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                                                       Calendar No. 590
105th Congress                                                   Report
                                 SENATE

 2d Session                                                     105-337
_______________________________________________________________________


 
            FEDERAL EMPLOYEES LIFE INSURANCE IMPROVEMENT ACT

                               __________

                              R E P O R T

                                 OF THE

                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                              to accompany

                               H.R. 2675

  TO REQUIRE THAT THE OFFICE OF PERSONNEL MANAGEMENT SUBMIT PROPOSED 
   LEGISLATION UNDER WHICH GROUP UNIVERSAL LIFE INSURANCE AND GROUP 
 VARIABLE UNIVERSAL LIFE INSURANCE WOULD BE AVAILABLE UNDER CHAPTER 87 
         OF TITLE 5, UNITED STATES CODE, AND FOR OTHER PURPOSES





               September 21, 1998.--Ordered to be printed


                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   FRED THOMPSON, Tennessee, Chairman
WILLIAM V. ROTH, Jr., Delaware       JOHN GLENN, Ohio
TED STEVENS, Alaska                  CARL LEVIN, Michigan
SUSAN COLLINS, Maine                 JOSEPH I. LIEBERMAN, Connecticut
SAM BROWNBACK, Kansas                DANIEL K. AKAKA, Hawaii
PETE V. DOMENICI, New Mexico         RICHARD J. DURBIN, Illinois
THAD COCHRAN, Mississippi            ROBERT G. TORRICELLI, New Jersey
DON NICKLES, Oklahoma                MAX CLELAND, Georgia
ARLEN SPECTER, Pennsylvania

          Hannah S. Sistare, Staff Director and Chief Counsel
                       Dan Blair, Senior Counsel
               Ann C. Rehfuss, Professional Staff Member
   Subcommittee on International Security, Proliferation and Federal 
                                Services
                 Leonard Weiss, Minority Staff Director
                       Lynn L. Baker, Chief Clerk



                            C O N T E N T S

                                                                   Page
  I. Purpose..........................................................1
 II. Background.......................................................1
III. Legislative history..............................................4
 IV. Section-by-section analysis......................................4
  V. Regulatory impact statement......................................6
 VI. CBO cost estimate................................................6
VII. Changes in existing law.........................................10



                                                       Calendar No. 590
105th Congress                                                   Report
                                 SENATE

 2d Session                                                     105-337
_______________________________________________________________________


            FEDERAL EMPLOYEES LIFE INSURANCE IMPROVEMENT ACT

                                _______
                                

               September 21, 1998.--Ordered to be printed

_______________________________________________________________________


Mr. Thompson, from the Committee on Governmental Affairs, submitted the 
                               following

                              R E P O R T

                  [To accompany H.R. 2675, as amended]

    The Committee on Governmental Affairs, to which was 
referred the bill (H.R. 2675) to provide for the Office of 
Personnel Management (OPM) to conduct a study and submit a 
report to Congress on the provision of certain options for 
universal life insurance coverage and additional death and 
dismemberment insurance under chapter 87 of title 5, United 
States Code, and for other purposes, having considered the 
same, reports favorably thereon with amendments and recommends 
that the bill as amended do pass.

                               I. Purpose

    H.R. 2675, the Federal Employees Life Insurance Improvement 
Act, is designed to improve the structure and administration of 
the life insurance program provided by the Federal Government 
for its civilian employees and retirees under chapter 87 of 
title 5, United States Code, and for other purposes.

                             II. Background

    The Federal Employees Group Life Insurance Program (FEGLI) 
was established by the Federal Employees Group Life Insurance 
Act of 1954, P.L. 83-598 and is codified in chapter 87, title 
5, United States Code. The program provides employees, 
retirees, and their family members with group life insurance 
coverage. The program is managed by the Office of Personnel 
Management and has been administered through a contract with 
Metropolitan Life Insurance Company.
    H.R. 2675 was introduced by Representative John Mica to 
improve the administration and structure of the FEGLI program. 
Following its approval by the House of Representatives, the 
legislation was referred to the Committee on Governmental 
Affairs. During consideration of the legislation by the 
Committee, Senator Cochran introduced an amendment in the 
nature of a substitute. Further, Senator Levin introduced an 
amendment to the substitute amendment offered by Senator 
Cochran. Both amendments were adopted by the Committee.

Current law

    Under current law, as codified in 5 U.S.C. Sec. Sec. 8701-
8716, federal employees are allowed to purchase basic term life 
insurance coverage equal to their actual annual basic pay 
(rounded up to the next $1,000) plus $2,000. The maximum basic 
insurance amount is the actual rate of annual basic pay payable 
for positions at Level II of the Executive Schedule plus 
$2,000. In addition, employees may supplement their basic life 
insurance with three forms of optional insurance. Option A 
allows employees to buy $10,000 of additional life insurance as 
well as additional accidental death and dismemberment 
insurance. Under Option B, federal employees may buy additional 
life insurance equal to one, two, three, four, or five times 
their annual basic pay. Under Option C, employees may purchase 
life insurance for their family members at the fixed amount of 
$5,000 (for a spouse) or $2,500 (for each dependent child).
    Except for the Postal Service, which pays the full cost of 
FEGLI basic insurance for its employees, federal agencies pay 
one-third of the basic insurance cost, and their employees pay 
the other two-thirds. The cost of optional life insurance is 
borne fully by the employees electing such coverage. Beginning 
at age 65, employees are no longer required to pay for the 
insurance, but its face value declines at the rate of two 
percent a month until depleted.
    The FEGLI program offers an accelerated death benefit, or 
``living benefit'' option, which allows terminally ill 
employees with a life expectancy of no longer than nine months 
to elect to receive a lump-sum payment. Employees may also 
assign their insurance to any person or persons they choose by 
way of a viatical settlement. Both the living benefit election 
and thereassignment of policy are irrevocable.

