Understanding FEHB Costs After Retirement: A Comprehensive Guide

Making Withholdings and Contributions

Beginning with the first pay period after an enrollment takes effect, the employing office is required to make the necessary contributions to and withholdings from health benefits premiums. For each pay period that the enrollment is maintained, it must submit the entire enrollment cost to OPM, even if the employee is only paid for a portion of the period (apart from in situations involving transfers and reinstatements) or is on leave without pay status.

To ensure that the health benefits premium withholding is accurate, employees should check their earnings statement, and annuitants should check their annuity statement (if their annuity has their health benefits premium deducted from it). If there are any discrepancies, they should report them right away to the employing office or retirement system. Regardless of any mistakes made by the employing office or retirement system regarding withholding, all enrollees are required to make the correct payment. When annuities or pay are withheld for health benefits insufficiently or not at all, enrollees become debtors to the U S. Government for the appropriate deductions for each pay period during which the enrolment is maintained

The last day of the pay period in which the terminating event occurred is typically the effective date of an enrollment termination (apart from military service entry). The last day of the pay period in which the employing office receives the cancellation request is the effective date if a person cancels their enrollment. Withholdings and contributions for the full pay period are required.

The last day of the pay period on which the employee paid his or her share of the premiums is the effective date if the coverage ends because the employee is on leave without pay status or has insufficient income to make the withholding and does not choose an alternative payment method.

For 31 days following the enrollment’s termination for any reason—aside from the enrollee’s voluntary cancellation of the enrollment or the discontinuation of their plan—coverage is provided at no cost.

This Handbook’s sections on insufficient pay and leave without pay contain detailed information.

The Daily Proration Rule went into effect on March 1, 1997, and it is applicable when an employee changes jobs and joins a payroll office that services them at a time other than the start of the pay period. The payroll office that experiences gains or losses is accountable for deducting and making contributions for the duration that the employee was employed in that office.

The gaining office must arrange for the employee’s debt to be withheld and forward the amount collected to the employee’s former employing office if the employee owes money for health benefits withholdings to that office.

A daily rate must be computed as follows:

Biweekly withholding and contribution rate x 26 ÷ 364 equals the daily withholding and contribution rate.

Note: Even in leap years, the denominator of 364 is always utilized.

The following formula is used to calculate how much is the responsibility of the losing and gaining payroll offices in terms of withholdings and contributions:

Daily Rate x Days on Payroll

Example Henry transfers to a new agency, effective August 10, during the pay period starting on August 4 and ending on August 17. The employee’s biweekly contribution to his health benefits plan is $21. 46 and the biweekly Government share is $61. 51.

The daily withholding rate is $1. 53 ($21. 46 x 26 ÷ 364), with $4 serving as the daily contribution rate. 39 ($61. 51 x 26 ÷ 364).

For six days (August 4 through August 9), the losing agency is in charge of withholdings and contributions, which are computed as follows: Withholdings: $1 53 daily rate x 6 days = $9. 18 Contributions: $4. 39 daily rate x 6 days = $26. 34.

For eight days (August 10 through August 17), the gaining agency is in charge of withholdings and contributions, which are computed as follows: Withholdings: $1 53 daily rate x 8 days = $12. 24 Contributions: $4. 39 daily rate x 8 days = $35. 12.

Depending on when the employee’s annuity begins, the employing office may be responsible for withholding taxes and contributions after the employee retires.

• The employee’s employing office will make withholdings and contributions for the full final pay period if the annuity begins after that time.
• His or her employing office will use the Daily Proration Rule to make withholdings and contributions up to the day before the annuity starts if the employee’s annuity begins before the end of their final pay period.

To find out when an annuity begins, consult the CSRS/FERS Handbook for Payroll and Personnel Offices.

For instance, Mary Helen will begin receiving her annuity on June 1 and retire on May 31. The pay period runs from May 25 to June 7. Her biweekly employee portion of the $32 monthly health benefits plan premium 26 and the biweekly Government share is $61. 51.

The daily withholding rate is $2. 30 ($32. 26 x 26 ÷ 364), with $4 serving as the daily contribution rate. 39 ($61. 51 x 26 ÷ 364).

For the seven days from May 25 to May 31, her employing office will deduct and contribute the following amounts: Withholdings: $2 30 daily rate x 7 days = $16. 10 Contributions: $4. 39 daily rate x 7 days = $30. 73.

When an enrollee passes away and leaves a survivor annuitant qualified to continue their enrollment, the Daily Proration Rule comes into play. For the pay period in which the enrollee passed away, the employing office is required to make full withholdings and contributions if there is no survivor annuity or if the enrollee had a Self Only enrollment.

If an employee’s enrollment is terminated or reinstated due to their enlistment in or return from military service, the Daily Proration Rule is applicable. The date the employee enlisted in the military or returned from it serves as the action’s effective date.

