United States Government Accountability Office

GAO Report to Congressional Requesters

FEDERAL 

EMPLOYEES’ GROUP 

LIFE INSURANCE 

Retirement Benefit 

and Retained Asset 

Account Disclosures 

Could Be Improved 

November 2011 

GAO-12-94 
 United States Government Accountability Office 

Highlights of GAO-12-94, a report to congressional requesters 

November 2011 

FEDERAL EMPLOYEES’ GROUP LIFE 

INSURANCE 

Retirement Benefit and Retained Asset Account 

Disclosures Could Be Improved 

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 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. 

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. 

View GAO-12-94 for key components. 

For more information, contact Alicia Puente 

Cackley at (202) 512-7022 or 

cackleya@gao.gov. 
Page i GAO-12-94 

Contents 

Letter 1 

Background 3

Although Similar to Private Sector Plans, FEGLI Has Distinct 

Employee Benefits and Costs That Are Not Clearly Disclosed 10

In Overseeing FEGLI, Processes for Setting Premium Rates Could 

Be Improved 16

RAAs Are No Longer the Default Settlement Option, but Better 

Disclosures Are Needed 24

Conclusions 33

Recommendations for Executive Action 35

Agency Comments and Our Evaluation 35

Appendix I Scope and Methodology 37 

Appendix II Federal Employees’ Group Life Insurance Program 

Financial Information 40 

Appendix III Comments from the Office of Personnel Management 41 

Appendix IV GAO Contact and Staff Acknowledgments 43

Figures 

Figure 1: Example of a Sample FEGLI RAA Draft 10

Figure 2: FEGLI Funds and Operations 17

Figure 3: FEGLI Assets and Liabilities, 2000-2010 21

Figure 4: State Regulation of RAAs, as of August 2011 29

Figure 5: FEGLI Premiums, Claims Paid, and Interest Income, 

2000-2010 40

FEGLI 
Abbreviations 

ACLI American Council of Life Insurers 

AD&D accidental death and dismemberment 

CSRS Civil Service Retirement System 

FEGLI Federal Employees’ Group Life Insurance 

FERS Federal Employees Retirement System 

FDIC Federal Deposit Insurance Corporation 

LIFAR Life Insurance Federal Acquisition Regulation 

MetLife Metropolitan Life Insurance Company 

NAIC National Association of Insurance Commissioners 

NCOIL National Conference of Insurance Legislators 

OFEGLI Office of Federal Employees’ Group Life Insurance 

OPM Office of Personnel Management 

RAA retained asset account 

SFFAS Statement of Federal Financial Accounting Standards 

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Page ii GAO-12-94 FEGLI
 

Page 1 GAO-12-94 

United States Government Accountability Office

Washington, DC 20548 

November 10, 2011 

The Honorable Elijah E. Cummings 

Ranking Member 

Committee on Oversight and Government Reform 

House of Representatives 

The Honorable Edolphus Towns 

Ranking Member 

Subcommittee on Government Organization, Efficiency 

 and Financial Management 

Committee on Oversight and Government Reform 

House of Representatives 

Life insurance is an important purchase for many Americans because it 

provides income replacement and financial protection to beneficiaries if 

they lose loved ones. While many Americans obtain life insurance by 

purchasing individual policies in the private market, many also obtain 

such coverage through employer-sponsored group plans, including the 

approximately 4 million federal employees and annuitants who purchase 

life insurance through the Federal Employees’ Group Life Insurance 

program (FEGLI). This program, administered by the Office of Personnel 

Management (OPM), involves substantial federal resources. In fiscal year 

2010, the total amount of FEGLI life insurance coverage in force was 

$824 billion, and the balance in the plan’s financial fund—the Employees’ 

Life Insurance Fund (FEGLI Fund)—totaled approximately $38 billion.1 In 

addition, throughout 2010, FEGLI paid out approximately $2.6 billion in 

insurance claims to beneficiaries of federal employees. The program also 

involves substantial premium costs to enrolled federal employees, who 

pay two-thirds of the premium for an initial amount of Basic life insurance 

and the entire premium for any Optional insurance.2 As a result, ensuring 

that FEGLI is properly administered, with appropriately priced policies, 

FEGLI 

 1

This is the fund OPM uses for the FEGLI program to pay for life insurance settlements, 

administrative costs, and compensation to MetLife for adjudicating and paying FEGLI 

claims. 

2

For the purposes of this report, “Basic” coverage refers to FEGLI coverage while “basic” 

refers to life insurance offered in the private sector. We treat FEGLI’s “Option A, B, and C” 

and the private sector’s “optional” coverage similarly. 
 

and that federal employees receive enough information to make an 

informed decision about participating in the program, is important. 

The processes and methods for paying FEGLI life insurance claims 

determine how beneficiaries of federal employees receive insurance 

settlement funds. For the first several decades of the program, 

beneficiaries received settlement funds through a lump-sum check. In 

1994, FEGLI began offering retained asset accounts (RAA) to 

beneficiaries as the default settlement option where the proceeds payable 

were $7,500 or more. With RAAs, the Metropolitan Life Insurance 

Company (MetLife)—the life insurer under contract with OPM for the 

FEGLI program since its creation by Congress in 1954—makes claims 

payments by establishing guaranteed accounts in beneficiaries’ names, 

manages the assets backing RAA liabilities created by these accounts, 

determines how to invest RAA funds, guarantees a minimum interest rate 

to be credited to retained funds, and administers the accounts that allow 

beneficiaries to access funds as they choose. While some industry 

participants point to the potential benefits that RAAs provide, other 

participants have raised questions about these accounts. For FEGLI, 

these questions have included whether policyholders fully understand 

their settlement options and their associated costs, benefits, and 

protections.3

This report responds to your interest in how FEGLI operates and how it 

uses RAAs. The report describes and evaluates 

 how FEGLI is structured and operated, 

 OPM’s administration and oversight of FEGLI, and 

 FEGLI’s use of RAAs to pay claims. 

To describe and evaluate FEGLI’s key operations, we examined the 

program’s authorizing statute and associated regulations and reviewed its 

key policy documents, including the contract between OPM and MetLife. 

In addition, we compared FEGLI’s coverage and practices with those of 

several large private sector group life insurers. To describe and evaluate 

 3

In this report, we use the term “industry participants” to refer to those entities with a role 

in the insurance industry, including state insurance regulators and benefit administrators, 

actuaries, consumer advocates, and insurance industry associations. 

Page 2 GAO-12-94 FEGLI
 

OPM’s administration and oversight of the FEGLI program, we reviewed 

applicable federal and state laws, regulations, policy guidance, and 

materials from consumer advocates, and examined OPM’s monitoring, 

reporting, and other oversight activities. We also interviewed OPM and 

MetLife officials and reviewed FEGLI annual financial and performance 

reports to understand how FEGLI operates financially and to determine its 

assets and liabilities. In addition, we reviewed the federal budget for 

information on FEGLI’s claims, assets, and liabilities. We found FEGLI 

program information and data from OPM and MetLife to be reliable for the 

purposes of this report. To identify any FEGLI regulatory or consumer 

protection issues, we met with industry association representatives, a 

consumer advocate, and other experts. To describe and evaluate the role 

of RAAs in FEGLI’s settlement process, we examined key OPM and 

MetLife policy documents and program guidance and interviewed OPM 

management officials. We focused on how RAAs function, what kinds of 

RAA disclosures FEGLI participants receive, and what RAA protections 

are available to FEGLI beneficiaries.4 In addition, we examined how 

RAAs are regulated by focusing on the activities and processes OPM and 

state regulators use to oversee these accounts. In particular, we 

interviewed insurance regulators from California, Florida, New York, North 

Carolina, and Maryland to determine their methods for overseeing RAAs. 

We selected this sample of states because it is geographically diverse, 

has a large number of federal employees, and contains some states that 

have RAA-specific regulations and others that do not. For a more detailed 

description of our scope and methodology, see appendix I. 

We conducted this performance audit from September 2010 to November 

2011 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. 

Established by Congress in the Federal Employees’ Group Life Insurance 

Act of 19545 as a benefit to federal employees and their families and Background 

 4

For the purposes of this report we use the term disclosures to include the FEGLI 

Handbook, Employee Program Booklet, website, and life insurance claim form. 

5

Pub L. No. 83-598. 68 Stat. 736 (Aug 17, 1954). 

Page 3 GAO-12-94 FEGLI
 

administered by OPM, FEGLI offers federal employees the opportunity to 

choose from a range of group term life insurance coverage options.6

FEGLI insurance is provided through a contract OPM has established 

with MetLife. MetLife’s Office of Federal Employees’ Group Life Insurance 

(OFEGLI) adjudicates claims under the FEGLI program and makes 

payments to FEGLI beneficiaries.7

FEGLI Insurance Coverage 

and Costs 

Most federal employees, including part-time employees, are eligible for

insurance under FEGLI, and approximately 85 percent purchase FEGLI 

coverage. Upon starting their federal employment, federal employees are 

automatically enrolled in FEGLI’s Basic life insurance coverage unless 

they file appropriate paperwork with their employing agency to opt out of 

the program. Basic life insurance coverage equals a federal employee’s 

annual salary rounded up to the next even thousand plus two thousand 

 6

In addition to FEGLI, the Civil Service Retirement System (CSRS) and Federal 

Employees Retirement System (FERS) provide survivor benefits under certain conditions 

to current and former spouses and children in the event a federal employee dies. Under 

CSRS, survivors may receive 55 percent of the accrued disability annuity for which the 

employee would have been eligible. Under FERS, survivors of employees who had at 

least 18 months of service may receive a lump-sum payment (a fixed amount that is 

adjusted each year for inflation), plus the greater of half of the employee’s high-3 average 

pay or half of the employee’s annual rate of pay at death. According to OPM, high-3 

average pay is determined by finding the highest average basic pay over any 3-year 

period. The 3 years must be consecutive. Generally, the final 3 years of service include 

the highest pay, but pay from an earlier period can be used if it was higher. In addition to 

this lump-sum payment, FERS survivors of employees who had at least 10 years of 

service may receive an annuity equal to 50 percent of the employee’s accrued benefit. 