Overview of amendment

    H.R. 2675, as amended by Senator Cochran's amendment in the 
nature of a substitute, would require the Office of Personnel 
Management to conduct a study on federal employees'' interest 
in being offered group universal life insurance, group variable 
universal life insurance, and additional voluntary accidental 
death and dismemberment insurance coverage. Universal life 
insurance generally refers to a whole life policy with flexible 
premiums, adjustable death protection, and a cash value 
accumulated at current rates of interest. Universal life 
insurance offers both insurance protection (in effect, term 
insurance) and savings, i.e., the ability to accumulate a cash 
value in the policy by making contributions in excess of the 
level required to provide the term insurance death benefit. 
Variable universal life insurance refers to the premium 
flexibility and policy adjustment features of the universal 
life policy with the policy owner-directed investment aspects 
of variable life insurance. Variable universal life policies 
are technically classified as securities, and are subject to 
regulation by the Securities and Exchange Commission.
    In addition, H.R. 2675, as reported, would change FEGLI in 
several other ways. The bill would repeal the maximum 
limitation on base pay used for insurance calculation (5 U.S.C 
Sec. 8710(c) and Sec. 8714(b)). It is expected that this change 
would affect about 200 senior level executives, congressional, 
and judicial employees whose pay is not limited to level II of 
the Executive Schedule. Medium to large employers today 
typically offer group life insurance reflecting an earnings 
multiple of at least one time base salary. This change will 
make FEGLI benefits more comparable with accepted employer 
practice and more equitable to all FEGLI participants.
    This legislation would change the definition of ``family 
member'' for life insurance purposes to include foster 
children. Currently, the definition for a family member 
includes a spouse and any unmarried dependent children under 22 
years of age, or a child over 22 if the child became incapable 
of self-support because of mental or physical disability prior 
to his or her twenty-second birthday (5 U.S.C. 
Sec. 8701(d)(1)(B)). This change would facilitate consistency 
with existing health insurance policies available to federal 
employees.
    Further, with respect to ``family insurance,'' H.R. 2675, 
as reported, would increase the amount of optional life 
insurance for spouses and children that federal employees may 
purchase through FEGLI (5 U.S.C. Sec. 8714c(b)). Employees 
would be able to purchase insurance on a spouse up to $25,000 
and $10,000 per child. OPM must establish an eight week open 
enrollment opportunity to allow employees to elect optional 
insurance coverage without submitting evidence of insurability. 
In addition, this open season would allow employees to begin, 
resume, or increase their life insurance without submitting 
evidence of insurability.
    This legislation provides that employees who had purchased 
life insurance erroneously would be offered the opportunity to 
retain it if the coverage and applicable withholdings have been 
in force for 2 years (5 U.S.C. Sec. 8706). Contractual 
incontestability clauses are standard practice in the insurance 
industry, but currently are not uniformly effective for FEGLI 
purposes if a conflict with statutory requirements arises. 
There is no statutory bar to allowing active employees to 
continue whatever coverage they have reasonably come to rely on 
after discovery of an error. However, FEGLI law requires a 
five-year participation requirement for continuing insurance 
into retirement and insurance that is erroneously continued in 
these cases must be terminated whenever the error is 
discovered. A statutory incontestability provision will 
establish consistent treatment for all enrollees.
    The legislation further provides that employees whose pay, 
annuity, or compensation is insufficient to cover their life 
insurance premiums could have the option to continue their 
insurance coverage by electing to make direct payment through 
the agency or retirement system which administers pay or a 
benefit entitlement (5 U.S.C. Sec. Sec. 8707, 8714(d), 8714b(d) 
and 8714c(d)).
    H.R. 2675, as reported, also would allow employees the 
option to continue full additional optional life insurance at 
their own expense beyond age 65. Further, the bill makes, on a 
temporary basis not to exceed three years, group additional 
optional life insurance portable when an employee leaves the 
federal service.
    Finally, provisions are made to increase from 30 days to 60 
days the period employees and OPM have to appeal a Merit System 
Protection Board appeal to the U.S. Court of Appeals for the 
Federal Circuit (5 U.S.C. Sec. 7703).