After being mistakenly suspended or removed, an employee who is retroactively returned to work has the option of having their enrollment reinstated or enrolling in the plan and option of their choosing, just like a new hire. If he or she chooses to have the enrollment restored retroactively, his or her employing office must make contributions from the relevant fund and make withholdings for the duration of the suspension or removal, as if the action had not taken place.

Workers who started working as part-time career employees on or after April 8, 1979, and put in 16 to 32 hours per week or 32 to 64 hours biweekly, are eligible for a partial government contribution based on how many hours they are scheduled to work in a pay period.

Part-time employees who worked less than 16 hours or more than 32 hours per week, as well as those who served on a part-time basis prior to April 8, 1979, and who have continued to serve on a part-time basis without a break in service (in that or any other position), are eligible for the full Government contribution.

The number of hours an employee is scheduled to work during the pay period is divided by the number of hours worked by a full-time employee holding a position that is equivalent to or similar to theirs (usually 80 hours per biweekly pay period) to determine the amount of the government contribution.

The government contribution for full-time employees enrolled in that plan is then adjusted by that percentage.

After deducting the Government contribution from the total premium (Government plus employee shares), the employee’s pay is withheld for the remaining amount.

Faith’s biweekly pay period entails 36 hours of work, with the government contributing $61 toward her health benefits plan. 38 biweekly for full-time employees. The Government contribution for her health benefits is as follows:

36 (scheduled hours during pay period) ÷ 80 (full-time employees’ hours worked) = 4500.

$61. 38 (Government contribution/full-time employees) x . 4500 = $27. 62 (Government contribution/part-time employee).

Given that her health benefits plan’s total premium (government and employee share) is $92, 35, Faiths share of premiums is $64. 73 ($92. 35 – $27. 62).

The following chart displays the factor that the government uses to calculate the health benefit contribution for career part-timers who, in a full-time role, would put in 80 hours over the course of a biweekly pay period (the amount most positions consider full-time employment).

Divide the actual number of hours or days the employee is scheduled to work on the part-time schedule by the number of hours or days required for a full-time employee in the same position to determine the Government contribution factor if the comparable full-time position would require the employee to work a tour of duty other than 80 hours per biweekly pay period, or if the employee is paid on a monthly or semimonthly basis.

Hours Worked on a Regular Bi-Weekly Schedule

Hours	Factor
32	0.4000
33	0.4125
34	0.4250
35	0.4375
36	0.4500
37	0.4625
38	0.4750
39	0.4875
40	0.5000
41	0.5125
42	0.5250
43	0.5375
44	0.5500
45	0.5625
46	0.5750
47	0.5875
48	0.6000
49	0.6125
50	0.6250
51	0.6375
52	0.6500
53	0.6625
54	0.6750
55	0.6875
56	0.7000
57	0.7125
58	0.7250
59	0.7375
60	0.7500
61	0.7625
62	0.7750
63	0.7875
64	0.8000
< 32 or > 64	1.00

Former spouses who are enrolled in the spouse equity program are required to pay the government’s and the employee’s portions of the health benefits premium. Typically, they will pay their ex-spouse’s employment office directly.

Temporary employees enrolled under 5 U. S. C. The government and employee portions of the health benefits premium must be paid by 8906a. (There is an exception if the worker is under 5 CFR 316 with a provisional appointment. 403, an interim appointment under 5 CFR 772. 102, or he/she receives a government contribution if he/she keeps coverage after their employment status shifts from non-temporary to temporary without a break longer than three days. ).

People who enroll under the Temporary Continuence of Coverage (TCC) provisions typically have to pay the full premium amount (employee and government shares combined) in addition to an administrative fee of two percent (2%), or two percent of the total premium. Payments are made directly to the servicing employing office.

Former employees of the Department of Defense who are eligible for TCC because they were separated as a result of a force reduction as outlined in 5 U S. C. Continue to pay the standard employee share of premiums under 8905a (d)(4).

If an employee is on leave without pay for the entirety of a pay period or if their pay during a pay period is insufficient to cover the full amount of withholdings due, they are still required to pay the employee share of health benefits premiums unless they wish to have their enrollment terminated. The employee must be informed of their options by the employing office, and they must be given a way to pay their premiums directly.

On the same day that it pays its payroll, the employing office is required to submit health benefits withholdings and contributions to OPM.

The Retirement and Insurance Transfer System is the means through which payments and supplementary accounting data are sent to OPM (RITS)

The Employees Health Benefits Fund will be credited by OPM with the entire reported amount for health benefits.

Payroll offices are required to correct errors in contributions and withholdings on a subsequent payroll and to include the corrections in a report on subsequent withholdings and contributions.

The hiring office is responsible for making sure that each employee’s personal payroll record reflects both the adjustments and the regular (current) deductions for health benefits withholdings.

