Office of Personnel Management

Retirement and Insurance Service

1920 1954 1959 

 

1986 

Benefits Administration Letter

Number: 95-221 Date: October 10, 1995 

SUBJECT: Assignment of FEGLI Coverage

 

I. OVERVIEW

 

A. Purpose This letter announces a change in the Federal Employees' Group

Life Insurance (FEGLI) law that allows Federal employees,

annuitants, and compensationers to assign ownership of their life

insurance coverage. 

 

B. Background Section 4 of Public Law 103-336 allows Federal employees,

annuitants, and compensationers to make an irrevocable assignment

of the ownership of their life insurance coverage. Regulations

clarify that the right to assign ownership of life insurance coverage

applies only to Basic Life, Option A--Standard, and Option B--

Additional FEGLI coverages. The law was enacted on October 3,

1994. Previously, only Federal judges could assign FEGLI

coverage. 

 

II. WHAT IS AN ASSIGNMENT?

A. Description An assignment is an irrevocable transfer of ownership of the

employee's FEGLI coverage (except dismemberment insurance and

Option C--Family) to another individual, corporation, or trustee. 

The employee continues to be the insured person.

 

B. Effects of

assignment 

An assignment is irrevocable. After making an assignment, the

employee, as long as he or she is continuously insured in the FEGLI

Program, cannot cancel the assignment. Further, any 
2

designation of beneficiary on file at the time of the assignment is

immediately void.

 

C. Assignment is

voluntary

The law is permissive, not mandatory. Thus, employing offices may

not force an insured employee to make an assignment.

 

D. Rights of the

employee after

making an

assignment

After making an assignment, it is the employee's right to: 

C Continue Option C--Family coverage (if previously elected).

C Elect more insurance (for example, during an open enrollment

period, by furnishing proof of insurability or upon marriage,

divorce, birth of a child, etc.).

NOTE: All of the new insurance (except Option C--Family) is

automatically subject to the existing assignment.

C Elect a reduction schedule for Basic Life that is less than the

standard 75 percent reduction at the time of retirement. 

However, if the retiring employee elects a lesser reduction (no

reduction or 50 percent reduction), he or she may not later

cancel the election.

After making the assignment, the employee may not:

C Cancel or reduce the insurance.

C Designate a beneficiary.

C Convert the insurance to a private policy when it terminates.

C Elect a Living Benefit.

 

E. Rights of the

assignee

The assignee has the right to:

C Cancel the insurance coverage.

C Cancel a retired employee's election of a lesser reduction (50

percent or no reduction) of Basic Life.

C Designate and change beneficiaries.
3

C Convert to a private policy when the coverage terminates (but

not when the assignee voluntarily cancels it).

C Reassign the insurance.

The assignee may not:

C Increase the amount of insurance during an open season or as a

result of any other event.

C Elect a Living Benefit.

C Make the original election of a reduction schedule for Basic Life

when the employee retires.

 

F. Assignment to

more than one 

individual

An assignment may be made to more than one person, corporation,

or trustee. If the assignment of the insurance is to two or more

persons, the employee must specify percentage shares of the entire

amount of insurance, rather than dollar amounts or types of

insurance, to go to each assignee. The percentages must total 100

percent. The employing office must reject a form if the percentages

do not total 100 percent. 

Each assignee should designate his or her own beneficiaries for his

or her share of the insurance. However, all assignees must agree to

most other actions taken with the coverage, such as cancellation.

 

G. Restrictions

related to

assignments

An employee who has previously elected a Living Benefit may not

assign the balance of his or her insurance. An employee who has

assigned his or her insurance may not elect a Living Benefit, nor

may the assignee elect a Living Benefit.

 

III. BENEFITS OF AN ASSIGNMENT

A. General Employees may find assignments useful in a number of

circumstances, such as described below.