                        III. Legislative History

    H.R. 2675 was introduced on October 21, 1997 by 
Representative John Mica (R-FL). The bill was referred to the 
Committee on Government Reform and Oversight and to the 
Subcommittee on Civil Service on October 22, 1997. The 
legislation was marked up, with an amendment, by the 
Subcommittee on October 22, 1997 and by the full Committee on 
October 31, 1997. No hearings were held, nor written testimony 
received. H.R. 2675 was considered by the full House under 
suspension of the rules and was approved by voice vote on Nov. 
4, 1997.
    H.R. 2675 was received in the Senate and referred to the 
Committee on Governmental Affairs on November 5, 1997. On June 
17, the Committee on Governmental Affairs considered H.R. 2675. 
Senator Cochran offered an amendment in the nature of a 
substitute to H.R. 2675. Senator Levin offered an amendment to 
Senator Cochran's substitute amendment to increase the period 
from 30 to 60 days that an employee has to file an appeal of a 
Merit Systems Protection Board (MSPB) decision to the United 
States Court of Appeals for the Federal Circuit. The Committee 
favorably considered the bill and amendments en bloc and 
ordered the bill, as amended, to be reported by voice vote.

                    IV. Section-by-Section Analysis

                          SEC. 1. SHORT TITLE

    This Act may be cited as the ``Federal Employees Life 
Insurance Improvement Act''.

 SEC. 2. STUDY AND REPORT ON CERTAIN LIFE INSURANCE OPTIONS OFFERED TO 
                           FEDERAL EMPLOYEES

    The original House bill required the Office of Personnel 
Management (OPM) to submit proposed legislation within 6 months 
to make group universal life insurance, group variable 
universal life insurance, and additional voluntary accidental 
death and dismemberment insurance available to Federal 
employees. The Committee amendment requires OPM to conduct a 
study to gauge employees'' interest in these additional forms 
of insurance.

       SEC. 3. REPEAL OF MAXIMUM LIMITATION ON EMPLOYEE INSURANCE

    Section 3 of the House bill allows employees the option to 
continue full additional optional life insurance beyond age 65. 
This provision was incorporated into the new section 8 of the 
Committee amendment described below. Section 3 of the Committee 
amendment would repeal the maximum limitation on base pay used 
for insurance calculations thereby allowing these federal 
employees the benefit of life insurance coverage based on their 
full salary. This affects about 200 senior level executive, 
congressional, and judicial employees whose pay is not limited 
to level II of the Executive Schedule.

                     SEC. 4. FOSTER CHILD COVERAGE

    Section 4 of the original House bill provided improved 
optional life insurance for family members. This section has 
been moved to section 9 of the Committee amendment. The new 
language in section 4 adds foster children to the definition of 
``family member'' in section 8701(d)(1). This would make the 
definition of family member for life insurance purposes 
consistent with the definition of family member for health 
insurance purposes in section 8901(5).

             SEC. 5. INCONTESTABILITY OF ERRONEOUS COVERAGE

    This section was added by the Committee amendment. It gives 
employees who were allowed to purchase life insurance 
erroneously the option to retain it if the insurance and 
applicable withholdings have been in force for two years.

           SEC. 6. DIRECT PAYMENT OF INSURANCE CONTRIBUTIONS

    This section allows employees whose pay, annuity, or 
compensation is insufficient to cover the life insurance 
premiums the option to continue their insurance coverage by 
paying the difference through their agency or retirement 
system.

SEC. 7. ADDITIONAL OPTIONAL LIFE INSURANCE CONTINUATION AND PORTABILITY

    This section incorporates provisions from section 3 of the 
original House bill. It allows employees at age 65 the option 
to continue their additional optional insurance, without 
reduction, at their own cost. This section also includes a 
portability provision allowing employees the option to continue 
group additional optional life coverage upon leaving the 
Federal service.

       SEC. 8. IMPROVED OPTIONAL LIFE INSURANCE ON FAMILY MEMBERS

    This new section incorporates section 4 of the original 
House bill. It would increase the amount of life insurance 
employees may purchase on spouses from 5,000 to $25,000 and on 
children from $2,500 to 10,000. It also contains the technical 
and conforming provisions from the former section 4.

                          SEC. 9. OPEN SEASON

    This new section incorporates an expanded open enrollment 
period from section 4 of the original House bill. It would 
require OPM to hold an open enrollment window for a period of 
at least 8 weeks to allow employees to begin, resume, or 
increase group life insurance without submitting evidence of 
insurability. Section 4 of the original House bill only 
provided for an open enrollment window to increase insurance on 
family members.

                 SEC. 10. MERIT SYSTEM JUDICIAL REVIEW

    This new section was added by Senator Levin's amendment to 
Senator Cochran's substitute amendment. This provision 
increases from 30 days to 60 days the period of time employees 
and OPM have to appeal a Merit Systems Protection Board (MSPB) 
decision to the United States Court of Appeals for the Federal 
Circuit.

                        SEC. 11. EFFECTIVE DATES

    This new section contains the effective dates for the new 
life insurance provisions. It also requires OPM to prescribe 
regulations under which existing retirees may elect to continue 
their remaining additional optional insurance.

