MetLife’s Office of Federal Employees’ Group Life Insurance  (OFEGLI) adjudicates claims under the FEGLI program and makes  payments to FEGLI beneficiaries. However, as the FEGLI Fund balance has grown over time, OPM officials  noted, the need for an insurer and reinsurers to assume the program’s  risk of loss has diminished. First, FEGLI’s statute requires enrolled federal  employees to pay two-thirds of the premium rate for their Basic life  insurance coverage, while employers in the private sector generally cover  the full cost of their employees’ basic coverage. In addition, for certain individuals, FEGLI Basic coverage may appear more  costly than private sector basic life insurance. The possibility  that FEGLI coverage may appear more costly than private sector  alternatives to relatively younger or healthier federal employees is mitigated  to some extent by the extra amount of coverage FEGLI provides federal  employees under age 45. While these disclosures are useful, they do not make employees aware of  some FEGLI benefits and features that could affect their decision to  participate in the program. This averaging can be of great benefit to  some, especially those who may not be able to obtain coverage  elsewhere. In Overseeing FEGLI, Processes for Setting Premium Rates Could Be Improved

		OPM Performs Many of FEGLI’s Administrative and Operational Functions and Works Closely with MetLife

According to OPM officials, OPM performs many FEGLI administrative  and operational functions, including collecting premiums, overseeing  FEGLI’s claims settlement process (which MetLife administers), and  publishing FEGLI’s regulations and disclosures. The legislation that created FEGLI intended the program to offer a low- cost insurance benefit to federal employees and their families. In addition, OPM  officials noted that key FEGLI characteristics such as coverage levels, the  portion of the cost paid by federal employees, and the structure of Basic  premiums are determined by FEGLI’s statute, and as a result, changing  the program can involve statutory changes that require congressional  action. However, OPM does not  appear to have a documented process providing guidance on what to  include in the annual actuarial reviews and recommendations to  management. RAAs Are No Longer the Default Settlement Option, but Better Disclosures Are Needed

		RAAs Were the Default Option from 1994 to 2011

RAAs had been the default method used from 1994 until February 2011  for many FEGLI beneficiaries to receive their life insurance settlements. While deciding how  to use the funds, beneficiaries with RAAs receive a guaranteed minimum  interest rate on their RAA account. In addition to concerns about RAA disclosures, some industry participants  and a federal regulator expressed concern about the kinds of protections  that apply to RAAs and how well beneficiaries understand them. For  example, they indicated that while RAAs are not insured by the Federal  Deposit Insurance Corporation (FDIC), the use of drafts that closely  resemble checkbooks offered by banks could give the appearance that  FDIC insurance protects RAAs. An insurance industry expert explained that  beneficiaries who have RAA assets that exceed state guaranty fund limits  may not be fully protected. Because OPM contracts with MetLife for settlement services, RAAs  funded with FEGLI claims payments are established and operated by  MetLife. As a result, employees may be unaware that their premiums  may be higher than those of group plans that do not offer such coverage. While  OPM has conducted some periodic comparisons of FEGLI benefits and  premiums with those found in other group life plans, without formal,  documented processes for these comparisons, OPM risks that FEGLI  may not meet employees’ needs, that its premiums may exceed prices  charged for similar benefits in the private sector, or even that it may be  offering features that it does not need to offer to be competitive with  private sector group plans. OPM has recently revised its disclosures to beneficiaries to  provide more information on RAAs, but the disclosures still do not contain  some important information. Recommendations for Executive Action

To help better ensure that federal employees have all the information they  need when deciding whether to purchase life insurance through FEGLI,  we recommend that the Director of the Office Personnel Management  take steps to ensure that FEGLI disclosures include complete and  accurate information on key benefits and features, including the  program’s postretirement coverage, composite rates, and level-premium  structure. To help ensure that FEGLI provides relevant benefits that meet the needs  of federal employees at a reasonable and appropriate cost, we  recommend that the Director of the Office of Personnel Management  develop and implement a more structured process for comparing FEGLI  with private sector group life insurance plans and for documenting OPM  actuaries’ rate recommendations and any management decisions  concerning those recommendations. Interviews with OPM and  MetLife officials provided additional information on FEGLI operations,  including the program’s coverage options; how the government, MetLife,  and reinsurers bear insurance risk; and how the Employees’ Life  Insurance Fund—FEGLI’s main financial fund—is used for paying life  insurance claims and other program costs. To describe and evaluate OPM’s oversight of the FEGLI program, we (1)  reviewed FEGLI’s authorizing statute and regulations, including the  LIFAR, (2) reviewed OPM’s program monitoring, reporting, and other  oversight activities, (3) interviewed OPM and MetLife officials, and (4) met  with industry association representatives.
Why GAO Did This Study