 

B. To comply with a

court order

Employees may use assignments to comply with a court order for

divorce that requires an employee to name a former spouse as the

beneficiary of his or her FEGLI proceeds. Under the FEGLI law,
4

designations of beneficiary may be changed by the employee at any

time; whereas, an assignment is irrevocable. However, an agency

cannot force an employee to make an 

assignment, even if a court order requires him or her to do so. It is

not the agency's responsibility to enforce a court order.

 

C. For inheritance tax

purposes

Employees may use assignments for inheritance tax purposes. An

absolute assignment of an insured person's interest in a group life

insurance policy, made at least 3 years before his or her death,

generally removes the insurance proceeds from the insured person's

estate. Current Federal estate tax law allows an unlimited marital

deduction for that portion of the gross estate passed to a surviving

spouse. Thus, there is no apparent immediate tax advantage to

assigning ownership of a life insurance policy to a spouse. 

However, since State tax laws vary and tax savings under Federal

or State law can be considerable if insurance proceeds are not

subject to estate taxes, it is important to consult with a competent

estate tax advisor.

NOTE 1: It is possible that assignment to a trust may not exclude

FEGLI benefits from the employee's estate. It is also possible that,

if the assignee dies first, the employee could reacquire ownership of

the life insurance coverage through designation of beneficiary or

inheritance. The assignment form, RI 76-10, cautions the employee

to consult a tax attorney if he or she wants to make an assignment

to a trust or wants to avoid inheriting ownership of the FEGLI

coverage upon the death of the assignee. 

NOTE 2: The employing office assumes no responsibility or

obligation with respect to the validity, sufficiency, or the

consequences of an assignment under the Internal Revenue Code. 

A determination as to whether the FEGLI proceeds are included in

the employee's gross estate must ultimately be made by the Internal

Revenue Service at the time of the employee's death.

 

D. To obtain

cash before

death

Employees may use assignments to obtain cash before death from a

viatical settlement firm. Viatical settlement is the sale (or

assignment) of someone's life insurance in exchange for cash. 

Generally, viatical settlement firms accept assignment of 

life insurance from terminally ill patients within 24 months of their

anticipated death.

NOTE: The FEGLI Living Benefits Act became effective on July

25, 1995. Under this Act, Basic life insurance can be paid as a
5

living benefit to an employee, annuitant, or compensationer who

has 9 months or less to live. However, viatical settlement may still

be a good choice for terminally ill employees who have more than 9

months to live, or those who wish to receive cash based on the face

value of their Basic Life, Option A--Standard, and Option B--

Additional coverages. The FEGLI Living Benefits apply only to

Basic Life, not the optional coverages.

 

E. To pay off debts Employees may use assignments to pay off debts. Agencies cannot

refuse to accept an assignment made to satisfy indebtedness. 

However, agencies should remind employees that an assignment is

irrevocable and cannot be canceled when the debt is paid. The

assignment form, RI 76-10, contains a warning to this effect. 

 

IV. HOW TO MAKE AN ASSIGNMENT

A. Assignment

form

Assignments are made on OPM Form RI 76-10, Assignment of

Federal Employees' Group Life Insurance. Agency headquarters

have already ordered supplies of these forms through OPM's rider

system. Employing offices may obtain supplies of the form from

their agency headquarters.

The January 1995 edition is the only edition that may be used.

 

B. Effective date of

an assignment

An assignment is effective on the date the properly completed,

signed, and witnessed assignment form is received by the employing

office.

 

C. All insurance 

must be 

assigned

If an employee has more than one type of coverage--Basic Life plus

Option A--Standard, Option B--Additional, and Option C--Family,

for example--he or she must assign all of the insurance except

Option C--Family. An employee may not assign only a 

portion of the coverage, but may assign the life insurance coverage

to more than one person. 

An employee may not name contingent assignees in the event the

primary assignee predeceases him or her. 

 

V. WITHHOLDING AND CONTRIBUTIONS
6

 

A. Payment of

premiums

after

assignment

After making an assignment, the employee must continue to pay the

premiums. The assignee may not pay the premiums (except in

certain circumstances when a FERS retiree's annuity is too low to

make the withholding.)