Under both CSRS and FERS, there are also benefits payable to survivors of former 

employees and to survivors of retirees. 

7

Group life insurance protects a group of people and is usually issued to an employer for 

the benefit of its employees. Each group member holds a certificate as evidence of his or 

her insurance. Group life insurance generally does not require individuals to demonstrate 

medical proof of insurability and may be less expensive than individual policies that 

require medical underwriting, depending on the health of the individual. Term insurance is 

generally defined as covering the insured for a certain period of time (the “term”). Term 

policies provide death benefits only if the insured dies during the term, which can be 1, 5, 

10, or even 30 years, with group life policies generally having a term of 1 year. Term 

policies generally do not have any cash, or paid-up value, and those with term policies 

cannot get loans by borrowing from this insurance. 

Page 4 GAO-12-94 FEGLI
 

dollars, or $10,000, whichever is higher.8 Basic insurance also provides 

an extra benefit to employees under age 45, at no additional cost. This 

extra benefit doubles the amount of Basic insurance payable if the 

employee dies at age 35 or younger. The extra benefit decreases 10 

percent each year until there is no extra benefit at age 45 and above. For 

Basic coverage, employees pay two-thirds of the premium determined by 

OPM, and the employing agencies pay the remaining third.9 The rate all 

covered employees, regardless of age, pay for each $1,000 of Basic 

insurance is $0.150 bi-weekly or $0.325 monthly. FEGLI also provides 

accidental death and dismemberment (AD&D) insurance as part of its 

Basic insurance at no additional cost.10 AD&D insurance protects 

employees in the event of a fatal accident or an accident which results in 

the loss of a limb or eyesight. For benefits to be paid, the death or loss 

must occur no later than 1 year from the date of the accident and must be 

a result of bodily injury sustained from that accident. 

Federal employees may also choose to purchase three types of Optional 

insurance in addition to Basic coverage—Options A, B, and C—by 

submitting a Life Insurance Election Form (SF 2817) within 60 days of 

beginning their employment to their human resources office.11

 Option A offers $10,000 of life insurance coverage. Premiums for 

Option A coverage vary by age groups, as determined by OPM. 

These groups start with employees “under age 35,” progress in 5-year 

increments until age 59, and finish with a “60 and over” group. Biweekly and monthly costs for Option A coverage range from $0.30 

 8

These premium amounts, as well as many aspects of the FEGLI program, including for 

example, the percentage of the premium paid by each employee, the amount of coverage 

for accidental death and dismemberment (AD&D) coverage, and the existence and 

amount of optional insurance coverage, are mandated by the FEGLI statute. See 5 U.S.C. 

§§ 8701-8716. 

9

According to OPM, the United States Postal Service pays the entire cost of FEGLI Basic 

insurance for its employees. 

10AD&D insurance is also included in Option A insurance coverage at no additional cost. 

11In addition, federal employees can elect Basic and Options A, B, and C within 60 days of 

experiencing a qualifying life event. Qualifying life events include marriage, divorce, the 

death of a spouse, or acquisition of an eligible child. 

Page 5 GAO-12-94 FEGLI
 

and $0.65, respectively, for the “under age 35” group to $6.00 and 

$13.00, respectively, for the “60 and over” age group.12

 Option B offers additional Optional insurance coverage in an amount 

of one to five multiples of the employee’s annual salary, after rounding 

the salary up to the next even thousand. For Option B coverage, age 

group designations also apply but begin with “under age 35,” continue 

in 5-year age increments until age 79, and end with an “80 and over” 

age group. Bi-weekly and monthly costs for each $1,000 in insurance 

can range from a low of $0.03 and $0.065, respectively, for 

employees under 35 to a high of $2.40 and $5.20, respectively, for 

employees 80 and older. 

 Option C covers eligible family members of an employee or retiree, 

including the enrollee’s spouse and eligible dependent children. The 

employee selects one to five times an amount (a “multiple”)—$5,000 

for a spouse and $2,500 for each eligible dependent child. If 

employees purchase optional coverage within the 60 days, no medical 

underwriting is necessary. For Option C coverage, the age group 

designations are the same as for Option B, and costs range from biweekly and monthly amounts of $0.27 and $0.59, respectively, per 

multiple for those under 35 to $6.00 and $13.00, respectively, per 

multiple for those 80 and older. 

When federal employees retire, FEGLI also offers Basic and Optional life 

insurance, and employees are able to choose among several retirement 

coverage levels after age 65. For Basic insurance in retirement, 

employees must choose whether to reduce their postretirement insurance 

level by 75 percent, 50 percent, or maintain full coverage. Those 

choosing the 75 percent reduction pay no premiums after reaching age 

65. Those choosing the 50 percent reduction or full coverage option 

continue to pay premiums in amounts determined by OPM; the 

postretirement premium rates are greater than preretirement rates. When 

the 75 percent reduction in coverage is selected, OPM reduces the 

coverage level by 2 percent per month beginning at age 65, until 25 

percent of the original coverage remains. If the 50 percent reduction is 

selected, the coverage level reduces by 1 percent per month beginning at 

 12These premium rates are for the full $10,000 of Option A coverage, not per $1,000 of 

coverage as the rates for Basic and Option B coverage are quoted. 

Page 6 GAO-12-94 FEGLI
 

age 65, until 50 percent of the original coverage remains. If no reduction 

is selected, the coverage does not reduce. 

Federal employees may also choose to continue Optional coverage into 

retirement and FEGLI offers several choices. Option A coverage reduces 

2 percent per month beginning at age 65, to 25 percent of the 

preretirement amount, and no premiums are charged in retirement after 

the retiree reaches age 65. For Options B and C, employees desiring 

coverage must elect to continue one to five multiples of coverage into 

retirement, and elect whether to have all of those multiples retain full 

coverage or reduce by 100 percent, at a rate of 2 percent per month for 

50 months, beginning at age 65. For the 100 percent reduction option, 

once the reduction starts, retirees do not pay premiums after reaching 

age 65. For the full coverage option, retirees continue to pay the full 

premium, as determined by OPM for the retiree’s specific age group.13

The following provides an example of FEGLI premiums for a 48-year old 

federal employee, married with three children, and earning $88,300 per 

year. 

 According to OPM, Basic insurance would cost $13.65 bi-weekly and 

$354.90 annually.14

 If the employee seeks to maximize Option B coverage by purchasing 

five times annual pay, Option B coverage would cost $40.05 bi-weekly 

and $1,041.30 annually.15

 In this example, the employee purchases Basic and Optional life 

insurance coverage totaling $536,000, at an annual cost of $1,396.20. 

 13For Option B coverage, these rates can range from $.065 per month for each $1,000 of 

coverage for those under age 35 to $5.20 per month for those 80 years of age and older. 

For Option C coverage, these rates can range from $.59 per month for each multiple of 

coverage selected for those under age 35 to $13.00 per month for those 80 years and 

older. 

14For Basic insurance, the employee’s salary would be rounded up to $91,000. Basic 

insurance cost would be 91 x $0.150, or $13.65 biweekly and $354.90 annually. 

15For Option B insurance, the salary would be rounded to $89,000 x 5 multiples of annual 

salary, or $445,000 in coverage. Option B insurance cost would be 445 x $0.09, or $40.05 

biweekly and $1,041.30 annually. 

Page 7 GAO-12-94 FEGLI
 

If this employee continues full Basic and Option B coverage after 

retirement, by choosing the No Reduction option for both, and retires at 

the age of 65 (assuming the same $88,300 salary), Basic insurance 

would cost $1,998.36 annually and Option B coverage would cost 

$8,330.40 annually.16 The total amount of Basic and Optional insurance 

for the employee at the time they retire would be $536,000 at an annual 

cost to the employee of approximately $10,300. 

Adding or Adjusting FEGLI 

Coverage 

Federal employees may add or adjust FEGLI coverage when life events 

such as marriage, divorce, death of a spouse, or the acquisition of an 

eligible child occurs. Federal employees may also add or adjust coverage 

when OPM offers open seasons, although OPM officials noted that these 

periods are rare.17 FEGLI most recently offered open seasons in 1999 

and 2004. Employees who opted out of FEGLI coverage upon starting 

federal employment may also add coverage during these times. 

Additionally, if at least a year has passed since an employee opted out of 

FEGLI, an employee may request FEGLI coverage by providing medical 

information via a form partially completed by the employee’s physician. 

Employees are responsible for any associated expenses such as a 

physician’s fee. In addition, certain employees of the Department of 

Defense are eligible to elect FEGLI coverage without experiencing a 

qualifying life event or by providing medical information. 

Payment of FEGLI 

Benefits 

When a federal enrollee with FEGLI coverage dies, MetLife’s OFEGLI 

pays claims to the federal enrollee’s designated beneficiary. If no 

beneficiary has been designated, payments will be made roughly in the 

following order pursuant to statute: to the enrollee’s surviving spouse; if 

none, to the child or children in equal shares; if none, to surviving parents 

 16This example assumes that the employee retires at age 65, is an annuitant, and 

chooses the No Reduction option for Basic insurance and five multiples of Option B 

coverage. The preretirement premium for Basic insurance stops at age 65, but the 

employee pays an extra premium for the Basic Insurance No Reduction option. The rate 

for Basic insurance with No Reduction option is $1.83 per $1,000 of coverage per month 

for an annual total cost of $1,998.36. Having chosen the No Reduction option for five 

multiples of Option B coverage in retirement at age 65 would cost the employee $8,330.40 

annually (445 x $1.560 x 12 months). 

17An open season is a time designated by OPM during which federal employees can 

assess their benefits and potentially change their benefits enrollment without undergoing a 

medical examination or qualifying life event. 