The correct appropriation must be adjusted when annual appropriations are involved and the fiscal year changes between processing the incorrect withholdings and/or contributions and processing the adjustment.

IRS regulations stipulate that no changes to taxable income can be made as a result of an error correction when an employee engages in premium conversion (even if the employing office is at fault). The actual amount of FEHB premiums withheld from an employee’s pay will be treated pre-tax when the employing office processes a correction.

For instance, Wendy’s pay has $100 withheld from it each pay period for FEHB. During the final pay period prior to the effective date of her election to participate in premium conversion, her employing office made an error and withheld $150. The agency makes the necessary corrections and deducts $50 for FEHB from Wendy’s pay in the subsequent pay period, making her a premium conversion participant. Though $100 would have been withheld from her pay had it not been for the error, only $50 is withheld and is handled pre-tax.

The payroll office must modify the withholdings on a later payroll on which the individual’s name appears if too much money has been withheld from pay or if withholdings have been made while the person is not enrolled. This adjustment automatically corrects any excess agency contribution.

When the employing office determines the amount of the underdeduction and too little or no money has been withheld from pay for health benefits withholdings, it has sixty calendar days to send the correct payment to OPM. Regardless of when the employing office recovers the underdeduction, this payment needs to be made to OPM.

The underdeduction represents an overpayment of pay. In compliance with 5 U.S.C., the employing office shall decide whether to waive collection of the overpayment (up to $1,500). S. C. 5584. According to the law, if an employing office determines that the employee is not at fault and that recovering the overpayment would be against equity and good conscience, it may choose not to pursue recovery of the overpayment. (If the relevant employing office is exempt from the requirements of 5 U S. C. 5584, it may waive the collection using any relevant authority. ).

The employing office is required to make the payment out of its own funds, together with any applicable government contributions, if it chooses not to pursue the collection of the unpaid health benefits withholdings.

When an employee is on unpaid leave or when their pay is insufficient to cover the withholding, they are not eligible for a waiver of unpaid withholdings.

The payroll office is responsible for adjusting an employee’s final pay (or payment to the employee’s beneficiary or estate) if a change in withholdings is required after the employee has left the company.

FEHB Program Handbook Table of Contents

Typically, the government, acting as the employer, pays a portion of the cost of annuitants’ or employees’ health benefits coverage. Temporary employees enrolled under 5 U. S. C. Most people covered by temporary continuation of coverage (TCC), former spouses enrolled under Spouse Equity provisions, and Section 8906(a) do not receive a government contribution toward the cost of their health benefits.

The Governments share of premiums paid is set by law. The Balanced Budget Act of 1997 (Public Law 105-33, approved August 5, 1997) authorized changes to the FEHB law that made a new formula for determining the government contribution effective January 1999. Because it is intended to maintain a constant level of government contributions as a percentage of overall program costs, regardless of which health plan enrollees elect, this formula is known as the “Fair Share” formula.

The government contribution for most employees and annuitants is equal to the lower of two amounts: (1) 72% of what OPM calculates to be the program-wide weighted average of premiums in force for Self Only, Self Plus One, and Self and Family enrollments, respectively, or (2) 75% of the total premium for the specific plan an enrollee chooses.

The weighted average of premiums for the FEHB program must be determined by OPM by October 1st, the day before each FEHB contract year. The law first requires OPM to multiply the premium for each health plan for the following year by the total number of participants in that plan as of the preceding March 31 who were eligible to receive a government contribution. The weighted average of premiums will then be determined by OPM dividing the total premiums linked to Self Only enrollments, Self Plus One enrollments, and Self and Family enrollments, respectively, by the corresponding total number of eligible individuals with each type of enrollment.

The government’s share for qualified workers is covered by agency appropriations or other money that can be used to pay salaries. An annual appropriation is given to OPM to pay for government contributions for qualified annuitants.

The amount that the government contributes to the health benefits of career part-timers is prorated based on the percentage of full-time work that they are regularly scheduled to complete.

The enrollee or annuitant is in charge of paying all premiums over the government contribution for each pay period that FEHB enrollment is in force.

Withholding is deducted from the employee’s salary or annuity if the amount received (after retirement, FICA tax, Medicare, and Federal income tax deductions) covers the entire share of the health benefits premiums. The Treasury Financial Manual’s hierarchy of needs states that withholdings from group life insurance come after withholdings from health benefits.

A tax benefit known as premium conversion enables an employee to set aside a portion of their income for their employer, who will then use it to cover the employee’s share of the FEHB premium. Since this allocation is made before taxes, it is free from state and local taxes as well as federal income, Medicare, and Social Security taxes. Because the allotment lowers the employee’s taxable income, less tax is withheld, resulting in a larger paycheck.