 

B. Withhold- ings

and contributions

After an assignment, insurance premiums continue to be withheld

from salary, annuity, or compensation, as applicable.

 

VI. DESIGNATION OF BENEFICIARY

A. Employee's 

designations

An assignment automatically cancels the employee's prior

designations of beneficiary. However, the agency must continue to

retain the cancelled designations in the OPF. Once an assignment is

effective, an employee no longer has the right to designate a

beneficiary.

 

B. Assignee's

designations

Each assignee may, as part of the assignment process, designate a

beneficiary or beneficiaries to receive insurance proceeds upon the

death of the employee and may subsequently change the

beneficiaries. If there is no designation, the assignee is the 

beneficiary.

 

C. Surviving

beneficiary

A surviving beneficiary receives the designated amount of assigned

insurance upon the death of the employee. Assignees may

designate themselves the primary beneficiaries and name some other

person(s) as contingent beneficiaries in the event that the assignee

dies before the employee.

Assigned insurance is paid to an assignee's estate if the assignee

predeceases the employee and--

C The assignee did not designate a beneficiary; or

C The assignee's designated beneficiary dies before the employee.

 
7

VII. EMPLOYING OFFICE RESPONSIBILITIES

 

A. General Employing offices are responsible for advising employees of the

availability of, and uses for, an assignment of FEGLI coverage. 

Making decisions or recommendations for the employee is not the

employing office's responsibility and should be avoided. Further,

the employing office has no responsibility or obligation with respect

to the consequences of an assignment.

 

B. Policing

assignments

An employee who assigns his or her FEGLI coverage may not

make a subsequent assignment or designation of beneficiary unless

the assignee reassigns the insurance back to the employee. 

Therefore, when an employing office receives an assignment or

designation of beneficiary from an employee, it must ensure that the

employee has not already assigned his or her life insurance to

someone else.

The employing office may accomplish this by reviewing the Official

Personnel Folder (OPF) for every employee who submits a

designation or an assignment or by keeping a log of all employees

who make assignments. 

If the employing office decides to keep a log of employees who

make assignments, it must check the log each time an employee

designates a beneficiary or makes an assignment to ensure that the

employee has not previously assigned his or her life insurance to

someone else. In addition, when an agency reemploys a former

Federal employee after a break in service of less than 31 days the

employing office must check the employee's OPF to determine

whether there is an assignment. If so, the employee's name must be

added to the agency's log.

To assist the employing office, we have revised Standard Form

2823, Designation of Beneficiary, to add a new section asking the

designator to check whether he or she is completing the form as the

employee or an assignee. Nevertheless, the employing office must

verify in each case whether there is 

previous assignment by checking the employee's OPF or its log of

employees who have made an assignment.

If the employing office finds that the employee has previously

assigned his or her life insurance to someone else, the employing
8

office must return the form to the employee explaining that he or

she has previously made an assignment and that only the assignee

may reassign the insurance or designate a beneficiary.

 

C. Viatical

settlement

forms

When employees want to assign their life insurance to a viatical

settlement firm, the firm will ask the employing office to provide

information about their FEGLI coverage. The employing office

must have a release, signed by the employee, before providing the

information. See BAL 95-212 for detailed information about

viatical settlements.

The employing office must file copies of the release and the

information disclosed to the viatical settlement firm in the

employee's OPF.

 

D. Consulting

tax attorneys

Employing offices should always advise employees to consult a tax

attorney when they are considering assigning their life insurance. 

This is particularly important if the employee wants to make an

assignment to a trust or wants to avoid inheriting the FEGLI

coverage upon the death of the assignee. The attorney has specific

information about tax laws and IRS regulations to make a

determination about the tax effect of an assignment. The employee

should also consider obtaining a ruling from the IRS.

 

E. Notifying the

assignee 

When an assignment is made, the employing office must notify the

assignee that the employee has assigned ownership of his or her life

insurance to the assignee and provide a copy of the FEGLI

Booklet, RI 76-21, which explains the FEGLI Program, and a blank

designation form (SF 2823). The notice must include the types of

insurance the employee assigned (Basic Life, Option A--Standard,

Option B--Additional) including the number of multiples of pay

under Option B--Additional. The notice must also give the

percentage of the total insurance that the assignee now owns. (The

percentage is 100 percent unless there are multiple assignees.) A

sample notice is attached.