Page 8 GAO-12-94 FEGLI
 

in equal shares; if none, to the executor or administrator of the 

employee’s estate; or, if none, to the enrollee’s next of kin as determined 

by applicable state laws. The enrollee’s beneficiary or other survivor must 

follow a prescribed process for filing a claim and receiving payment that 

begins with contacting the human resources office at the insured’s 

agency to report the death, submitting a certified death certificate, and 

submitting a Claim for Death Benefits form. 

According to FEGLI materials, beneficiaries may choose a payout by 

receiving a lump- sum check or an RAA. According to the American 

Council of Life Insurers (ACLI), RAAs have existed since 1982, and many 

insurers provide them for both group and individual life insurance policies. 

When an insured person dies, the life insurance company that issued the 

policy may place the death benefit proceeds into an RAA, which accrues 

interest for the beneficiaries from the day the account is established for as 

long as the funds remain in the account. Beneficiaries have full and 

immediate access to their funds and can withdraw some or all of the funds 

at any time without penalty. In addition, MetLife pays RAA accountholders 

a minimum guaranteed interest rate that typically is calculated using one of 

several market rate indexes.18 MetLife compounds interest on RAAs daily 

and credits that interest monthly. MetLife issues a book of drafts to the 

beneficiary, allowing immediate access to the funds without penalty. 

Beneficiaries may then use them to meet various financial needs, for 

example to pay bills, make retail purchases (fig. 1), or transfer funds from 

the RAA to another account, such as a savings or checking account.19

FEGLI beneficiaries, like other life insurance beneficiaries, may leave funds 

in their RAA for as long as they wish or withdraw the entire amount at any 

time, and there are no maintenance fees associated with these accounts. 

By investing the assets backing the liabilities of RAAs funded with FEGLI 

claims payments, MetLife may earn a profit in the form of a spread, or the 

difference between the interest it pays beneficiaries and what it earns on 

invested assets backing RAA liabilities less expenses. MetLife assumes 

the investment risk associated with investing these assets. 

 

18MetLife sets RAA interest rates by referencing two indexes: the iMoneyNet Money Fund 

Report Averages/Government 7-Day Simple Yield (a leading index of government money 

market mutual fund rates) and the Bank Rate Monitor National Money Market Rate Index (a 

leading index of rates paid by the 100 large banks and thrifts on money market accounts). 

19A draft is a payment order in writing that directs a second party—in the case of RAAs, 

the insurance company—to pay a specified sum to a third party, for example, a retailer. A 

check is a bank draft that is payable when presented. 

Page 9 GAO-12-94 FEGLI
 

Figure 1: Example of a Sample FEGLI RAA Draft 

Source: MetLife.

Although Similar to 

Private Sector Plans, 

FEGLI Has Distinct 

Employee Benefits 

and Costs That Are 

Not Clearly Disclosed 

Some FEGLI Features Are 

Similar to Those of Private 

Sector Group Life 

Insurance 

FEGLI’s Basic life insurance coverage shares several similarities with the 

coverage offered by private sector group plans. First, both FEGLI and most 

private sector plans automatically enroll employees in basic coverage, 

often including AD&D coverage, unless they opt out of the program, and 

both provide options for employees who opted out of the program to join 

later.20 Second, neither FEGLI nor private sector basic insurance initially 

requires employees to provide information on their medical condition or 

FEGLI

 20For FEGLI, Basic coverage equals an employee’s salary amount rounded up to the next 

even thousand, plus two thousand dollars, or $10,000, whichever is higher. According to 

industry officials, for private plans basic coverage typically can be a flat dollar amount, the 

amount of an employee’s salary, or up to two times an employee’s salary. 

Page 10 GAO-12-94 
 

history.21 That is, any employee can enroll in the program regardless of 

age or state of health at the time that the employee is first eligible to join. 

Third, while some private sector plans offer a flat amount of basic 

insurance ranging from $5,000 to as much $50,000, many offer cover

an amount equal to the employee’s salary or a multiple of it, as FEGLI 

does. Finally, FEGLI and private sector programs both typically use a 

composite rate structure to price their basic group life benefits; that is, a 

rate structure where all employees pay the same average rate regardle

of age or health status. The effect of a composite rate is that all employees 

pay the same rate per $1,000 of insurance coverage regardless of 

characteristics such as age and health that impact the cost of 

age in 

ss 

life 

insurance. 

nd 

 no 

ve 

enerally offer life insurance coverage on the employee’s 

dependants. 

ing to 

EGLI 

Fund is sufficient to cover claims made by FEGLI beneficiaries. 

 

In addition to similarities with respect to basic coverage, FEGLI and 

private sector group plans generally offer some form of optional coverage 

that shares some similarities as well. First, employees in both FEGLI a

private group plans typically must fund any optional coverage with

employer contribution. In addition, both FEGLI and private sector 

employers generally offer optional coverage in increments of one to fi

times the employee’s annual salary. Finally, both FEGLI and private 

sector plans g

Unlike most private sector group life insurance plans, FEGLI, accord

OPM officials, assumes most of the risk of loss associated with the 

program. In the private sector, according to industry experts, employers 

generally purchase group life insurance policies from insurers that then 

bear the risk of loss.22 That is, the insurer bears the risk that the claims 

associated with the policy may exceed the premiums collected from the 

policyholder. In contrast, according to OPM officials, the FEGLI program

effectively bears all such risk based on the expectation that the F

FEGLI

 

fe 

Most of the Insurance Risk 

Unlike Private Group Li

Plans, FEGLI Assumes 

21According to OPM, for FEGLI, employees enrolling as new hires or during an open 

season do not need to provide information on their medical condition or history. 

22Some large private sector employers may share in the risk of loss through certain 

arrangements with an insurer, such as receiving back from the insurer a portion of 

premiums paid in excess of claims or paying additional premiums if claims exceed a 

specified amount. 

Page 11 GAO-12-94 
 

FEGLI’s creation contemplated the federal government purchasing group 

life insurance from a private sector group life insurer or insurers and 

mitigating the risk of loss by purchasing reinsurance for those insurers. 

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.23 For example, according to OPM and MetLife 

officials, even though OPM has a policy with MetLife to provide FEGLI life 

insurance and makes funds available to MetLife for this policy, when 

FEGLI beneficiaries submit claims, MetLife draws upon OPM’s FEGLI 

Fund to make claims payments. In addition, according to the same 

officials, MetLife’s exposure to loss is currently limited to its role as a 

reinsurer for the FEGLI program, as it covers approximately 85 percent of 

the FEGLI program’s reinsurance. However, this exposure would only 

result in payment after the depletion of the entire FEGLI Fund, which has 

a balance as of September 30, 2010, of $37.6 billion, or approximately 14 

times the amount of FEGLI’s annual claims payments. OPM and MetLife 

both consider the possibility of exhausting the FEGLI Fund to be so 

remote that the cost of the reinsurance is negligible. While the program 

initially had about 160 reinsurers, only 10 were participating in 2011, with 

MetLife providing about 85 percent of the program’s reinsurance. OPM 

pays each of the 10 reinsurers approximately $500 annually for their 

participation in the program, and FEGLI has never had to use this 

reinsurance coverage. 

Certain FEGLI Features 

and Benefits Can Result in 

Higher Costs for 

Employees Compared with 

Private Sector Group Term 

Insurance 

Compared with private sector group term life plans, FEGLI has certain 

features and benefits that can make premiums for all coverage higher for 

federal employees. 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.24 According to insurance 

industry officials, the amount of basic coverage that private group plans 

FEGLI

 23A policy contract between OPM and MetLife established MetLife as FEGLI’s insurer. In 

addition to FEGLI’s insurer, the program also has additional insurance companies that 

provide reinsurance. According to the ACLI, reinsurance involves the transfer of some or 

all risk to another insurer. The company transferring the risk is called the “ceding 

company” and the company receiving the risk is called the “life assuming company” or 

“reinsurer.” 

24For employees of the U.S. Postal Service, Basic life insurance for enrollees under 

FEGLI is free, as the U.S. Postal Service pays for 100 percent of this cost. 

Page 12 GAO-12-94 
 

generally provide can be a flat amount or equal to an employee’s annual 

salary or more. Whether an employee receives more employer-paid 

coverage through a private plan that pays the entire premium for some 

amount of coverage than through FEGLI would depend on the amount of 

no-cost coverage the private sector employer provides.25

Second, according to OPM officials, FEGLI offers federal employees a 

retirement life insurance benefit that is financed, in part, by a portion of the 

premiums charged while employees are working. FEGLI’s retirement 

benefit raises FEGLI premiums above those of most private sector group 

plans, which generally do not offer such a benefit. As we have seen, FEGLI 

offers a postretirement benefit for both Basic and Optional coverage. 

According to OPM officials, federal employees who participate in FEGLI 

begin prefunding, or paying in advance for, Basic retirement coverage as 

soon as they begin their FEGLI coverage. Prefunding for Basic coverage is 

necessary because newly retired employees over age 65 who choose a 75 

percent reduction in this coverage are no longer required to pay premiums 

for the coverage they are receiving. With Optional coverage, except for 

Option A, employees begin prefunding the cost of their retirement benefits 

when they reach age 55 and continue to do so until they retire. Newly 

retired employees who choose a 75 percent reduction in their Option A 

coverage, and a 100 percent reduction in Options B and C, coverage no 

longer pay premiums for the Optional coverage they are receiving. In 

addition, life insurance coverage for people of retirement age or older can 

be expensive. According to private sector insurance industry participants 

we spoke with, the cost of postretirement benefits is quite high because as 

employees age, the likelihood of the insurer being required to pay a claim 

also increases. As a result, few private sector plans offer such benefits. 

While OPM has stated that having flexible benefits, including life insurance 

coverage in retirement, contributes to employee retention, insurance 

industry participants with whom we spoke said that they have not seen any 

evidence that postretirement coverage attracted or retained employees. 