Under the premium conversion plan, an employee is entitled to have their FEHB premiums paid when:

• The worker is employed by the Federal Government’s Executive Branch;
• The Executive Branch agency is responsible for disbursing the employee’s pay.
• the employee participates in the FEHB Program.

If the employer agrees to offer participation in the plan, an employee who is enrolled in the FEHB Program and is employed outside the Executive Branch, or whose pay is not issued by an Executive Branch agency, may be eligible.

If the employee is paying both shares (the employee’s share of the premiums and the government’s share), the whole amount deducted from their pay is eligible for premium conversion.

At the moment, annuitants and compensationers are ineligible to take part in premium conversion if their FEHB premiums are subtracted from their annuities and benefits. Note that there are special rules for reemployed annuitants. Premium conversion is available to reemployed annuitants working in jobs that indicate FEHB eligibility. See “Reemployed Annuitants” in Annuitants and Compensationers for more information.

Premium conversion is not available to individuals enrolled through Spouse Equity and Temporary Continuation of Coverage.

Unless they choose not to participate, employees who qualify for premium conversion are automatically enrolled in it.

Unless they choose not to participate, an employee’s participation in premium conversion is automatic once they begin. An employee may choose to participate in FEHB Open Season each year or not for the following year.

An employee may choose not to participate in premium conversion by filling out a waiver/election and sending it back to their place of employment. The Benefits Administration Letter 00-215’s Attachment 3 contains a copy of the waiver election.

If an employee is thinking about choosing not to convert their premiums, they should speak with a tax advisor to fully understand the implications of this choice. If an employee does not pay federal income tax, they should seriously consider declining to participate in premium conversion.

Employees have limited opportunities to change participation status. Participation can be waived:

• During Open Season. The first day of the first pay period that starts in the next calendar year is the change’s effective date.
• When a worker modifies their FEHB enrollment in accordance with a qualifying life event
• when a qualifying life event occurs for an employee and the change is due to and consistent with that event (even if the employee does not alter enrollment) After a qualifying life event, employees have sixty days to submit a change request to the employing office. The waiver takes effect on the first day of the pay period that comes after the change request is received by the employing office.

Employees may cancel a waiver and participate:

• During Open Season. The first day of the first pay period that starts in the next calendar year is the change’s effective date.
• When a qualifying life event occurs and the FEHB coverage is adjusted in a way that aligns with the qualifying life event To be eligible to participate, the employee must fill out an election form and submit it to their employer within sixty days of the qualifying life event date.

The basis for all Federal retirement, thrift savings, and life insurance benefits is gross salary; participation in premium conversion has no bearing on these benefits.

The amount of Social Security benefits an employee receives upon retirement may be slightly reduced by premium conversion. The extent of the impact depends on several factors:

• the retirement system that the employee participates in;
• whether the wage base of Social Security is surpassed by the employee’s salary; and
• the number of years left until the employee’s retirement.

Premium conversion typically benefits workers covered by the Civil Service Retirement System (CSRS). Due to their nonpayment of Social Security taxes, the tax savings are marginally lower. Since Social Security is not a part of their Civil Service Retirement, these employees do not have a problem with receiving a reduction in benefits.

The Social Security benefit would remain unchanged if an employee’s non-federal employment resulted in them being covered by Social Security, even if premium conversion occurred.

Social Security benefits for workers covered by CSRS Offset would be somewhat decreased, but CSRS Offset benefits would rise by nearly the same amount. For these employees, taking part in premium conversion is probably advantageous.

Social Security benefits for workers covered by the Federal Employees Retirement System (FERS) are determined by their taxable income, so a decrease in taxable income will have an impact on the Social Security computation.

The much greater tax savings greatly offset the slight decrease in Social Security benefits. To calculate the difference in an employee’s Social Security benefit, use this straightforward formula:

• Divide the number of years the worker will take part in premium conversion by 35, counting from now until the worker’s anticipated retirement.
• Multiply this by the current annual FEHB premium
• Multiply the Step 2 result by the marginal SSA rate (15 percent for the majority of Federal employees).

The result is the annual loss of Social Security benefits. (# of Years of Premium Conversion / 35) X Annual FEHB Premium X marginal SSA rate = Annual Loss.

Example Antonio participates in FERS. He has contributed to FICA his entire career, with an expected retirement age of 66 in January 2020 and an ending salary of $50,000 as of right now. His estimated Social Security benefit equals $1,414 per month.

By taking part in premium conversion, he lowers his taxable income by $2,000, which is the equivalent of his FEHB premium. His Social Security benefit would be reduced to $1,403 per month, or $11 in today’s dollars, if his salary were changed to $48,000.

15/35= . 4286 X 2000 = 857 X . 15 = 128/12 = 10. 71 or 11.

Compare the projected $67 monthly increase in current take-home pay to the upcoming reduction in Social Security benefits.

Can I Keep FEHB Health Insurance into Retirement