 

F. When insurance

terminates

At the time the insurance terminates, other than by voluntary

cancellation, the employing office must send SF 2819, Notice of

Conversion Privilege to the assignees to inform them of their

conversion rights. Employing offices must also complete Standard

Form 2821, Agency Certification of Insurance Status, and give it to
9

the assignee, together with a copy of the assignment form (RI 76-

10) by which the employee had transferred ownership of the life

insurance coverage to the assignees. See section S5-3 of the

FEGLI Handbook for Personnel and Payroll Offices (formerly FPM

Supplement 870-1) for additional information about SF 2819 and

SF 2821. If there are multiple assignees, do not complete multiple

SF 2821's. Instead, complete only one SF 2821 and make

photocopies for the additional assignees.

 

G. When an

employee dies

Upon the death of the employee, the employing office must send

Form FE 6, Claim for Death Benefits, to each assignee at the last

known address. See Subchapter S10 of the FEGLI Handbook for

Personnel and Payroll Offices for additional information about

procedures required at an employee's death.

 

H. When an

employee

leaves the

agency

When the employee leaves the agency by separation, retirement,

transfer to another agency, or for any other reason, (when the

Nature of Action Code begins with a 3) cite on the separation

Standard Form 50 Remark B69: Employee has assigned ownership

of life insurance coverage. Assignment terminates 31 days after the

separation date unless employee is entitled to continued coverage

or resumes coverage before that date.

 

I. Unacceptable

assignments

An insured person's assignment is unacceptable if--

C The insured person previously assigned his or her life insurance

coverage.

C The insured person previously elected Living Benefits.

C The assignment form has not been properly witnessed.

C The assignment form contains erasures or alterations.

C In the case of an assignment to two or more persons, the shares

are not expressed in percentages (dollar amounts are not

acceptable).

If the assignment is unacceptable, write VOID across the front of

the form and return it to the insured person with an explanation of

why the assignment is unacceptable.
10

 

VII. ASSIGNEE'S RESPONSIBILITIES

A. Current

address

Each assignee is responsible for keeping the employee's personnel

office aware of his or her current address. Employing offices must

attach the assignee's change of address notice to the assignment

form in the employee's OPF.

 

B. Designation of

benefi-ciary

We recommend that all assignees complete a designation of

beneficiary, even though they want to be the beneficiary, in order to

designate a contingent beneficiary. The contingent beneficiary is

the person who would receive payment if the assignee dies before

the employee. 

If they do not designate a contingent beneficiary, the life insurance

is payable to the deceased assignee's estate. There may be

problems in reopening the assignee's estate after the employee dies

to determine who is entitled to the insurance payment. By naming a

contingent beneficiary, the assignee can simplify payment of the life

insurance.

 

IX. RETIREES AND COMPENSATIONERS

A. Transferring

assignments 

When an employee retires or becomes a compensationer under

circumstances that would allow continued FEGLI coverage, the

assignment continues in force if the assignee does not choose to

convert the insurance. The assignment form must be transferred to

OPM with the rest of the FEGLI documents. See Subchapters S6

and S7 of the FEGLI Handbook for Personnel and Payroll Offices

(formerly FPM supplement 870-1) for 

procedures for transferring the life insurance to OPM when an

employee retires or becomes insured as a compensationer.

 

B. Assignments by

retirees and

compen-sationers

Retirees and compensationers may assign their life insurance under

the same conditions as employees. OPM serves as the employing

office for retirees in all retirement systems for Federal employees
11

and for compensationers whose life insurance has been transferred

to OPM. (For compensationers', the employing agency continues

to maintain the life insurance coverage through the first 12 months

the employee is on compensation. The employing agency then

transfers the coverage to OPM if the employee is eligible to

continue it as a compensationer.)