In addition, for certain individuals, FEGLI Basic coverage may appear more 

costly than private sector basic life insurance. First, FEGLI features level 

 25For example, a private employer may offer $50,000 in basic life insurance coverage 

without any premiums for employees. FEGLI may offer $100,000 in Basic coverage, but 

federal employees must pay two-thirds of the premium. So in essence, FEGLI employees 

who are over age 45 and not receiving the program’s extra benefit coverage are getting 

one-third, or approximately $33,300 in employer-paid coverage. 

Page 13 GAO-12-94 FEGLI
 

premiums that may not be a part of some private individual policies. With 

such a feature, monthly premiums remain the same over time instead of 

increasing with age. Compared to a policy without such a feature, level 

premiums are higher earlier in life and then become lower at a certain 

point. If relatively younger federal employees compare FEGLI to private 

individual coverage without level premiums, FEGLI coverage may appear 

to be more costly, depending on their age. Second, because FEGLI is a 

group life program, all individuals pay the same premiums regardless of 

their health status, unlike individual coverage where premiums generally 

depend on the health of the person being insured. As a result, if relatively 

healthier federal employees compare FEGLI to private individual coverage, 

FEGLI coverage could also appear more costly. Finally, FEGLI’s 

postretirement coverage, which increases FEGLI premiums but is not 

generally part of private plans, also contributes to FEGLI’s cost relative to 

private sector alternatives that do not feature this coverage. 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. However, in cases where FEGLI’s premiums 

exceed those for similar coverage in the private sector, federal employees 

may conclude that FEGLI is more expensive and choose to opt out of the 

program. 

Although FEGLI’s 

Disclosures Cover Key 

Aspects of the Program, 

They Do Not Cover Some 

Important Features 

While FEGLI disclosures cover many key aspects of the program, they do 

not cover certain program features that could affect an employee’s 

decision to purchase FEGLI coverage. Consistent with OPM’s strategic 

goal of helping ensure that federal employees fully understand their 

benefits, and with the National Association of Insurance Commissioners’ 

(NAIC) guidance on informative marketing materials, OPM provides a 

significant amount of information on FEGLI through a handbook, program 

booklet (a condensed version of the handbook for employees), and 

website. These disclosures provide information on a range of topics, 

including enrollment, coverage options and costs, designation of 

beneficiaries, claims and claims payments, and resources for employees 

if they have questions or issues. OPM provides this information in hard 

copy and through the FEGLI website, which also includes a calculator 

that allows users to determine premiums for various combinations of life 

insurance coverage. Providing timely and informative FEGLI guidance 

materials to federal agency human resources staff is another means 

through which OPM seeks to ensure that federal employees understand 

their benefits. 

Page 14 GAO-12-94 FEGLI
 

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. 

 The disclosures do not inform employees that premiums for Basic 

coverage include a postretirement benefit and that employees prefund 

this benefit.26 Employees who are unaware of this prefunding element 

could decide that FEGLI coverage is too expensive, decline 

participation in the program, and not receive FEGLI’s potentially 

valuable insurance benefits. Conversely, employees that plan to work 

in the federal government for only a short period, or at least not through 

retirement, could decide to participate in the program, not knowing that 

they would be paying for a benefit they would never receive. 

 FEGLI disclosures, while showing a constant premium rate, do not 

make employees aware of the level-premium feature of the program’s 

Basic coverage that spreads premiums equally over the duration of 

the policy rather than charging less during early policy years and more 

in later policy years. Employees unaware of this feature could 

conclude that FEGLI coverage is more expensive than alternative 

private sector coverage, particularly in the earlier years of the policy, 

and decide to opt out, foregoing potentially valuable life insurance 

coverage. 

 The disclosures also do not convey to federal employees that, for 

Basic coverage, FEGLI charges a composite premium that averages 

the cost of insurance for all participants regardless of age or health. 

That is, participants pay the same regardless of whether they pose a 

lesser or greater risk of loss. This averaging can be of great benefit to 

some, especially those who may not be able to obtain coverage 

elsewhere. However, as with the level-premium feature, those not 

aware of this feature could conclude that FEGLI coverage is simply 

more expensive than alternative private sector coverage and forego 

coverage they might not be able to obtain elsewhere. 

 26FEGLI disclosures characterize retirement coverage as “free” when certain reduction 

options are selected after age 65. 

Page 15 GAO-12-94 FEGLI
 

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 same officials said 

that FEGLI premiums are collected by withholding premiums from 

enrollees’ paychecks, annuities, or compensation and collecting agency 

contributions from employing agencies or retirement systems, as 

applicable, for deposit by OPM into the FEGLI Fund. On a monthly basis, 

premiums are moved from the FEGLI Fund which is held by the Treasury 

Department, into a letter of credit account, which is administered by a 

Federal Reserve Bank and from which MetLife can draw down funds to 

pay claims. MetLife’s OFEGLI, which is responsible for paying claims to 

beneficiaries, draws money from the FEGLI Fund on a monthly basis 

using the line of credit and transfers claims payments to beneficiaries. In 

addition to its premium collection function, OPM officials said OPM is also 

responsible for investing FEGLI Fund assets in government securities 

and ensuring that investment income on program assets is taken into 

account when determining program costs. Funds that flow through 

FEGLI, according to these officials, ultimately begin with employee and 

agency premiums and end with a payout to beneficiaries in the form of a 

check or an RAA. Figure 2 illustrates the flow of FEGLI funds between 

those endpoints, including being held in the FEGLI Fund. 

Page 16 GAO-12-94 FEGLI
 

Figure 2: FEGLI Funds and Operations 

Sources: OPM; Art Explosion.

Premiums for

Basic coverage

Premiums for

Basic and Optional

coverage

Investment

income

RAA is

established

RAA withdrawal

and interest

RAA

Lump-sum check

Investments

(U.S. Treasury

securities)

Federal

employee

Federal agency Employees’ Life

Insurance Fund

Administered by OPM

and held at the U.S.

Treasury

MetLife-OFEGLI

MetLife

general accounta

Employee’s

beneficiary

Investment

income

Investments

a

MetLife’s general account and the investment income it earns are used to meet beneficiaries’ RAA 

withdrawals and the interest MetLife guarantees beneficiaries on their RAA accounts. 

In addition to managing FEGLI resources, OPM officials said they monitor 

and oversee MetLife’s claims settlement processes by receiving and 

reviewing weekly reports on claims activity. In addition to managing 

processes for dispersing FEGLI funds, OPM officials said they receive 

annual financial reports on claims and administrative costs that are used 

to determine the timeliness of payments and, as noted earlier, help 

predict future claims and other expenses.27

In addition to producing and updating FEGLI’s Handbook, Program 

Booklet, website and forms, OPM officials said that OPM also issues 

FEGLI regulations, including the Life Insurance Federal Acquisition 

 27In addition to financial management and oversight by OPM’s actuarial and financial staff, 

OPM’s Inspector General audits the FEGLI program every 2 years. MetLife’s auditors also 

audit administrative and other expenses charged to the FEGLI program. 

Page 17 GAO-12-94 FEGLI
 

Regulation (LIFAR), that guide the program’s operations.28 The 

regulations, for example, outline the types of Basic and Optional 

insurance available through FEGLI, the amounts of FEGLI coverage that 

the program offers, eligibility requirements, program costs, and 

beneficiary designation. Additionally, the LIFAR describes the terms of 

the contractual arrangement between OPM and MetLife under the FEGLI 

program, including MetLife’s receipt and administration of claims and the 

calculation of administrative costs and profit levels. The LIFAR also 

provides guidance on contract oversight, including requiring policies and 

procedures to help ensure that FEGLI services conform to the contract’s 

quality requirements, and an OPM evaluation of MetLife’s system of 

internal controls. Additionally, the LIFAR requires that MetLife develop a 

quality assurance program that includes procedures to address (1) 

timeliness of claims payments to beneficiaries, (2) quality of services and 

responsiveness to beneficiaries and OPM, and (3) detection and recovery 

of fraudulent claims, among other things. Although FEGLI’s statute 

exempts the program from contractual competitive bidding, the LIFAR 

also provides direction on contract modifications and circumstances that 

would allow for contract termination. According to OPM officials, they fulfill 

these requirements by monitoring consumer feedback, tracking the 

timeliness of claims payments, and reviewing external audits of MetLife, 

which include OFEGLI. These officials said that they have not received 

any indication of problems with timeliness or responsiveness, or 

indications of any other deficiencies. 

Although OPM has numerous administrative and oversight responsibilities 

for FEGLI, MetLife, according to its officials, has a central role in several 

key FEGLI financial and claims administration functions. First, officials 

said that MetLife works with OPM on an annual basis to develop a 

monthly premium amount. This premium is the amount made available to 

MetLife to pay claims, MetLife’s administrative expenses, and MetLife’s 

service charge. MetLife annually conducts a review of claims paid and 

recommends a premium amount to OPM based on the projected level of 

claims and expenses for the upcoming fiscal year. Officials noted that 

 28The purpose of the LIFAR is to implement and supplement the Federal Acquisition 

Regulation specifically for acquiring and administering a contract, or contracts, for life 

insurance under FEGLI. 48 C.F.R. § 2101.101(b). The part of the Federal Acquisition 

Regulation that specifies contractual competition requirements does not apply to FEGLI 

because the statute that created FEGLI, 5 U.S.C Chapter 87, exempts the FEGLI program 

from competitive bidding. 

Page 18 GAO-12-94 FEGLI
 

OPM and MetLife then agree on a total annual premium level for FEGLI, 

which OPM then uses to determine rates for employees and federal 

agencies. Second, OPM officials said that MetLife plays a key role in 

receiving life insurance claims from FEGLI beneficiaries, processing 

these claims, and ensuring that beneficiaries receive their life insurance 

settlements. On a daily basis, MetLife officials said that they determine 

how much they need to withdraw from the letter of credit account to meet 

expenses associated with beneficiaries’ use of their RAAs. 