                     V. Regulatory Impact Statement

    Pursuant to the requirement of paragraph 11(b) of rule XXVI 
of the Standing Rules of the Senate, the Committee has 
considered the regulatory and paperwork impact of H.R. 2675, as 
amended by the United States Senate. The Committee reports that 
H.R. 2675, as amended, will not result in any new regulation of 
individuals or businesses; will have no economic impact on 
individuals, consumers, or businesses affected except for 
additional insurance coverage; will have no impact on personal 
privacy; will have minor one-time impact on paperwork for the 
Office of Personnel Management to prepare a report required by 
section 2 on the provision of certain options for universal 
life insurance coverage and additional death and dismemberment 
insurance; and may have some impact on the number of appeals 
filed with the United States Court of Appeals for the Federal 
Circuit as a result of section 10 which increases the time from 
30 days to 60 days that employees and OPM have to appeal a 
Merit Systems Protection Board (MSPB) decision. H.R. 2675, as 
amended, contains no intergovernmental or private sector 
mandates as defined in the Unfunded Mandates Reform Act of 1995 
(UMRA) and would have no impact on the budgets of state, local, 
or tribal governments.

                         VI. CBO Cost Estimate

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 14, 1998.
Hon. Fred Thompson,
Chairman, Committee on Governmental Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2675, the Federal 
Employees Life Insurance Improvement Act of 1998.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Eric Rollins.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

H.R. 2675--Federal Employees Life Insurance Improvement Act

    Summary: H.R. 2675 would make a number of changes to the 
Federal Employees' Group Life Insurance (FEGLI) program. The 
bill would allow retired federal employees who carry additional 
optional life insurance or optional life insurance on family 
members to continue paying premiums after turning 65 and avoid 
having their coverage phased out. The bill would also increase 
the amount of optional life insurance that employees may 
purchase on family members and would allow separated federal 
employees to continue purchasing additional optional life 
insurance at group rates.
    CBO estimates that this bill would reduce direct spending 
by $69 million during the 1999-2003 period and increase 
discretionary spending by a minor amount. Direct spending would 
decrease because additional FEGLI premiums would be larger than 
additional claims over this period. CBO estimates that employee 
premium payments to FEGLI, which are treated as offsetting 
collections, would rise by $292 million over the 1999-2003 
period and premium payments would increase by $223 million.
    This bill would affect direct spending and therefore be 
subject to pay-as-you-go procedures. H.R. 2675 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act of 1995 (UMRA) and would have no 
impact on the budgets of state, local, or tribal governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 2675 is shown in the following table.

                                                    [By fiscal year, outlays in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      1999    2000    2001    2002    2003     2004     2005     2006     2007     2008
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            SPENDING SUBJECT TO APPROPRIATION
Agency share of FEGLI premiums.....................................  ( \1\
                                                                          )  ( \1\
                                                                                  )  ( \1\
                                                                                          )  ( \1\
                                                                                                  )  ( \1\
                                                                                                          )  ( \1\ )  ( \1\ )  ( \1\ )  ( \1\ )  ( \1\ )
                                                               CHANGES IN DIRECT SPENDING
Increased FEGLI premiums...........................................      -8     -40     -68     -81     -95     -113     -133     -156     -181     -209
Increased FEGLI claims.............................................       1      29      56      64      73       90      111      134      161      192
                                                                    ------------------------------------------------------------------------------------
    Total..........................................................      -7     -11     -12     -17     -21      -22      -22      -22      -20     -17
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.
Note: Components may not sum to totals because of rounding.

