Federal Life Insurance Changes Would Improve Benefits and Decrease Costs

GAO was requested to assess certain aspects of the Federal Employees' Group Life Insurance program. The objectives of the review were to evaluate alternatives for improving post-retirement life insurance benefits, to evaluate a change proposed in an earlier GAO report, and to obtain current data on payment of risk charges.

Although the Federal Employees' Group Life Insurance Act of 1980 added provisions to improve post-age 65 benefits, GAO found significant shortcomings in these provisions. The single premium rate which the Office of Personnel Management established for each of these options is inequitable and does not reflect mortality risks. This program also requires younger retirees to pay premiums without being provided any additional benefits until age 65. Changing Group Life by adding a modified supplemental post-age 65 insurance election for new hires cannot be provided without a premium increase, even with continuing contributions until death, and it may not attract enough participants to make it a viable part of Group Life since no benefits would be derived from higher premiums until after age 65. Although this option could be less costly in the long term than the current option providing no reduction of post-retirement coverage, GAO believes that equity with non-Federal programs justifies correlating benefits with length of program participation and increasing Group Life coverage for post-age 65 retirees. Correlating post-retirement benefits with length of program participation and increasing the minimum post-age 65 coverage to 50 percent, for employees with 30 or more years of service, is more desirable. Such a change would: (1) not require any increase in premiums; (2) eliminate certain program inequities; and (3) make post-retirement benefits more comparable with non-Federal employee insurance plans.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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