In addition, OPM officials said MetLife prepares weekly and annual 

financial reports on its FEGLI claims that provide important information on 

the flow of funds from the FEGLI Fund to MetLife and from MetLife to 

beneficiaries. OPM reimburses MetLife for its administrative expenses for 

FEGLI, including its claims and financial functions. OPM officials said that 

most of these expenses are the result of MetLife’s OFEGLI, through 

which MetLife processes and pays claims. In 1997, according to MetLife 

officials, OPM and MetLife entered into an agreement that capped 

MetLife’s direct administrative expenses for FEGLI at $6.1 million and 

indirect expenses at 20 percent of that ceiling. This ceiling is adjusted 

annually by the Urban Consumer Price Index. In addition to administrative 

expenses, officials said that MetLife receives a service charge for 

adjudicating and administering FEGLI claims. This service charge is 

calculated using the profit analysis factors found in the LIFAR. For fiscal 

year 2011, according to OPM officials, MetLife’s service charge was 

$965,000.29

Under OPM’s 

Administration, FEGLI 

Funding Has Been 

Sufficient to Pay Claims 

and Meet Program 

Liabilities 

Under OPM’s administration of the FEGLI program, according to OPM 

officials, program funds have been sufficient to pay life insurance claims 

and meet program liabilities. According to OPM officials, one of their key 

responsibilities is to determine FEGLI’s liability for current and future life 

insurance coverage and to take steps to ensure that sufficient assets are 

available to meet these potential liabilities. Various factors affect how 

these liabilities are calculated, including changes in the mortality of 

federal employees, federal salaries, and interest rates. OPM actuaries 

said that they use these factors as part of an actuarial valuation model to 

 29According to the LIFAR, OPM applies a weighted guidelines method to determine the 

service charge for FEGLI. The profit analysis factors include contractor performance, 

contract cost risk, federal socioeconomic programs, capital investments, cost control, 

independent development, and transitional services. 

Page 19 GAO-12-94 FEGLI
 

make annual estimates of FEGLI’s current and future liabilities. The 

actuaries then estimate the funds needed from premiums to cover these 

liabilities and program expenses, taking into account interest on retained 

funds and the FEGLI Fund balance. In addition, according to OPM 

officials, OPM actuaries monitor and annually review the claims 

experience for each FEGLI insurance coverage option, by age group and 

gender, and make recommendations to OPM senior management on the 

premium rates employees and their agencies should pay. 

According to OPM officials, the FEGLI program is adequately funded if 

FEGLI revenues meet or slightly exceed program costs and the 

program’s assets meet or exceed its liabilities. Figure 3 shows OPM data 

on FEGLI’s assets and liabilities from 2000 to 2010, and appendix II 

provides additional information on FEGLI’s annual premiums, claims, and 

investment income. In particular, OPM reported in its 2010 annual report 

that the program’s liabilities as of September 30, 2010, were 

approximately $43.9 billion and that its assets totaled $39.2 billion.30

According to OPM officials, while the reported data would appear to 

indicate that the program was underfunded, they believe FEGLI’s 

financing is adequate because the overall liability amount reported above 

does not take into account employee contributions for optional insurance 

coverage, which has the effect of making the liability appear to be larger 

than it actually is.31 According to OPM, they take these funds into account 

in other internal analyses, and these analyses show that the program’s 

FEGLI

 30In past reports we have noted the importance of federal agencies determining the 

liability created by their insurance programs and ensuring the availability of funds to meet 

those liabilities. See GAO, Federal Emergency Management Agency: Action Needed to 

Improve Administration of the National Flood Insurance Program, GAO-11-297 

(Washington, D.C.: June 9, 2011) and Budget Issues: Budgeting for Federal Insurance 

Programs, GAO/AIMD-97-16 (Washington, D.C.: Sept. 30, 1997). 

31According to OPM officials, they calculate FEGLI’s actuarial liability using methods that 

are consistent with guidance established by the Federal Accounting Standards Accounting 

Board’s Statement of Federal Financial Accounting Standards (SFFAS) 5: Accounting for 

Liabilities of the Federal Government. They also use SFFAS 33: Pensions, Other 

Retirement Benefits, and Other Post-Employment Benefits: Reporting Gains and Losses 

from Changes In Assumptions and Selecting Discount Rates and Valuation Dates. When 

they perform FEGLI’s liability calculations following these standards, FEGLI’s total liability 

exceeds program assets. However, FEGLI’s total liability does not account for employee 

contributions for Optional coverage. 

Page 20 GAO-12-94 
 

assets sufficiently meet the program’s liability when employee 

contributions are considered.32

Figure 3: FEGLI Assets and Liabilities, 2000-2010 

0

10

20

30

40

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Calendar year

Source: OPM Agency Financial Reports and Performance and Accountability Reports.

Nominal dollars in billions

Liabilities

Assets

OPM’s Processes for 

Achieving the Goal of 

Providing a Low-Cost 

Benefit to Federal 

Employees Lacked Clarity 

The legislation that created FEGLI intended the program to offer a lowcost insurance benefit to federal employees and their families. 

Specifically, the statute that created FEGLI described the program as an 

insurance benefit for federal employees that provides insurance at rates 

OPM determines are generally consistent with the lowest basic premium 

rates for new policies issued to large employers. Further, FEGLI’s 

legislative history suggests that the program’s purpose is to provide lowcost group life insurance to federal employees. In addition, OPM’s most 

recent strategic plan calls for ensuring that available benefits, including 

life insurance benefits, align with employees’ needs. 

 32OPM provided us with the results of these internal analyses. We did not verify them, 

both because of the potentially significant costs involved and because of the program’s 

history of meeting its claims payment responsibilities in every year of its operation. 

Page 21 GAO-12-94 FEGLI
 

As we have seen, however, FEGLI has features—some required by 

statute—that can make its coverage more expensive for federal 

employees compared with the type of coverage generally offered by 

private group life insurance programs. For example, as noted earlier, 

FEGLI requires an employee contribution for Basic insurance, something 

generally not required in private sector plans. In addition, the program 

features a postretirement benefit that, although not generally found in 

private sector plans, does increase the premiums that FEGLI participants 

must pay. OPM officials told us that they periodically compare FEGLI to 

other large group life insurance plans, primarily in terms of coverage 

levels, and have concluded that the features and benefits FEGLI offered 

are on par with those offered by private sector plans. 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. They further noted that because of the program’s size, the limited 

number of OPM staff available to administer the program, the amount of 

administrative work involved in making a change to the program, and the 

potential need for the FEGLI statute to be changed, altering program 

processes is not a simple task. OPM officials said that because of various 

concerns, such as the length of time required for legislative changes, 

inherent costs incurred with structural program modifications, and their 

interest in preserving program continuity, requests for significant changes 

are minimal and made only after careful consideration. However, OPM is 

able to make changes to FEGLI premium rates paid by federal employees 

and agencies, as well as other changes including options available to 

beneficiaries for receiving claims payments. Nevertheless, OPM did not 

appear to have a systematic or documented process, or requirements, for 

comparing FEGLI with private sector plans. In addition, OPM did not have 

a methodology or criteria with appropriate benchmarks or measures for 

consistently comparing FEGLI benefits with those provided by the private 

sector. The results of such analyses could be used, for example, to make 

changes to the program within OPM’s authority or, potentially, suggest 

legislative changes to Congress. 

OPM Lacked Clear, 

Documented Processes for 

Considering FEGLI 

Premium Rate Changes 

Since the last premium adjustment, OPM actuaries have recommended 

changes—both increases and decreases—to FEGLI premium rates. As 

we have seen, each year OPM actuaries review and analyze FEGLI’s 

assets and liabilities to determine the sufficiency of program assets to 

cover life insurance benefit costs for all FEGLI enrollees. In addition, the 

actuaries analyze the claims experience associated with each type of 

Page 22 GAO-12-94 FEGLI
 

coverage and age band and determine appropriate premium rates, which 

may be higher or lower than the existing rates. OPM actuarial and 

financial officials present the results of these analyses and any rate 

change recommendations in an annual meeting with OPM management 

that includes the FEGLI contracting officer, actuaries, financial staff, and 

other OPM senior management. According to OPM officials, OPM senior 

management then has the authority to decide whether to raise, lower, or 

hold constant the rates that employees and agencies pay for FEGLI 

insurance. However, according to OPM officials, OPM management 

decided not to make these rate changes because they believed they 

introduced more complexity for FEGLI participants and entailed 

administrative changes that, at the time, were not practical given the 

significant resources required.33

Standards for internal control in the federal government state that policies 

and procedures should exist for ensuring that findings from any audits or 

reviews are promptly resolved and that all transactions and other 

significant events are clearly documented.34 OPM’s annual actuarial 

reviews are effectively an internal control designed to help ensure the 

accuracy and adequacy of premium rates. 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. In addition, it does not have a process for documenting 

management’s decisions with respect to those recommendations, 

including any accompanying rationale. Management’s decisions on the 

actuarial findings are significant events because of their potential effect 

on the financial condition of the program and its ability to pay claims to 

beneficiaries. Without documented processes for actuarial and financial 

reviews and their disposition, OPM risks compromising the efficiency and 

the effectiveness of these reviews and being unable to help ensure 

premiums are consistent with program experience. 

 33The most recent changes to FEGLI premium rates took place in 2002 and were phased 

in between 2003 and 2005. 

34See GAO, Standards for Internal Control in the Federal Government, GAO/AIMD 00-

21.3.1 (Washington, D.C.: November 1999). 

Page 23 GAO-12-94 FEGLI
 

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. 