    The mandatory costs of this legislation fall within budget 
function 600, Income Security.
    Basis of estimate: Discretionary spending--H.R. 2675 would 
remove the cap on the amount of FEGLI coverage available to 
employees with basic pay at or above Level II of the Executive 
Schedule (currently $136,500). According to the Office of 
Personnel Management (OPM), fewer than 200 people would be 
affected by this change. Discretionary spending would increase 
by about $5,000 annually due to higher agency payments for part 
of these employees' premiums.
    Direct spending--Federal employees may supplement their 
basic FEGLI life insurance with three forms of optional 
insurance. Option A allows employees to buy $10,000 of 
additional life insurance as well as additional accidental 
death and dismemberment insurance. Under Option B, federal 
employees may buy additional life insurance with 1, 2, 3, 4, or 
5 times their annual basic pay. Under Option C, employees may 
purchase life insurance for their family members at the fixed 
amounts of $5,000 for a spouse and $2,500 for each dependent 
child.
    Unlike basic FEGLI life insurance, which requires a 
matching employer contribution, employees pay the full cost of 
any optional FEGLI insurance. If an employee has Option B or C 
coverage for the entire five years prior to retiring or 
receiving worker's compensation, he or she may keep the 
additional insurance after retirement. However, the retiree no 
longer pays premiums after reaching age 65, and the amount of 
coverage decreases by 2 percentage points a month over 50 
months until no coverage is left. Employees who are ineligible 
to continue their FEGLI coverage after leaving government 
service must convert their coverage to an individual policy.
    H.R. 2675 would amend Options B and C in three ways. First, 
employees who continue their Option B or C coverage during 
retirement would be able to continue paying premiums after age 
65 and avoid having the coverage phased out. Second, employees 
would be allowed to select 1, 2, 3, 4, or 5 times the current 
$5,000 and $2,500 coverage amounts under Option C. These 
changes would take effect 180 days after enactment and, with 
one exception, apply only to current and future employees. The 
bill would allow retired employees who are still enrolled in 
Option B to maintain their existing Option B coverage.
    Finally, the bill would make FEGLI benefits more portable 
by allowing federal employees who separate from service and are 
currently ineligible to stay in FEGLI to continue their Option 
B coverage at group rates. This provision would become 
effective 180 days after the bill's enactment and would be in 
effect only for the following three years. After that, coverage 
for the now-ineligible employees still enrolled in Option B 
would end, and those employees would have to convert their 
coverage to individual policies. The bill would also require 
OPM to recommend within three years of the bill's enactment 
whether this insurance should be extended, made permanent, or 
terminated.
    Increased FEGLI premium payments.--A significant number of 
current and retired federal workers have Option B or C 
coverage. Approximately 126,000 retirees carry Option B 
coverage, and 1 million workers and 314,000 retirees have 
Option C coverage. CBO used data from OPM to project the number 
of people who would enroll in Options B and C coverage over the 
next ten years. These projections included the number of 
retirees with Option B or C coverage, the number of retirees 
over age 65, and the average amount of coverage.
    CBO assumed that enrollees in Option C would increase their 
coverage to an average of 3 times the current level. For 
employees enrolled in Option C, this amount is the midpoint of 
the new coverage amounts that would be available. Employees 
currently pay a fixed premium for Option C coverage, and OPM 
has indicated that Option C premiums would increase to reflect 
the rise in available coverage envisioned under H.R. 2675. CBO 
assumed that premiums for Option C would rise in proportion to 
the amount of coverage selected. For example, an employee who 
pays $18.20 for $5,000 of coverage for their spouse would pay 
$54.60 for $15,000 of coverage. Finally, CBO assumed that half 
of the retirees with Option B or C coverage would decide to 
keep their coverage after turning 65.
    For the bill's portability provisions for Option B 
coverage, CBO assumed that about 120,000 employees would 
separate from federal service annually, and that about 43 
percent of them would be enrolled in Option B, which is the 
participation rate for all federal employees. Based on 
information from the Employee Benefit Research Institute, about 
75 percent of private-sector employees participate in employer-
provided life insurance. CBO assumed that 75 percent of the 
employees separating from federal service would get life 
insurance through their new employer, and that two-thirds of 
the remaining 25 percent would stay enrolled in Option B.
    Based on these assumptions, CBO estimated that premium 
payments from retirees with Option B coverage would increase by 
$183 million over the 1999-2003 period. Premiums from current 
employees and retirees with Option C coverage would rise by $84 
million and $14 million, respectively. Premiums from separated 
employees who would continue their Option B coverage would be 
$11 million.
    Increased FEGLI claims payments.--Because federal employees 
and retirees would purchase more FEGLI coverage, payments of 
claims would increase under H.R. 2675. Using data from OPM, CBO 
estimated the number of claims that would be made under Options 
B and C and the average amount of each claim. Separate 
projections were made for current employees, separated 
employees, and retirees.
    Claims payments to retirees with Option B coverage would 
rise by $108 million during the 1999-2003 period as some 
retirees keep their coverage past age 65. CBO estimates that 
claims for separated employees in Option B would be $14 
million. Claims payments for current employees enrolled in 
Option C would increase by $95 million, while claims for 
retirees with Option C would increase by $6 million.
    Other provisions.--H.R. 2675 contains a number of other 
provisions that CBO estimates would not have a significant 
budgetary impact. These provisions include requiring OPM to 
conduct a study on expanding the types of insurance available 
under FEGLI, including foster children under the FEGLI 
definition of ``family member,'' and allowing FEGLI enrollees 
to pay their premiums directly if their pay or annuity is too 
small to pay premiums through withholding. The bill would also 
lengthen the time that a federal employee has to seek judicial 
review of a decision of the Merit Systems Protection Board from 
30 days to 60 days.
    Pay-as-you-go considerations: The provisions of this bill 
would affect direct spending and therefore be subject to pay-
as-you-go procedures. The pay-as-you-go procedures cover only 
the current year, budget year, and the succeeding four years.

                                    [By Fiscal Year, in Millions of Dollars]
----------------------------------------------------------------------------------------------------------------
                                   1999    2000    2001    2002    2003    2004    2005    2006    2007    2008
----------------------------------------------------------------------------------------------------------------
Change in outlays...............      -7     -11     -12     -17     -21     -22     -22     -22     -20     -17
Change in receipts..............       0       0       0       0       0       0       0       0       0       0
----------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: H.R. 2675 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act of 1995 (UMRA) and 
would have no impact on the budgets of state, local, or tribal 
governments.
    Comparision with other estimates: On November 4, 1997, CBO 
issued an estimate for H.R. 2675 as reported by the House 
Committee on Government Reform and Oversight. That version of 
H.R. 2675 was estimated to reduce direct spending by $72 
million between 1998 and 2002. Like the more recent version of 
H.R. 2675, the Government Reform bill would allow retirees with 
Option B or C coverage to continue paying premiums after age 65 
and maintain their coverage, and would increase the amounts of 
coverage available under Option C. However, the Government 
Reform version of H.R. 2675 did not contain any provision for 
continued Option B coverage for separated employees.
    Estimate prepared by: Federal cost: Eric Rollins. Impact on 
State, local, and tribal governments: Leo Lex. Impact on the 
private sector: Matthew Eyles.
    Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

