Everything You Wanted to Know About FEHB Premium ...

[Pages:27]Everything You Wanted to Know About FEHB Premium Conversion...and Weren't Afraid to Ask!

TABLE OF CONTENTS

1. ALLOTMENTS 2. ADMINISTRATIVE ERRORS 3. CHOICES UNDER PREMIUM CONVERSION 4. EFFECTIVE DATE 5. ELIGIBILITY 6. ENROLLMENT 7. FEDERAL BENEFITS 8. FEDFLEX 9. FEHB ENROLLMENT 10. FLEXIBLE SPENDING ACCOUNTS 11. LWOP 12. OPEN SEASON 13. PARTICIPATION (See Eligibility and Enrollment) 14. QUALIFYING LIFE EVENTS (QLE) 15. REEMPLOYED ANNUITANTS 16. RETIREMENT 17. SEPARATION FROM SERVICE 18. SOCIAL SECURITY and PRE-TAX FEHB PREMIUMS 19. TAXES, TAXES, TAXES 20. TEMPORARY CONTINUATION OF COVERAGE (TCC) 21. WAIVERS

ALLOTMENTS

How much money

Only the amount of your FEHB contribution will be allotted

will be allotted back back to your agency. If your FEHB contribution changes,

to my agency?

the allotment will change.

What is the difference in order of precedence for deductions from pay between those who participate in premium conversion and those who optout?

Currently, most (if not all) agencies deduct FEHB premiums immediately after FICA and Federal income taxes. Effective with the implementation of premium conversion, however, the FEHB premiums deducted from the pay of a participating employee will be made BEFORE FICA and Federal income taxes. When an employee waives participation in premium conversion, FEHB premiums will continue to be deducted from the pay after FICA and Federal income taxes. In all cases, deductions for CSRS or FERS will continue to be made first.

ADMINISTRATIVE ERRORS

Administrative errors may occur in the processing of your election to participate or waive participation in premium conversion. However, if you participate in premium conversion IRS rules rather than FEHB rules apply. IRS rules allow for NO adjustments to taxable income as a result of the correction of such errors, and NO retroactive adjustments, even when it's clear that you are not at fault. In processing a correction, the actual amount of FEHB premiums deducted from your pay will be afforded pre-tax treatment.

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Examples

Susan L. has $100 per pay period deducted from her salary for her contribution towards FEHB coverage.

Ms. L's employing agency mistakenly deducts $150 during the last pay period prior to the effective date of her participation in premium conversion. To correct the error, the agency deducts $50 for FEHB from Ms. Lee's pay in the following pay period, during which she has begun participating in premium conversion. Except for agency error, $100 would have been deducted from her pay. However, only $50 is treated on a pre-tax basis.

Ms. L's employing agency mistakenly makes no FEHB deduction during the last pay period prior to the effective date of her participation in premium conversion. To correct the error, the agency deducts $200 from Ms. L's pay in the following pay period, during which she has begun participating in premium conversion. Since the deduction for FEHB coverage is taken after she begins participation in premium conversion, $200 is afforded pre-tax treatment.

Ms. L's employing agency mistakenly does not process her participation in premium conversion. As a consequence, Ms. Lee's $100 FEHB deduction is not afforded pre-tax treatment. To correct the error, the agency changes Ms. L's premium conversion status to "participant" in the following pay period. If not for the error, Ms. L. would have had $200 deducted from her pay on a pre-tax basis. However, only $100 is eligible for pre-tax treatment.

As you can see, under these rules an error correction may result in a greater or lower tax benefit than would otherwise have occurred.

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CHOICES UNDER PREMIUM CONVERSION

All qualified cafeteria plans under Section 125 of the Internal Revenue Code must offer employees a choice of benefits. FedFlex, the Federal Flexible Benefits Plan is no different.

What Are The Choices?

You may choose to receive the benefit (pre-tax payment of FEHB contributions), or cash (receive your normal salary and make FEHB contributions after tax).

EFFECTIVE DATE

The implementation of premium conversion is effective with the first payroll period beginning on or after October 1, 2000. No retroactive adjustments to taxable income may be made for any FEHB premiums deducted from pay prior to October 1st.

On-board Employees

For most eligible employees, premium conversion becomes effective on October 8, 2000 [pay period 22], with the first pre-tax FEHB deduction occurring with the associated pay date near the end of October.

New Employees/ Employees with an Initial Opportunity to Enroll in the FEHB

If your initial opportunity to enroll in FEHB occurs on or after October 1, your agency must deduct your premiums on a pre-tax basis from your pay effective with the first applicable payroll period beginning on or after October 1, 2000, unless you have waived participation in premium conversion.