RAAs became the default option in 1994 for payments over $7,500 after 

MetLife requested that OPM allow RAAs to be used in addition to lumpsum check payments. OPM granted the request under certain conditions, 

including RAAs be provided as additional benefits to FEGLI beneficiaries 

at no additional cost. OPM officials noted that the change to RAAs 

reduced administrative costs, including for staff time and materials that 

were associated with issuing lump-sum checks. 

In February 2011, OPM changed the FEGLI life insurance settlement 

process, requiring beneficiaries to choose between receiving a lump-sum 

check or an RAA when receiving a settlement. Specifically, OPM revised 

the form that FEGLI beneficiaries submit for a life insurance claim, 

removing the default option and requiring beneficiaries to affirmatively 

choose a lump-sum payment or an RAA for settlement amounts over 

$5,000.35 OPM officials said that they made this change after reviewing 

RAA practices and procedures and published concerns about RAA 

practices. Two major life insurers with whom we spoke said that making 

the RAA payment method optional can have a considerable effect on 

consumers. When consumers have the option to choose between RAAs 

and lump-sum check payments, the overwhelming majority choose lumpsum check payments. 

 35As stated in OPM’s official death claim form from February 2011, if the proceeds exceed 

$5,000 and no box is checked, beneficiaries will receive an RAA. 

Page 24 GAO-12-94 FEGLI
 

According to several insurance companies and OPM, RAAs can benefit 

beneficiaries, but others expressed concerns about the extent of RAA 

disclosures and consumer protections. Industry participants cited 

flexibility and a guaranteed interest rate as the primary benefits of RAAs. 

For example, some said RAAs offer beneficiaries flexibility during a 

difficult time and loss to determine how best to use or invest the life 

insurance proceeds, which are often sizeable sums. While deciding how 

to use the funds, beneficiaries with RAAs receive a guaranteed minimum 

interest rate on their RAA account. According to MetLife officials, for 

FEGLI, each beneficiary’s minimum interest rate is based on when the 

RAA was opened and is guaranteed for as long as the beneficiary 

maintains the RAA. According to the same officials, the guaranteed 

interest rates are 3.0 percent for RAAs opened before April 2003, 1.5 

percent for RAAs opened April 2003 to April 2009, and 0.5 percent for 

RAAs opened after April 2009. The officials noted that even the most 

recent interest rate paid on RAAs is competitive compared to what 

beneficiaries could currently earn on similar alternative investments. For 

example, as of September 26, 2011, the best available rates for a money 

market account ranged from .10 percent to 1.10 percent.36 In addition, 

they said that RAAs provide beneficiaries the ability to access their funds 

at any time, including the opportunity to withdraw either partial amounts or 

the entire amount. 

Industry Views Vary on the 

Benefits and Consumer 

Protection Concerns from 

RAAs 

Despite these benefits, RAA disclosures in general do not convey some 

important information to consumers, including information on options 

beneficiaries have for receiving their life insurance settlement funds. For 

example, the disclosures do not clearly indicate that OPM considers life 

insurance claims to be closed, and its relationship with beneficiaries 

ended—as it is with a lump-sum payment—once a beneficiary chooses 

an RAA as a settlement option. In addition, beneficiaries may not 

understand that RAAs involve a separate contract with MetLife that is not 

part of the FEGLI program and is regulated by states rather than the 

federal government. Regulatory officials we interviewed from one state 

said that consumer choice and product understanding is critically 

important to consumers and that that state’s law, in force since the mid1990s, requires companies to offer beneficiaries a choice of life insurance 

settlement options at the time life insurance claims are submitted. The 

same officials noted that RAAs cannot be the default life insurance 

 36Money market account interest rate information is according to Bankrate.com. 

Page 25 GAO-12-94 FEGLI
 

settlement vehicle in their state. Three other states’ regulators were 

concerned about how well beneficiaries understood RAAs and one of 

these states had recently passed a bill that required RAA disclosures to 

include information on settlement options available to beneficiaries. 

Another part of the bill prevents insurance companies from offering RAAs 

as their default settlement option. Regulatory officials from another of 

these states said that their office had undertaken a regulatory review and 

was developing guidance for insurance companies on using RAAs. 

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.37 Others noted that whether state guaranty 

funds were adequate to fully protect those with RAAs is unclear. Industry 

officials we spoke with noted that state guaranty funds typically protect 

RAAs up to a limit of $300,000, although in some states that limit may be 

as high as $500,000. An insurance industry expert explained that 

beneficiaries who have RAA assets that exceed state guaranty fund limits 

may not be fully protected. According to OPM, approximately 25 percent of 

federal employees covered by FEGLI have insurance in force of $300,000 

or more. Other officials noted that state guaranty fund protections are not 

the same as FDIC insurance. Each FDIC-insured account is protected; 

therefore, consumers with multiple accounts can be protected above the 

$250,000 FDIC limit in the aggregate. Conversely, state guaranty funds 

limit an individual’s payout protection to the statutory ceiling so consumers 

with multiple retained asset accounts are not protected beyond it. 

 

37FDIC is an independent agency of the United States government that provides 

protection against the loss of deposits if an FDIC-insured bank fails. FDIC insurance 

covers all deposit accounts at insured banks, including checking accounts, Negotiable 

Order of Withdrawal (NOW) accounts, savings accounts, money market deposit accounts, 

and certificates of deposit (CDs). The FDIC does not insure money invested in stocks, 

bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if 

these products were purchased from an insured bank. FDIC insurance is backed by the 

full faith and credit of the United States government. Since the FDIC’s creation in 1933, no 

depositor has ever lost money on FDIC-insured deposits. 

Page 26 GAO-12-94 FEGLI
 

In late 2010, NAIC and the National Conference of Insurance Legislators 

(NCOIL) addressed concerns about RAAs by issuing guidance intended 

to improve disclosures to consumers. In December 2010, NAIC issued a 

model bulletin for use by state insurance regulators to establish standards 

for disclosing information about the payment of life insurance benefits 

with RAAs.38 For example, under the bulletin, disclosures should clearly 

state that choosing an RAA involves establishing a supplemental contract 

with an insurance company that is distinct from the life insurance policy. 

The bulletin also notes that the supplemental policy should also provide 

clear disclosures of the rights of the beneficiaries and the obligations of 

insurers. Other key provisions in the bulletin included making sure 

disclosures explain 

Insurance Industry 

Organizations Have Issued 

Guidance to Improve RAA 

Regulation 

 available settlement options for beneficiaries, 

 applicability of FDIC protections, 

 applicable RAA fees charged by insurers, 

 guaranteed interest rates associated with RAAs, 

 provision and use of draft books, 

 frequency of financial statements to beneficiaries, and 

 policies for inactive RAA accounts. 

Around the same time, NCOIL released its Beneficiaries’ Bill of Rights, a 

document which was intended to improve not only disclosures associated 

with RAAs but also transparency and accountability. NCOIL’s new 

standards echoed many of NAIC’s proposed improvements and also 

included provisions that, if adopted, would require insurers to 

 refer beneficiaries to their state insurance departments if they had 

further questions about RAAs, 

 

38According to NAIC, model bulletins are documents produced by NAIC that are generally 

used by state insurance departments to notify companies and/or insurance producers on 

how state insurance departments intend to interpret various issues or developments. 

Bulletins do not generally carry the force of state law, though they may be used to notify 

interested parties of adoptions or changes to existing state law. 

Page 27 GAO-12-94 FEGLI
 

 immediately return to beneficiaries remaining RAA balances if 

accounts became inactive during a 4-year period, 

 make clear that any violation of NCOIL’s Bill of Rights would 

constitute a violation of states’ unfair trade practices law, 

 identify any financial institution or entity that administers RAAs on the 

insurer’s behalf, and 

 report annually to state regulators on the number and dollar amount of 

RAAs held, RAA structure and investment earnings, interest rates 

paid to beneficiaries, and numbers and dollar amounts of RAAs that 

go through state unclaimed property processes. 

Some states already have regulations in place that specifically address 

RAAs and others have recently taken action to address concerns about 

the accounts. For example, according to NAIC, as of August 2011, 26 

states had RAA-related statutes that allowed insurance companies to 

establish RAAs for beneficiaries and hold life insurance assets in these 

accounts. In addition, according to NAIC, 22 states had RAA-specific 

regulatory protections and disclosures, including many of the provisions 

found in NAIC’s model bulletin. According to NAIC, many states either 

enacted or updated RAA regulations since the beginning of 2010. Figure 

4 provides information on how states have approached regulating RAAs. 

Page 28 GAO-12-94 FEGLI
 

Figure 4: State Regulation of RAAs, as of August 2011 

Source: NAIC (data); MapInfo (map).

States with RAA-related statutes

States with RAA regulations

States with RAA statutes and regulations

States with no RAA-related statutes or regulations

States that have enacted or updated RAA-related regulations since January 2010

Recently Improved FEGLI 

RAA Disclosures Still Lack 

Important Information 

While OPM recently revised and improved the FEGLI RAA disclosures 

beneficiaries receive, the disclosures still lack some important 

information. In February 2011, OPM improved FEGLI disclosures, 

particularly the form that beneficiaries must use to file a claim. FEGLI 

disclosures now inform beneficiaries that they have settlement options 

and include language stating that beneficiaries have an important choice 

to make in choosing between a lump-sum check and an RAA and 

indicating their choice on their claims form. In particular, the new form 

Page 29 GAO-12-94 FEGLI
 

explicitly states that MetLife offers a guaranteed minimum interest rate 

that may be better or worse than the market’s prevailing interest rate and, 

unlike in the previous version, clearly informs beneficiaries that MetLife 

may profit from RAAs. OPM further improved disclosures by more clearly 

explaining that beneficiaries can access the total amount of their funds at 

any time with no cost and by improving the information on applicable 

protections. For instance, the disclosures now explicitly state that RAAs 

are not bank accounts and are not insured by FDIC or any other federal 

agency. They also explain that MetLife guarantees all RAA accounts, 

including interest earned, and that this guarantee is backed by state 

insurance guaranty associations. 