                      VII. Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
H.R. 2675, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
material is printed in italic, existing law in which no change 
is proposed is shown as roman):

                           UNITED STATES CODE

TITLE 5--GOVERNMENT ORGANIZATION AND EMPLOYEES

           *       *       *       *       *       *       *


CHAPTER 77--APPEALS

           *       *       *       *       *       *       *


Sec. 7703. Judicial review of decisions of the Merit Systems Protection 
                    Board

    (a) * * *
    (b)(1) Except as provided in paragraph (2) of this 
subsection, a petition to review a final order or final 
decision of the Board shall be filed in the United States Court 
of Appeals for the Federal Circuit. Notwithstanding any other 
provision of law, any petition for review must be filed [within 
30 days] within 60 days after the date the petitioner received 
notice of the final order or decision of the Board.

           *       *       *       *       *       *       *

     (d) The Director of the Office of Personnel Management may 
obtain review of any final order or decision of the Board by 
filing, within 60 days after the date the Director received 
notice of the final order or decision of the Board, a petition 
for review in the United States Court of Appeals for the 
Federal Circuit if the Director determines, in his discretion, 
that the Board erred in interpreting a civil service law, rule, 
or regulation affecting personnel management and that the 
Board's decision will have a substantial impact on a civil 
service law, rule, regulation, or policy directive. If the 
Director did not intervene in a matter before the Board, the 
Director may not petition for review of a Board decision under 
this section unless the Director first petitions the Board for 
a reconsideration of its decision, and such petition is denied. 
In addition to the named respondent, the Board and all other 
parties to the proceedings before the Board shall have the 
right to appear in the proceeding before the Court of Appeals. 
The granting of the petition for judicial review shall be at 
the discretion of the Court of Appeals.

           *       *       *       *       *       *       *


CHAPTER 87--LIFE INSURANCE

           *       *       *       *       *       *       *


Sec. 8701. Definitions

    (a) * * *

           *       *       *       *       *       *       *

     (c) For the purpose of this chapter, ``basic insurance 
amount'' means, in the case of any employee under this chapter, 
an amount equal to the greater of--
          (1) the annual rate of basic pay payable to the 
        employee, rounded to the next higher multiple of 
        $1,000, plus $2,000, or
          (2) $10,000[,
except that the amount of insurance may not exceed the annual 
rate of basic pay payable for positions at level II of the 
Executive Schedule under section 5313 of this title, rounded to 
the next higher multiple of $1,000, plus $2,000.]. In the case 
of any former employee entitled to coverage under this chapter, 
the term means the basic insurance amount applicable for the 
employee at the time the insurance to which the employee is 
entitled as an employee under this chapter stops pursuant to 
section 8706(a) of this title.

           *       *       *       *       *       *       *

    (d)(1) For the purpose of this chapter, ``family member'', 
when used with respect to any individual, means--
          (A) the spouse of the individual; and
          (B) an unmarried dependent child of the individual 
        (other than a stillborn child), including an adopted 
        child, stepchild or foster child (but only if the 
        stepchild or foster child lived with the individual in 
        a regular parent-child relationship), or recognized 
        natural child--
                  (i) who is less than 22 years of age, or
                  (ii) who is 22 years of age or older and is 
                incapable of self support because of a mental 
                or physical disability which existed before the 
                child became 22 years of age.

           *       *       *       *       *       *       *


Sec. 8706. Termination of insurance; assignment of ownership

    (a) * * *

           *       *       *       *       *       *       *

    (g) The insurance of an employee under a policy purchased 
under section 8709 shall not be invalidated based on a finding 
that the employee erroneously became insured, or erroneously 
continued insurance upon retirement or entitlement to 
compensation under subchapter I of chapter 81 of this title, if 
such finding occurs after the erroneous insurance and 
applicable withholdings have been in force for 2 years during 
the employee's lifetime.

Sec. 8707. Employee deductions; withholding

    [(a) During] (a) Subject to subsection (c)(2), during each 
period in which an employee is insured under a policy purchased 
by the Office of Personnel Management under section 8709 of 
this title, there shall be withheld from the employee's pay a 
share of the cost of the group life insurance and accidental 
death and dismemberment insurance.
    [(b)(1) Whenever] (b)(1) Subject to subsection (c)(2), 
whenever life insurance continues after an employee retires on 
an immediate annuity of while the employee is receiving 
compensation under subchapter I of chapter 81 of this title 
because of disease or injury to the employee, as provided in 
section 8706(b) of this title, deductions for insurance shall 
be withheld from the employee's annuity of compensation, except 
that, in any case in which the insurance is continued as 
provided in section 8706(b)(3)(A) of this title, the deductions 
shall not be made for months after the calendar month in which 
the employee becomes 65 years of age.

