Do you want to ensure that you spouse remains covered by FEHB after your death? Then you want to elect some level of survivor benefit for your spouse at the time you retire.
In order for a spouse to be able to continue enrollment in FEHB after a retiree’s death, they (or another family member such as an eligible child) must be receiving a survivor benefit.
When it comes to choosing a survivor benefit out of your CSRS or FERS pension, there is one consideration that is quite a bit different for federal retirees than for those private sector retirees who are lucky enough to have a defined benefit pension. That consideration is that there is a link between receiving a survivor benefit and being able to continue enrollment in the Federal Employees Health Benefits Program (FEHB).
What follows does not apply to those readers who are married to another federal employee. A federal employee who is enrolled (and has been enrolled for the five years immediately preceding retirement) is entitled to FEHB in their own right after retirement. The enrollment referred to in the previous sentence can be either on their own, or on their federally employed spouse’s Self Plus One or Self and Family policy.
However, those of you who provide health insurance for your spouse (and family, too) need to be aware that, if you do not elect some level of survivor benefit at retirement, your spouse and family will lose FEHB coverage upon your death (unless another family member, such as an eligible child is entitled to a survivor benefit). This fact can complicate the act of choosing the appropriate level of survivor benefit.
Many financial advisers, especially those who also sell insurance, will advise retirees not to select a survivor benefit upon retirement. The rationale they offer is that a pension that is not reduced by the cost of a survivor annuity will provide more money during the life of the retiree, and that an insurance policy can provide for the needs of the surviving spouse. A federal pension will be reduced by 10% (FERS) or almost 10% (CSRS) if a full survivor benefit is chosen. A full survivor benefit is 50% of the unreduced pension (FERS) or 55% of the unreduced pension (CSRS). A full survivor benefit is not necessary to guarantee FEHB coverage; any level of survivor benefit will do so.
Choosing not to elect a survivor benefit and purchasing life insurance is called a “pension max” by those advisers who sell them and, absent the concern about FEHB coverage for a surviving spouse, can make sense in some situations. Most financial advisers are not aware of the tie-in between a survivor benefit and continued FEHB coverage for a spouse. This lack of awareness may be due to the fact that the vast majority of their clients do not have such a tie in. The reason there is not tie-in is that most private sector employees are not entitled to employer-provided health insurance after retirement. This lack of knowledge on the financial adviser’s part can lead them to make a recommendation to a federal employee (i.e., do not get a survivor benefit for your spouse) that is not in that federal employee’s best interest.
Do not make a decision regarding survivor benefits without considering all factors – especially FEHB coverage for your spouse. OPM Brochure RI 79-2 has detailed information about post-retirement FEHB coverage.
Up to this point we’ve talked about a decision that you make at retirement. What would happen to FEHB coverage for your spouse if you died while still employed? Your surviving spouse would be entitled to a survivor benefit (and therefore continued FEHB coverage) if you had at least 18 months of service (CSRS) or 10 years of service (FERS). Even if you did not meet the length of service requirements, your spouse would be entitled to continue coverage under FEHB if another family member (i.e., an eligible child) was entitled to a survivor benefit.
You have probably noticed that this article has talked about a spouse’s ability to continue FEHB coverage after the death of an employee or retiree. If your spouse is not enrolled with you on a Self Plus One or Self and Family policy at the time of your death, it doesn’t matter whether or not they will receive a survivor benefit; they will not be entitled to FEHB because they were not enrolled at the time of your death.