'' in its 
place.

 [FR Doc. E6-19273 Filed 11-16-06; 8:45 am]
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