           *       *       *       *       *       *       *

     (c)(1) The amount withheld from the pay, annuity, or 
compensation of each employee subject to insurance deductions 
shall be at the rate, adjusted to the nearest half-cent, of 
66\2/3\ percent of the level cost as determined by the Office 
for each $1,000 of the employee's basic insurance.
     (2) An employee who is subject to withholdings under this 
section and whose pay, annuity, or compensation is insufficient 
to cover such withholdings may nevertheless continue insurance 
if the employee arranges to pay currently into the Employees' 
Life Insurance Fund, through the agency or retirement system 
that administers pay, annuity, or compensation, an amount equal 
to the withholdings that would otherwise be required under this 
section.

           *       *       *       *       *       *       *


Sec. 8714a. Optional insurance

    (a) * * *

           *       *       *       *       *       *       *

    (d)(1) * * *

           *       *       *       *       *       *       *

    (3) Notwithstanding paragraph (1), an employee who is 
subject to withholdings under this subsection and whose pay, 
annuity, or compensation is insufficient to cover such 
withholdings may nevertheless continue optional insurance if 
the employee arranges to pay currently into the Employees' Life 
Insurance Fund, through the agency that administers pay, 
annuity, or compensation, an amount equal to the withholdings 
that would otherwise be required under this subsection.

           *       *       *       *       *       *       *


Sec. 8714b. Additional optional life insurance

    (a) * * *
    (b) The additional life insurance provided under this 
section shall be made available to each eligible employee who 
has elected coverage under this section, under conditions the 
Office shall prescribe, in multiples, at the employee's 
election, of 1, 2, 3, 4, or 5 times the annual rate of basic 
pay payable to the employee (rounded to the next higher 
multiple of $1,000) [except that coverage may not exceed an 
amount equal to 5 times the annual rate of basic pay payable 
for positions at level II of the Executive Schedule under 
section 5313 of this title (rounded to the next higher multiple 
of $1,000).].
    (c)(1) * * *
    (2) in the case of any employee who retires on an immediate 
annuity or who becomes entitled to receive compensation under 
subchapter I of chapter 81 of this title because of disease or 
injury to the employee, so much of the additional optional 
insurance as has been in force for not less than--
          (A) the 5 years of service immediately preceding the 
        date of retirement or entitlement to compensation, or
          (B) the full period or periods of service during 
        which the insurance was available to the employee, if 
        fewer than 5 years,
may be continued under conditions determined by the Office 
after retirement or while the employee is receiving 
compensation under subchapter I of chapter 81 of this title and 
is held by the Secretary of Labor (or the Secretary's delegate) 
to be unable to return to duty. [The amount of insurance under 
this paragraph shall be reduced each month by 2 percent 
effective at the beginning of the second calendar month after 
the date the employee becomes 65 years of age and is retired or 
is in receipt of compensation. The reduction shall continue for 
50 months at which time the insurance stops.]
    (3) The amount of additional optional insurance continued 
under paragraph 2 shall be continued, with or without 
reduction, in accordance with the employee's written election 
at the time eligibility to continue insurance during retirement 
or receipt of compensation arises, as follows:
          (A) The employee may elect to have withholdings cease 
        in accordance with subsection (d), in which case--
                  (i) the amount of additional optional 
                insurance continued under paragraph (2) shall 
                be reduced each month by 2 percent effective at 
                the beginning of the calendar month after the 
                date the employee becomes 65 years of age and 
                is retired or is in receipt of compensation; 
                and
                  (ii) the reduction under clause (i) shall 
                continue for 50 months at which time the 
                insurance shall stop.
          (B) The employee may, instead of the option under 
        subparagraph (A), elect to have the full cost of 
        additional optional life insurance continue to be 
        withheld from such employee's annuity or compensation 
        on and after the date such withholdings would otherwise 
        cease pursuant to an election under subparagraph (A), 
        in which case the amount of additional optional 
        insurance continued under paragraph (2) shall not be 
        reduced, subject to paragraph (4).
                  (C) An employee who does not make any 
                election under the preceding provisions of this 
                paragraph shall be treated as if such employee 
                had made an election under subparagraph (A).
    (4) If an employee makes an election under paragraph 
(3)(B), that individual may subsequently cancel such election, 
in which case additional optional insurance shall be determined 
as if the individual had originally made an election under 
paragraph (3)(A).
    (5)(A) An employee whose additional optional insurance 
under this section would otherwise stop in accordance with 
paragraph (1) and who is not eligible to continue insurance 
under paragraph (2) may elect, under conditions prescribed by 
the Office of Personnel Management, to continue all or a 
portion of so much of the additional optional insurance as has 
been in force for not less than--
          (i) the 5 years of service immediately preceding the 
        event which would cause insurance to stop under 
        paragraph (1); or
          (ii) the full period or periods of service during 
        which the insurance was available to the employee, if 
        fewer than 5 years,
at group rates established for purposes of this section, in 
lieu of conversion to an individual policy. The amount of 
insurance continued under this paragraph shall be reduced by 50 
percent effective at the beginning of the second calendar month 
after the date the employee or former employee attains age 70 
and shall stop at the beginning of the second calendar month 
after attainment of age 80, subject to a provision for 
temporary extension of life insurance coverage and for 
conversion to an individual policy of life insurance under 
conditions approved by the Office. Alternatively, insurance 
continued under this paragraph may be reduced or stopped at any 
time the employee or former employee elects.
    (B) When an employee or former employee elects to continue 
additional optional insurance under this paragraph following 
separation from service or 12 months without pay, the insured 
individual shall submit timely payment of the full cost 
thereof, plus any amount the Office determines necessary to 
cover associated administrative expenses, in such manner as the 
Office shall prescribe by regulation. Amounts required under 
this subparagraph shall be deposited, used, and invested as 
provided under section 8714 and shall be reported and accounted 
for together with amounts withheld under section 8714a(d).
    (C)(i) Subject to clause (ii), no election to continue 
additional optional insurance may be made under this paragraph 
3 years after the effective date of this paragraph.
    (ii) On and after the date on which an election may not be 
made under clause (i), all additional optional insurance under 
this paragraph for former employees shall terminate, subject to 
a provision for temporary extension of life insurance coverage 
and for conversion to an individual policy of life insurance 
under conditions approved by the Office.
    (d)(1) During each period in which the additional optional 
insurance is in force on an employee the full cost thereof 
shall be withheld from an employee's pay. During each period in 
which an employee continues additional optional insurance after 
retirement or while in receipt of compensation under subchapter 
I of chapter 81 of this title because of disease or injury to 
the employee, as provided in subsection (c) of this section, 
the full cost thereof shall be withheld from the former 
employee's annuity or compensation, except that, if insurance 
is continued as provided under subsection (c)(3)(A), beginning 
at the end of the calendar month in which the former employee 
becomes 65 years of age, the additional optional insurance 
shall be without cost to the former employee. Amounts so 
withheld (and any amounts withheld as provided in subsection 
(c)(3)(B)) shall be deposited, used, and invested as provided 
in section 8714 of this title and shall be reported and 
accounted for together with amounts withheld under section 
8714a(d) of this title.