Despite OPM’s improved disclosures, they continue to lack some 

important information. In addition to failing to mention the aforementioned 

separate RAA contract between FEGLI beneficiaries and MetLife, OPM’s 

revised disclosures 

 do not tell beneficiaries how to identify and contact the proper state 

department of insurance regulation should they have any questions or 

concerns about their RAAs. FEGLI beneficiaries may not clearly 

understand that OPM oversees all aspects of FEGLI prior to 

settlement but that state regulators become responsible thereafter. In 

the event that beneficiaries have questions or face issues with an 

RAA, they may not know where to turn for regulatory assistance. 

Further, there may be differences of opinion among regulators about 

who is the responsible regulator, making such guidance even more 

important to beneficiaries 

 do not provide information on how to identify the relevant state 

guaranty fund and its applicable limits, or where to find additional 

information on a particular state’s fund.39 According to the National 

Organization of Life and Health Guarantee Associations, beneficiaries 

whose RAA accounts contain more than their state guarantees may 

be at risk of leaving some funds unprotected. 

FEGLI

 39FEGLI disclosures, however, now alert beneficiaries that RAAs, including interest, are 

fully guaranteed by MetLife and that MetLife’s guarantee is further backed by state 

insurance guaranty funds. In addition, the disclosures state that maximum limits on 

guarantees that protect beneficiaries’ RAAs vary across states. 

Page 30 GAO-12-94 
 

It is important for beneficiaries to be able to identify the relevant state 

insurance regulator and guaranty fund in case they have questions or 

issues regarding their RAAs and associated guarantee fund protection. 

However, identifying the appropriate regulator is challenging because 

some regulators differed on what type of instruments RAAs are, as well 

as who regulates them. For example, according to two state regulators 

and NAIC officials, RAAs are supplemental insurance contracts between 

beneficiaries and insurance companies. However, two other states’ 

regulators classified them as settlement options. Yet another state’s 

regulator said that RAAs were both supplemental contracts and 

settlement payouts of existing life insurance policies. States also differed 

on the time frame for considering insurance contracts and settlements 

settled. OPM officials said that FEGLI life insurance claims were satisfied 

as soon as beneficiaries established RAAs, and two of the five state 

regulators with whom we spoke shared that view. However, regulatory 

officials we interviewed from one state said that the original insurance 

contract was not satisfied until all funds were withdrawn from the RAA. 

The state insurance regulators and some industry officials with whom we 

spoke also differed on which state’s regulator oversees a particular RAA 

account and, as a result, which state’s guaranty fund would apply. For 

example, two states’ regulatory officials and NAIC representatives said 

that the relevant regulator would be the one from the state where the 

beneficiary resided. However, two other states’ officials said it would be 

the state where the original group life insurance policy was issued, and 

yet another state regulator as well as officials from the National 

Organization of Life and Health Guaranty Associations said it would be 

the state where the group life insurer was domiciled. A representative 

from a life insurance industry association with whom we spoke said that 

the appropriate regulator could be the one from the state where the 

insurance contract was established, where the beneficiary resided, or 

both. 

Without clarity on which state insurance regulator has jurisdiction over an 

RAA held by a FEGLI beneficiary, or which state guaranty fund might 

apply, beneficiaries may not know where to turn to find answers to RAArelated questions on the extent of protections applicable to their RAA. For 

example, the underlying FEGLI policyholder (the federal government) is 

located in Washington, D.C.; the RAA provider (MetLife) is domiciled in 

New York; and federal employees and their beneficiaries can live 

anywhere in the United States. Identifying which state has jurisdiction 

over a MetLife RAA contract, and which state guaranty fund applies, 

could be difficult, especially if the state regulators themselves might not 

agree on the proper jurisdiction. And as we have seen, state guaranty 

Page 31 GAO-12-94 FEGLI
 

funds provide varying levels of protection. According to OPM officials, 

determining the appropriate state regulator for RAAs is technically beyond 

their purview because their involvement ends once the RAA is funded 

with the FEGLI claim payment. However, OPM does work with MetLife to 

create the disclosures that provide beneficiaries with information that 

helps them determine whether or not they wish to select an RAA as their 

settlement option. Information concerning the relevant state regulator and 

guaranty fund would be important to have in deciding whether or not to 

choose an RAA because it could determine the amount of protection 

available to the beneficiary. In addition, it could also inform the beneficiary 

of potential challenges in seeking regulatory assistance if, for example, 

the beneficiary is located in one state but the relevant regulator is located 

in a different state. 

OPM Does Not Consider 

the Investment Income 

Earned on RAAs in Setting 

Premium Levels 

In contrast to some private insurers with whom we spoke, OPM does not 

consider any of the income MetLife earns on FEGLI RAAs when 

determining premium rates for FEGLI coverage. Some insurance 

company representatives we interviewed said that they considered all 

investment income, including income earned on RAAs, when determining 

the premium rates for their life insurance policies, and that this income 

typically had the effect of reducing the premiums insurers charge or 

defraying other related costs. While officials from two companies with 

whom we spoke said that they considered RAA earnings when pricing 

their overall group life insurance plans, other insurers suggested that 

investment income from their RAA accounts was too small to affect their 

rate-setting calculations. 

Because OPM contracts with MetLife for settlement services, RAAs 

funded with FEGLI claims payments are established and operated by 

MetLife. As a result, MetLife retains investment gains and losses earned 

on these accounts, as do most private insurers. According to OPM 

officials, because OPM considers a FEGLI claim to be fully paid when a 

MetLife RAA is established, OPM has no connection to the RAA accounts 

or any of their funds. In addition, OPM does not track any data related to 

MetLife’s FEGLI-based RAAs. However, these RAAs are established with 

FEGLI claims payments, and by not considering the income earned on 

the accounts by MetLife, OPM may be missing an opportunity to offset 

program expenses and potentially reduce premium rates. 

While MetLife officials said that they could not specifically determine the 

amount of investment gains and losses on FEGLI-funded RAAs, they did 

say that as of December 31, 2010, RAAs maintained for FEGLI 

Page 32 GAO-12-94 FEGLI
 

beneficiaries totaled approximately $3.5 billion. According to MetLife’s 

2010 annual financial statements, the company had a total of 

approximately $12 billion in FEGLI and non-FEGLI RAA accounts at year 

end and had earned approximately $267 million in net investment income 

on those accounts. The same officials also said that the company must 

meet costs and expenses associated with these RAAs, including the 

payment of guaranteed interest rates to FEGLI beneficiaries, and that by 

guaranteeing the minimum rates previously noted, MetLife has assumed 

financial risk. The same officials noted that these guaranteed rates are 

higher than most rates of return beneficiaries could currently receive 

through a bank or other liquid investment vehicle. In addition, MetLife 

would pay and has paid interest at a higher rate than the guaranteed 

minimum rates in more favorable interest rate environments, and 

according to officials, approximately 40 percent of FEGLI RAAs have 

been open for 5 or more years. This higher retention percentage, they 

said, may be partially due to advantageous rates MetLife is paying those 

beneficiaries. In contrast, several other life insurers with whom we spoke 

said that RAAs are often a short-term option for beneficiaries, and that 

beneficiaries typically close their RAAs within 1 to 2 years. 

Because life insurance is an important purchase for those seeking to 

protect their dependents, prospective buyers need to fully understand the 

details of the policy they are considering. Although OPM provides 

significant information on its life insurance program, some information that 

could influence federal employees’ decision to buy FEGLI coverage is 

lacking. First, although FEGLI offers federal employees postretirement 

coverage, a benefit not commonly found in private sector group plans, 

FEGLI disclosures do not explain the effect of this benefit on premium 

levels, particularly the fact that federal employees begin prepaying for this 

coverage as part of their Basic insurance when they begin their 

employment. As a result, employees may be unaware that their premiums 

may be higher than those of group plans that do not offer such coverage. 

Second, the disclosures do not discuss FEGLI’s level-premium and 

composite rate structure for Basic coverage. Because these features can 

make FEGLI premiums look more expensive than private individual 

coverage without them, especially to younger and healthier individuals, 

some employees might conclude that FEGLI coverage is not a beneficial 

choice and pass up a potentially valuable benefit. Conversely, someone 

planning to work for the federal government for a short period of time 

might purchase FEGLI coverage without realizing that the coverage 

includes a retirement benefit they may not receive and will likely cost 

more than a group policy without such a benefit. 

Conclusions 

Page 33 GAO-12-94 FEGLI
 

Since FEGLI’s inception, OPM has sought to provide life insurance 

benefits that meet federal employees’ needs at reasonable costs. 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. For example, many private sector employers 

no longer offer postretirement benefits in their group life plans because of 

the cost. To help ensure that FEGLI premium rates are appropriate, OPM 

officials said that OPM actuaries annually review and assess FEGLI’s 

claims experience across different plans and age groups, recommending 

rate changes when they believe such changes are necessary. However, 

OPM lacks documented processes for making such recommendations 

and documenting management’s disposition of any rate change 

recommendations. Without a clear and consistent process for making, 

reviewing, and implementing rate change recommendations, OPM risks 

that needed changes may not be made and that the premiums charged to 

federal employees may not reflect the coverage they are receiving. 

FEGLI now offers two settlement options—a lump-sum check payment or 

an RAA—and it is important for beneficiaries to be able to choose the 

option that best meets their needs and to know where to turn to resolve 

any issues they might have. While RAAs may offer benefits that some 

beneficiaries appreciate, such as certain flexibilities and a guaranteed 

interest rate, they also have certain characteristics that need to be fully 

disclosed. OPM has recently revised its disclosures to beneficiaries to 

provide more information on RAAs, but the disclosures still do not contain 

some important information. For instance, they do not explicitly state that 

RAAs involve a new contract between beneficiaries and MetLife that is 

regulated by states rather than the federal government and that involves 

state-based protections with certain limitations. As a result, FEGLI 

beneficiaries may be unaware that new contractual terms and conditions 

govern their RAAs. They also may not fully understand how their RAAs 

are protected and what the limitations of that protection might be. Finally, 

the disclosures do not provide the information that beneficiaries need to 

find the proper regulator should they have questions about their 

accounts—a problem that is complicated by the fact that the regulators 

themselves may disagree over which one has jurisdiction. 

