What Federal Employees Who Plan to Retire During 2022 Need to Consider about the Current FEHB and FEDVIP Benefits’ “Open Season”
Edward A. Zurndorfer
While they are in federal service, federal employees are privileged to have one of the most important employer-sponsored benefits in the form of group health insurance. Employees enrolled in the Federal Employees Health Benefits Program (FEHBP) pay on average 25 to 28 percent of FEHBP health plan premiums they are enrolled in. Their agencies pay the other 72 to 75 percent of the FEHBP health plan premiums. It makes no difference which type of FEHBP health plan the employee is enrolled in, nor the type of health insurance coverage the employee has elected (self only, self plus one eligible family member, or self and multiple family members). Employees can change their FEHBP health plan each year during the “open season” held from the second Monday of November until the second Monday of December.
One of the most noteworthy features of the FEHBP is that the benefit continues into and throughout the employee’s retirement years. A federal government retiree is eligible to keep his or her FEHBP insurance throughout retirement in which: (1) the retiree pays on average 25 to 28 percent of the FEHBP premiums (like employees); and (2) can include eligible family on their FEHBP plans (like employees) throughout retirement. They can change their FEHBP health plan each year during the “open season” (like employees). In order to be eligible for this retirement benefit, a retiring employee must meet all of the following requirements:
- Be entitled to retire on an “immediate” annuity under a retirement system (CSRS or FERS). An “immediate” annuity includes the FERS “MRA+10” and “MRA+20” immediate but “reduced” retirement
- Has been continuously enrolled in his or her name or included in coverage under the FEHBP plan of a family member who is a federal employee (such as a spouse) for the five years of service immediately before the day the retired employee’s CSRS or FERS annuity starts. Note that the time an employee is covered under TriCare (the group health insurance plan covering retired members of the Uniformed Services) counts toward the five-year requirement as long as the employee is covered under an FEHBP enrollment at least one day during last year of the employee’s federal employment.
For those employees who plan to retire sometime during 2022, it is important for these employees to review these requirements during the current FEHBP “open season” in order to make sure they can continue their health benefits immediately upon retiring from federal service sometime during 2022. If for some reason an employee does not meet one or both of these requirements, then the employee may be forced to postpone their retirement until the following year or later.
Entitled to an ‘immediate” CSRS or FERS Annuity
Those employees who will be eligible for an “immediate” annuity upon retiring from federal service are eligible to keep their FEHBP benefit throughout retirement. “Immediate” annuity means the retired employee will receive his or her CSRS or FERS annuity check one to two months after retiring. The following two examples illustrate:
Example 1. William plans to retire with 30 years of FERS service at age 60 on December 31, 2021. He is eligible to retire under an immediate retirement. His retirement will become effective on Jan.1, 2022, and he will receive his first FERS annuity check on Feb. 1, 2022.
Example 2. Randi plans to retire at age 60 on Dec. 31, 2021, with 15 years of FERS service under the FERS “MRA+10” retirement. Randi has been enrolled in the FEHBP throughout all of her federal service and wants to keep her health insurance for retirement. Since Randi has less than 20 years of federal service, when she retires at age 60 her FERS annuity check will be permanently reduced by 5 percent per year that she is under age 62 (two years), or two times 5 percent for a total of 10 percent.
If an employee chooses to leave federal service before he or she is eligible for an immediate retirement and chooses a deferred retirement, then the employee will permanently lose FEHBP coverage. In a deferred retirement, the departing employee will receive his or her FERS annuity at a late date. That date depends on how many years of service the employee had at the time of his or her leaving federal service. Although the employee may have been enrolled in the FEHBP all the years he or she was in federal service, the departed employee is not eligible for FEHBP once the deferred FERS annuity begins.
Five-year FEHBP Participation Rule
A retiring employee who wants to retain his or her FEHBP health insurance coverage throughout retirement must have been enrolled in the FEHBP (any health plan) under the employee’s name or enrolled through an eligible family member (such as a spouse who is also a federal employee) for at least the five-year period ending on the day the employee retires. The five-year period is continuous, with no breaks of coverage.
Employees who plan to retire in late 2021 or sometime during 2022 need to recheck their five-year FEHBP participation status before finalizing their retirement date. The following example illustrates:
Example 3. Sandford became a federal employee on Aug. 1, 2014, at the age of 57 after retiring from his private industry job. He joined the federal government at age 57 for the main purpose of getting health insurance for himself and his wife for their retirement. His goal was to enroll in the FEHBP, work five or six years, and retire at age 62 with a small FERS annuity and FEHBP benefits for retirement.
Sandford enrolled in the FEHBP in November 2014 during the ‘open season”, with his FEHBP coverage becoming effective on the first day of the 2015 leave year – Jan.11, 2015. Sandford had five years of continuous federal service as of Aug.1, 2019, and decided to retire initially on Dec. 31, 2019. He was told that retiring at the end of December is advantageous from a tax standpoint as well as for other reasons. He was eligible to retire on Dec. 31, 2019, since he had over five years of FERS-covered service and he was age 62. However, after meeting with his retirement specialist, Sandford discovered that while he was eligible to retire on Dec. 31, 2019, he would not be eligible to keep his FEHBP health insurance during retirement. This is because Sandford’s FEHBP insurance became effective Jan. 11, 2015. Five continuous years of FEHBP enrollment means that the earliest date he could retire would be Jan. 11, 2020. If Sanford would have retired on Dec. 31, 2019, the effective date of his retirement would have been Jan. 1, 2020, 10 days before Jan. 11, 2020, and therefore making him ineligible to keep FEHBP health insurance in retirement. Sandford, therefore, changed his retirement date to Jan. 31, 2020. He was therefore able to keep his enrollment in FEHBP throughout retirement for himself and for his wife.
Family Members Continuing Coverage After Death of Annuitant
Family members – this includes a spouse and children under the age of 26 – can continue their FEHBP coverage after the death of a retiree if the surviving spouse of the deceased retiree had elected to give their spouse a CSRS or FERS spousal survivor annuity.
With respect to a spouse, there are two requirements to keep FEHBP coverage for a surviving spouse only (self-only coverage) and for the surviving spouse and children (under the age of 26). These requirements are: (1) the surviving spouse must receive a survivor annuity; and (2) the surviving spouse has to be enrolled on the deceased retiree’s FEHBP health plan at the time of the retiree’s death.
It has happened that a federal employee has elected to give a survivor annuity at the time he or she retired from federal service. However, the retiree’s spouse was not included in the retiree’s FEHBP health plan. This typically happens when a spouse has or her own individual health insurance. In this case, when the retiree dies the surviving spouse will not be able to enroll in the FEHBP, even though he or she is receiving a surviving annuity.
Those employees who will be retiring during 2022 and who want to make sure eligible family members keep their FEHBP health insurance coverage are highly encouraged to do the following during the current “open season”:
- Make sure they are giving a survivor annuity to their spouse
- Make sure their spouse is enrolled on their FEHBP plan – even if their spouse has his or her own health insurance. Note that adding a spouse who currently has his or her own health insurance can only be done during an “open season.”
Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be dependable, but we do not guarantee that the foregoing material is accurate or complete. While the employees of Serving Those, Who Serve are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