           *       *       *       *       *       *       *

    (3) Notwithstanding paragraph (1), an employee who is 
subject to withholdings under this subsection and whose pay, 
annuity or compensation is insufficient to cover such 
withholdings may nevertheless continue additional optional 
insurance if the employee arranges to pay currently into the 
Employees' Life Insurance Fund, through the agency or 
retirement system which administers pay, annuity, or 
compensation, an amount equal to the withholdings that would be 
required under this subsection.

           *       *       *       *       *       *       *


Sec. 8714c. Optional insurance on family members

    (a) * * *
    (b)(1) The optional life insurance on family members 
provided under this section shall be made available to each 
eligible employee who has elected coverage under this section, 
under conditions the Office shall prescribe, in multiples, at 
the employee's election, of 1, 2, 3, 4, or 5 times--
          (A) $5,000 for a spouse; and
          (B) $2,500 for each child described under section 
        8701(d).
    (2) An employee may reduce or stop coverage elected 
pursuant to this section at any time.
    (c)(1) * * *
    (2) In the case of any employee who retires on an immediate 
annuity or who becomes entitled to receive compensation under 
subchapter I of chapter 81 of this title because of disease or 
injury to the employee and who has had in force insurance under 
this section for no less than--
          (A) the 5 years immediately preceding the date of 
        retirement or entitlement to compensation, or
          (B) the full period or periods of service during 
        which the insurance was available to the employee, if 
        fewer than 5 years,
optional insurance on family members may be continued under the 
same conditions as provided in [in section 8714b(c)(2) of this 
title] section 8714b(c)(2) through (4).
    (d)(1) During each period in which the optional life 
insurance on family members is in force the full cost thereof 
shall be withheld from the employee's pay. During each period 
in which an employee continues optional insurance on family 
members after retirement or while in receipt of compensation 
under subchapter I of chapter 81 of this title because of 
disease or injury to the employee, as provided in subsection 
(c) of this section, the full cost shall be withheld from the 
annuity or compensation, except that beginning at the end of 
the calendar month in which the former employee becomes 65 
years of age, the optional life insurance on family members 
shall be without cost to the employee. Notwithstanding the 
preceding sentence, the full cost shall be continued after the 
calendar month in which the former employee becomes 65 years of 
age if, and for so long as, an election under this section 
corresponding to that described in section 8714b(c)(3)(B) 
remains in effect with respect to such former employee. Amounts 
so withheld shall be deposited, used, and invested as provided 
in section 8714 of this title and shall be reported and 
accounted for together with amounts withheld under section 
8714a(d) of this title.
    (2) * * *
    (3) Notwithstanding paragraph (1), an employee who is 
subject to withholdings under this subsection and whose pay, 
annuity, or compensation is insufficient to cover such 
withholdings may nevertheless continue optional life insurance 
on family members if the employee arranges to pay currently 
into the Employees' Life Insurance Fund, through the agency or 
retirement system that administers pay, annuity, or 
compensation, an amount equal to the withholdings that would 
otherwise be required under this subsection.