 

C. Conversion

versus

continuation 

When there are multiple assignees, some assignees may prefer to let

their share continue when the insured employee becomes a retiree

or compensationer. Others may prefer to convert to a private

policy. Information about conversion is given in section X of this

letter. 

For continued coverage, the amount of each type of continued

insurance is determined by the total percentage of the shares of the

assignees who choose continued coverage. For example, if two

assignees, each having a 25 percent share in the ownership of the

total insurance amount consisting of Basic Life and Option AStandard, choose to continue coverage while the other assignees

choose to convert, 50 percent of the value of the basic life and 50

percent of the value of the Option A-Standard continues. Although

the assignees own a share of the total value of the insurance, it is

necessary to distinguish between the types of insurance in order to

apply premiums and reduction factors during retirement.

 

X. CONVERSION

A. Termination Insurance terminates when the assignee cancels the coverage, when

the employee separates from service, and when other terminating

events occur. See FEGLI Handbook subchapter S5 for a full

explanation of when coverage terminates. 

 

B. Conversion When an employee's insurance terminates other than by voluntary

cancellation, an assignee has the right to convert all or a portion of

the life insurance to an individual policy on the employee. 

If the insurance is assigned to more than one assignee, each

assignee has the right to convert all or part of his or her share of the

insurance. Any assignee who does not convert loses all interest in

the insurance unless the insured person is entitled to continue

coverage as a retiree or compensationer (see section IX).
12

 

C. Conversion

when there

are multiple

assignees

When multiple assignees have been named and they wish to convert

the assigned insurance to individual policies on the employee, the

maximum amount of insurance each assignee may convert is the

dollar amount of the assignee's share of the total insurance. If the

amount is not a multiple of $1,000, it is rounded up to the next

thousand dollar amount.

 

D. Rates for

converted life

insurance

Rates for converted life insurance are based on the employee's

attained age and class of risk at the time the conversion policy is

issued.

 

XI. TERMINATION OF ASSIGNMENT

A. Termination

of assignment

An assignment terminates 31 days after the life insurance

terminates, unless the insured person is reemployed during the 31-

day period in a position in which the insurance resumes. That date

coincides with the expiration of the 31-day temporary extension of

coverage and the cancellation of designations of beneficiary. Once

terminated, the assignment does not resume if the person is later

reemployed in a position in which he or she again has FEGLI

coverage. Instead, the employee must make a new assignment if he

or she wants someone else to have ownership of the life insurance.

 

B. When assignee

cancels life

insurance 

When an assignee cancels the life insurance, there is no 31-day

temporary extension of coverage. The assignment terminates

permanently at the same time the life insurance terminates. 

 
13

Abby L. Block, Chief

Insurance Policy and 

 Information Division

Attachment

G:\COMMON\OIP\INS\SEARS\ASSIGN.BAL October 4, 1995
14

Attachment to BAL 95-221

(Sample letter for notifying assignees of the assignment.)

Jane Doe

123 Main Street

Anytown, US 00000-0000

Dear Ms. Doe:

This is to notify you that (name of employee) has assigned percent of ownership of his/her

coverage in the Federal Employees' Group Life Insurance (FEGLI) Program to you. (Name of

employee) has Basic Life plus (Option A--Standard and Option B--Addition at times his/her

annual pay.) The enclosed booklet explains the features of the different type of insurance.

You are the beneficiary of the life insurance coverage, and you will be entitled to the benefits

upon the death of (name of employee). However, we urge you to designate a contingent

beneficiary to receive the benefits in the event that you die before (name of employee). To do

this, complete the attached Designation of Beneficiary form and return it to (name and address of

employing office). To designate a contingent beneficiary, name yourself as primary beneficiary

and another person to receive benefits in case you die before the insured person. See example 3

on the form.

It is important that you tell us when your address changes, so that we can notify you if events

occur that affect the life insurance coverage that has been assigned to you. When you write us to

tell us about a change of address, be sure to include the name and social security number of the

insured employee.

Sincerely,