Impact on Life Insurance Coverage
General Rules and Procedures
The Office of Federal Employees’ Group Life Insurance (OFEGLI) must pay benefits in accordance with the terms of a valid court decree of divorce, annulment, or legal separation, or the terms of a court order or court-approved property settlement agreement relating to such a court decree, regardless of whether the insured individual actually completes a designation complying with the court order.
To be valid, the court order must be a certified copy. The appropriate office must receive the certified copy before the insured’s death and it must expressly provide for someone to receive your FEGLI benefits.
If you are an employee, you must file the court order with your human resources office. If you receive benefits from the Department of Labor’s Office of Workers Compensation Programs and you’ve been receiving these benefits for less than 12 months and you are still on the agency’s rolls as an employee, you also must file the order with your agency’s human resources office. If you are a retired employee, or you are on compensation and are separated from your agency or have been receiving compensation for 12 months or more, you must file the order with the Office of Personnel Management, Retirement Operations Center, P.O. Box 45, Validation Section, Boyers, PA 16017-0045.
Note: Under 5 CFR 870, a court order submitted before July 22, 1998 is valid only if it was received in the appropriate office before the insured federal employee’s or annuitant’s death.
You can submit a court order if you are an employee, an annuitant, a former spouse, the former spouse’s attorney or anyone else. You as the insured can cancel coverage even if there is a court order on file. You cannot submit a new designation of beneficiary to void the court order. If there is a valid court order on file, you may not change or submit a designation of beneficiary unless the person(s) named in the decree, order, or agreement agrees in writing or unless the decree, order or agreement is modified.
If valid, a court order can serve as a designation of beneficiary for life insurance purposes even if the insured individual doesn’t complete a designation form.
A court order cannot serve as an assignment of FEGLI benefits. The order can direct that the insured individual assign coverage but unless and until the insured individual files a valid assignment form (RI 76-10 Assignment), the insurance is not assigned. This is different than a designation.
Note: A 2013 U.S. Supreme Court decision, Hillman v. Maretta, 132 S. Ct. 2566, held that a designation of beneficiary made under FEGLI overrides any state law provision that would cause the proceeds to be paid out in a different manner. In particular, that decision refused to honor a state law designed to provide life insurance benefits to a surviving spouse where the enrollee remarried after a divorce and did not change a designation in favor of the prior spouse.
To avoid a situation in which a divorced FEGLI policyholder could circumvent a court award by changing the designated beneficiary or even canceling the coverage at a later date, many courts will issue an order requiring an assignment of FEGLI coverage to a former spouse or children.
An assignment of benefits transfers ownership of FEGLI coverage to the assignee. The individual who makes the assignment no longer has control over the insurance coverage and can no longer designate beneficiaries. Assignments are irrevocable, and apply to three types of FEGLI coverage: Basic, Option A (standard option) and Option B (additional optional) insurance. Assignment may not be used for Option C (family optional) insurance coverage.
The policyholder, not the employing agency or OPM, is responsible for executing the assignment. This is accomplished by filling out Form RI 76-10, available at www.opm.gov/forms, at most agency personnel offices, or by writing to: Office of Personnel Management, Retirement Operations Center, Attention: RI 76-10, Boyers, PA 16017. OPM does not have authority to enforce a court order directing the assignment of FEGLI coverage. It is the responsibility of the court-designated assignee to ensure that the policyholder has complied with a FEGLI assignment order.
If a FEGLI assignment order is issued, policyholders who own more than one type of coverage must assign all of the insurance (except for family optional), not just part. An assigning policyholder may not name contingent assignees in the event the primary assignee dies first. If the assignment of the insurance is to two or more persons, the individual must specify percentage shares, rather than dollar amounts or types of insurance, to go to each assignee.
Policyholders who assign benefits continue to be insured under the FEGLI program. Premiums will continue to be withheld from their salary, annuity, or compensation payments. However, they may not cancel their life insurance coverage or revoke the assignment.
A determination as to whether the FEGLI proceeds should be included in the insured’s gross estate is made by the IRS at the time of the insured’s death. Individuals should refer to tax laws and IRS regulations in attempting to determine the tax consequences of a FEGLI assignment and may wish to obtain a ruling from the IRS.
The insured person retains the right to elect new insurance coverage, though all new insurance coverage (except for family optional insurance) would be subject to an existing assignment. The assignor also retains the right to decide, at the time of retirement or upon the receipt of workers’ compensation benefits, to maintain more than the minimum percentage of his or her basic life insurance. However, the right to choose a Living Benefit is lost.
The assignment voids all prior beneficiary designations and prohibits the insured person from making any future designations of beneficiaries. Once FEGLI insurance is assigned, the assignee becomes the beneficiary unless he or she designates someone else. The assignee may not elect a Living Benefit.
In addition to designating beneficiaries, an assignee may convert the insurance to an individual policy if the insured person’s eligibility for group insurance ends (such as if the insured leaves government employment). Assignees also may cancel the insurance or reduce the amount of coverage. When insurance is assigned to more than one person, all must convert their shares to an individual policy when eligibility for group insurance ceases. Similarly, all must consent to a coverage cancellation or reduction.
Each assignee (and beneficiary of an assignee) is responsible for keeping the insured’s employing office informed of his or her current address. The employing office will notify assignees of their conversion rights in the event group insurance coverage ends.
The value of assigned insurance increases or decreases in accordance with any automatic increases or decreases in the value of the coverage.
An assignment is effective on the date the insured’s employing office receives a completed, signed, and witnessed assignment. For retirees, this information should be sent to the Office of Personnel Management, Retirement Operations Center, P.O. Box 45, Boyers, PA 16017-0045.
An assignment of benefits should not be confused with a designation of beneficiary. If there has been no assignment of benefits, a divorce does not affect a previously filed designation of beneficiary. An employee or retiree who has designated a former spouse to receive life insurance benefits must file new designations for any benefits that become payable to go to someone else. Beneficiary designations do not convey any policy-ownership rights under FEGLI and may be changed at any time unless there was an assignment of benefits.
The FEGLI designation of beneficiary form is Standard Form 2823, available at www.opm.gov/forms, as well as at personnel offices for employees or by calling (888) 767-6738 for retirees.