The Federal Employees' Group Life Insurance program (FEGLI), administered by the Office of Personnel Management (OPM), insures over 4 million federal employees and annuitants in the event of an enrollee's death. As a result, it is important that the program is clearly explained and properly overseen. However, some aspects of FEGLI, such as program disclosures and the use of retained asset accounts (RAA)--financial accounts used to settle life insurance claims--have raised questions about the program's operations. GAO was asked to describe and evaluate (1) the FEGLI program's structure and operations, (2) OPM's administration and oversight of the program, and (3) the use of RAAs in FEGLI claims payments. To address these objectives, GAO reviewed FEGLI law and regulations, interviewed OPM, Metropolitan Life Insurance Company (MetLife), and state insurance officials, and met with insurance industry experts.

What GAO Found

OPM, by directing the funding of the Employees' Life Insurance Fund, has effectively allowed the FEGLI program to assume the risk of loss, while MetLife provides administrative services for the program. FEGLI has some insurance coverage features that most private sector group life plans do not, but a lack of disclosure in certain areas may make it difficult for employees to make fully informed decisions about buying coverage. Generally with private group plans the employer pays the full premium for a set amount of basic coverage, but the statute that created FEGLI requires that enrolled employees contribute two-thirds of the premium for Basic coverage. In addition, FEGLI premiums include the cost of a portion of retirement coverage, a feature generally not found in private sector alternatives, and which can make FEGLI coverage more costly than those alternatives. Further, for Basic coverage, FEGLI premiums are level over employees' working lives, so that early on premiums may be higher than the actual cost of coverage, while later they may be lower. This feature can make FEGLI coverage appear to be more costly than private individual plans for certain employees. However, the materials that FEGLI provides to employees do not disclose either the retirement coverage costs or the level premiums. Employees, particularly those who might leave government service or stop participating in FEGLI before realizing the benefits of these features, may find such disclosures important when deciding whether to purchase the insurance. OPM oversees FEGLI's provision of life insurance, but certain processes for reviewing program benefits and premiums could be improved. OPM administers basic FEGLI functions such as determining and collecting premiums, publishing program regulations, and overseeing the claims payment processes of MetLife, the insurer contracted to provide claims services. Because the program was intended to provide a low-cost benefit to federal employees, OPM has periodically conducted informal comparisons of FEGLI costs and benefits to those of private group life plans. In addition, to better ensure that the program charges appropriate premium rates, OPM actuaries conduct annual reviews and may recommend rate changes. However, OPM does not have documented processes for conducting its comparisons or for documenting any recommended rate changes. The lack of documented processes in both areas creates a risk that FEGLI benefits may not be meeting the needs of federal employees and could be priced at inappropriate rates. From the mid 1990s until early 2011, RAAs were the default settlement option for many FEGLI beneficiaries. While RAAs offer some benefits to FEGLI beneficiaries, OPM does not provide beneficiaries with some important information on RAA operations and protections. According to OPM and some industry officials, RAAs can reduce administrative costs, provide guaranteed interest rates, and allow beneficiaries time to decide how to use settlement funds. But other industry participants and a federal regulator said that beneficiaries might not be fully aware of their settlement options or that RAAs are not insured by the Federal Deposit Insurance Corporation. OPM has recently improved FEGLI disclosures for RAAs, and RAAs are no longer the default settlement option. However, the disclosures still lack information on how the accounts are established and regulated, and how certain protections differ across states. Without this information, beneficiaries may not be able to make fully informed decisions when choosing a settlement option for their FEGLI claims payment.

What GAO Recommends

GAO recommends that OPM (1) improve disclosures on important FEGLI features, (2) develop and implement a more structured process for reviewing the FEGLI program and premium rates, and document review outcomes, and (3) improve disclosures on RAA protections and regulation. OPM concurred with these recommendations.