ELIGIBILITY Who is Eligible?

If you are employed in the Executive Branch of the Federal Government, are participating in the FEHB Program, and your pay is issued by an Executive Branch agency, you are eligible to have your FEHB premiums paid under the premium conversion plan.

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Who May Become Eligible?

If you are enrolled in the FEHB Program but are employed outside the Executive Branch, or your pay is not issued by an agency of the Executive Branch, you may be eligible if your employer agrees to adopt our plan and offer participation in premium conversion. All non-Executive branch agencies have been contacted by OPM with instructions on how to become part of the plan.

Who is Not Eligible?

The Judiciary Branch, U.S. Postal Service, and some smaller Executive Branch agencies with independent compensationsetting authority, have already implemented their own FEHB premium conversion plans; the employees of these entities will not participate in our premium conversion plan.

At the present time, annuitants and compensationers whose FEHB premiums are deducted from annuities and benefits are not eligible to participate in premium conversion. There are special rules for reemployed annuitants; see below.

Will this benefit also apply to retirees, survivors, and former spouses receiving civil service benefits?

No. Under section 125 of the Internal Revenue Code, pretax benefits are only available to current employees.

Will Federal employees on LWOP to work for a union be eligible for premium conversion?

If the union agrees to adopt our plan, premium conversion may apply to Federal employees on LWOP to work for a union.

Will Federal employees assigned to an international organization be eligible for premium conversion?

If the organization agrees to adopt our plan, premium conversion may apply to Federal employees on assignment to an international organization.

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ENROLLMENT

How do Federal

Participation in premium conversion is automatic for eligible

employees enroll in employees.

Premium Conversion?

Can I choose not to enroll or participate in premium conversion?

Yes, but you need to opt-out or waive participation in premium conversion. You must file a waiver form by the date set by your agency, but not later than the day before the effective date of coverage.

Can I change my premium conversion participation status?

You may change your participation status in premium conversion during the annual FEHB open enrollment period, or during the calendar year if you have a qualifying life event. Qualifying life events include marriage, birth of a child, or change in a spouse's employment and are explained in more detail later in this document.

What happens if I am enrolled in premium conversion and leave the Government before the end of the calendar year?

Enrollment or participation in premium conversion ends if you terminate or are terminated from Federal government employment. If you are eligible and elect to participate in Temporary Continuation of Coverage (TCC), you pay those premiums directly on an after-tax basis.

FEDERAL BENEFITS

Is this an ongoing benefit?

Yes, once you participate in premium conversion, your participation continues automatically unless you elect not to participate. Each year during FEHB Open Season you may decide whether or not to participate for the following year.

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Will premium conversion have any effect on CSRS, FERS, TSP, or FEGLI benefits?

No. Federal retirement, thrift savings and life insurance benefits are not affected by participation in premium conversion.

Can non-FEHB benefits be purchased with pretax dollars under premium conversion?

No, only deductions for FEHB premiums may be deducted pre-tax at this time.

FEDFLEX What is FedFlex?

FedFlex, The Federal Flexible Benefits Plan, is the name of OPM's cafeteria plan. In order to offer pre-tax benefits, OPM was required to create a plan document in accordance with IRS regulations that outlines the benefits and employee choices under that plan.

What benefits does Currently, the only benefit provided under FedFlex is

FedFlex offer?

premium conversion.

What are my choices under FedFlex?

All eligible federal employees who participate in the FEHB Program are participants in the premium conversion plan. You may choose between allotting part of your salary to your employer who will use that allotment to provide a pretax benefit or receive your full salary in cash (paying for

your FEHB premiums with after-tax dollars).

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FEHB ENROLLMENT

Does premium conversion affect when I can make changes to my enrollment?

Yes, but only slightly. Currently, FEHB enrollment changes may only be made outside of the open season under certain circumstances. Under premium conversion, the opportunity to reduce or cancel your enrollment may be limited by the Internal Revenue Code. You will be allowed to drop coverage or change to self-only outside of Open Season only if your decision to do so comes at the time a qualifying life event (QLE). Please refer to the section on Qualifying Life Events for more information. These changes from current FEHB are minor, and the tax savings of premium conversion are significant.

FLEXIBLE SPENDING ACCOUNTS

What is a flexible spending account (FSA)?

A FSA is a tax benefit that allows an employer to withhold from salary amounts designated by individual employees that can later be used to reimburse those employees for medical care expenses not covered by the medical plan (FEHB, in our case); dependent-care costs; or other qualifying expenses. The amounts withheld are not subject to taxation, just like premium conversion.

What's the difference between a cafeteria plan and a FSA?

A flexible spending account is a type of benefit that may be offered under a cafeteria plan.

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