Page 34 GAO-12-94 FEGLI
 

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. 

To help ensure that FEGLI beneficiaries are provided with information on 

all relevant aspects of selecting an RAA as a FEGLI settlement option, we 

recommend that the Director of the Office of Personnel Management 

include more complete information on financial protections and regulatory 

oversight in program disclosures, working as necessary with MetLife and 

NAIC to determine the appropriate state regulator for beneficiaries and 

their RAAs. 

On October 7, 2011, we provided a draft of the report to OPM for 

comment. On October 28, 2011, OPM provided written comments, which 

are reproduced in full in appendix III. OPM concurred with the 

recommendations in the report and also provided technical comments, 

which we incorporated as appropriate. 

Recommendations for 

Executive Action 

Agency Comments 

and Our Evaluation 

OPM concurred with our first recommendation that it take steps to ensure 

FEGLI disclosures include complete and accurate information on FEGLI’s 

key benefits and features, including postretirement coverage, composite 

rates, and level-premium structure. Specifically, OPM stated that it strives 

for FEGLI transparency and will take steps to provide more information on 

key FEGLI features to ensure federal employees have the information 

they need to make an informed benefit decision. 

OPM also concurred with our second recommendation that OPM 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 

Page 35 GAO-12-94 FEGLI
 

concerning those recommendations. Specifically, OPM stated that it 

believes that benchmarking federal benefits programs, including FEGLI, 

with other employer-provided benefits is essential to ensuring that the 

federal government can recruit, retain, and honor a world-class workforce. 

Finally, OPM concurred with our third recommendation that OPM include 

more complete information on financial protections and regulatory 

oversight, working as necessary with MetLife and NAIC to determine the 

appropriate state regulator for beneficiaries and their RAAs. Specifically, 

OPM stated that it has updated the FEGLI claims form and website to 

provide more information about the choice for FEGLI beneficiaries to 

receive a lump-sum check or RAA and will ensure that the best 

information is available to assist beneficiaries in their decision-making 

process. 

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies of this report to appropriate 

congressional committees, the Director of the U.S. Office of Personnel 

Management, and the Chief Executive Officer of the National Association 

of Insurance Commissioners. In addition, the report will be available at no 

charge on GAO’s website at http://www.gao.gov. 

If you or your staffs have any questions regarding this report, please 

contact me at (202) 512-7022 or cackleya@gao.gov. Contact points for 

our Offices of Congressional Relations and Public Affairs may be found 

on the last page of this report. GAO staff that made major contributions to 

Alicia Puente Cackley 

this report are listed in appendix IV. 

Director, Financial Markets and 

 Community Investment 

Page 36 GAO-12-94 FEGLI
Appendix I: Scope and Methodology 

Page 37 GAO-12-94 

Appendix I: Scope and Methodology 

To describe and evaluate the Federal Employees’ Group Life Insurance 

(FEGLI) program’s key operational and financial components, we 

examined FEGLI’s authorizing statute and associated regulations, 

including the Life Insurance Federal Acquisition Regulation (LIFAR). In 

addition, we reviewed the program’s key policy documents, including the 

FEGLI Handbook, FEGLI Program Booklet for Federal Employees, FEGLI 

website, and the contract between the Office of Personnel Management 

(OPM) and the Metropolitan Life Insurance Company (MetLife). We 

focused on how FEGLI provides life insurance coverage to federal 

employees and their families and the cost of that insurance to federal 

employees and their respective agencies. 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. We reviewed data from OPM 

annual financial reports and performance and accountability reports from 

2000 to 2010 to analyze FEGLI’s assets and liabilities. In addition, we 

reviewed information in the U.S. Budget on FEGLI from fiscal years 2002 

to 2012 to analyze FEGLI premiums, claims payments, and investment 

income. We also reviewed MetLife financial statements to determine the 

total dollar amount of MetLife’s retained asset accounts (RAA) and the 

total investment income MetLife derives from its RAA investments. 

Because these are audited documents and financial statements, with 

unqualified audit opinions, we found data from these documents and 

summary statistics from OPM and MetLife to be reliable for the purposes 

of this report. In addition, to determine how FEGLI’s structure and 

operations compare to large private sector group life insurance plans, we 

compared FEGLI to plans offered by six large private sector group life 

insurers. Our comparison focused on insurance coverage options, 

processes for determining premiums, available settlement options, and 

methods for establishing capital or surplus levels. We selected these 

insurers based on various insurer characteristics including their group life 

insurance market share, number of group life policies and certificates 

issued, and whether or not they provided group life insurance to federal 

employees. We also interviewed officials from the National Association of 

Insurance Commissioners (NAIC) and the American Council of Life 

Insurers (ACLI) to gain their perspective on group life insurance plans, 

finances, and operations. For additional information on how private sector 

group life plans are structured and the insurance they offer, we met with 

insurance regulators and benefits administrators from the states of 

California, Florida, New York, North Carolina, and Maryland. We selected 

this sample of states because it is geographically diverse, includes states 

FEGLI 
Appendix I: Scope and Methodology 

of domicile for several large insurance companies that sell a significant 

number of the industry’s group life insurance policies, has a large number 

of federal employees, and contains some states that have RAA 

regulations and others that do not. In addition, we met with 

representatives from two private companies with experience in insurance 

brokerage, and human capital and benefits consulting. 

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. We focused on the steps OPM 

takes to periodically monitor and review FEGLI’s financial condition, and 

on OPM processes for overseeing MetLife functions for receiving, 

adjudicating, and paying claims to FEGLI beneficiaries. In addition, to 

identify possible regulatory and consumer protection issues with group life 

insurance plans and settlement vehicles, we met with representatives 

from NAIC, ACLI, and a consumer advocate from the Center for 

Economic Justice. To determine how states generally regulate group life 

insurance plans, we met with insurance regulators from the five states 

described earlier and compared FEGLI oversight with state regulation of 

private group life insurers and identified similarities and differences. 

To describe and evaluate the role of RAAs in FEGLI’s settlement process, 

we examined key OPM disclosures, including the FEGLI Handbook, 

FEGLI Program Booklet for Federal Employees, FEGLI website, and 

Strategic Plan, 2010-2015, and we interviewed OPM officials. To 

understand the kinds of information beneficiaries receive on life insurance 

settlement processes, we also reviewed MetLife’s Welcome Kit for RAAs 

and interviewed MetLife officials. We focused on (1) what RAAs are, how 

they function, and how they are funded, (2) the kinds of RAA disclosures 

OPM and MetLife provide and how clearly they help beneficiaries 

understand their use, and (3) what RAA protections apply to FEGLI 

beneficiaries. In addition, we examined how RAAs are regulated by 

focusing on the activities and processes OPM and state regulators use to 

oversee these accounts. With respect to state RAA oversight and to 

determine what kinds of regulatory and consumer protection requirements 

states have for insurance companies that offer RAAs, we chose a small 

number of states as described earlier, some of which have RAA-specific 

regulation, and others that do not. In addition, we compared FEGLI’s use 

of RAAs to their use in the private sector and looked for any similarities, 

differences, and emerging issues. We also looked to the insurance 

industry for any applicable best practices with respect to RAAs that might 

Page 38 GAO-12-94 FEGLI
Appendix I: Scope and Methodology 

be used to improve the FEGLI program. To better understand protections 

associated with RAAs, we contacted officials from the Federal Deposit 

Insurance Corporation, state regulators from our sample, and officials 

from the National Organization of Health and Life Insurance Guaranty 

Associations and the Center for Economic Justice. We also reviewed 

information on RAA guidance from the National Conference of Insurance 

Legislators. 

We conducted this performance audit from September 2010 to November 

2011 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. 

Page 39 GAO-12-94 FEGLI
A

Insura

ppendix II: Federal Employees’ Group Life 

nce Program Financial Information 

Page 40 GAO-12-94 

Appendix II: Federal Employees’ Group Life 

Insurance Program Financial Information 

This appendix provides information on the dollar amount of premiums the 

FEGLI program has collected from enrolled federal employees and their 

respective agencies. It also shows the dollar amount of claims the 

program has paid to beneficiaries of federal employees. In addition, the 

figure shows the dollar amount of interest income derived from investing 

FEGLI Fund assets in U.S. Treasury securities. From 2000 to 2010, the 

dollar amount of premiums collected and claims paid has grown, while the 

dollar amount of interest income has declined slightly. 

Figure 5: FEGLI Premiums, Claims Paid, and Interest Income, 2000-2010 

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Calendar year

Source: U.S. Budget Appendix for OPM, Fiscal Years 2002-2012.

Nominal dollars in billions

Premiums paid

Claims paid

Interest income

FEGLI 
Appendix III: Comments from the Office of Appendix III: Comments from the Office of Personnel Management 

Personnel Management 

Page 41 GAO-12-94 FEGLI
Appendix III: Comments from the Office of 

Personnel Management 

Page 42 GAO-12-94 FEGLI
A

A

ppendix IV: GAO Contact and Staff

cknowledgments

Page 43 GAO-12-94 

Appendix IV: GAO Contact and Staff 

Acknowledgments 

Alicia Puente Cackley (202 512-7022 or cackleya@gao.gov 

In addition to the contact named above, Patrick Ward (Assistant Director), 

Joe Applebaum, Jan Bauer, Emily Chalmers, Marc Molino, Alan Rozzi, 

Steve Ruszczyk, Mel Thomas, and Frank Todisco made key contributions 

to this report. 

FEGLI 

GAO Contact 

Staff 

Acknowledgments 

(250575)
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