[Federal Register: July 19, 2000 (Volume 65, Number 139)]
[Rules and Regulations]
[Page 44643-44644]
[[Page 44643]]
OFFICE OF PERSONNEL MANAGEMENT
5 CFR Part 550
RIN 3206-AJ16
Pretax Allotments for Health Insurance Premiums
AGENCY: Office of Personnel Management.
ACTION: Interim rule with request for comments.
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SUMMARY: The Office of Personnel Management (OPM) is issuing interim
regulations to enable employees to pay Federal Employees Health
Benefits (FEHB) premiums through an allotment from the employee's pay
to the employing agency. Use of this allotment mechanism allows FEHB
premiums to be paid with pre-tax dollars, as provided under section 125
of the Internal Revenue Code. These allotment regulations are connected
to a separate interim rule, published in this issue of the Federal
Register, which will amend the FEHB regulations to establish the
premium conversion program.
DATES: This interim rule is effective September 18, 2000. Comments must
be received on or before September 18, 2000.
ADDRESSES: Comments may be sent or delivered to Donald J. Winstead,
Assistant Director for Compensation Administration, Workforce
Compensation and Performance Service, Office of Personnel Management,
Room 7H31, 1900 E Street NW., Washington, DC 20415-8200 (FAX: (202)
606-0824 or EMAIL: payleave@opm.gov).
FOR FURTHER INFORMATION CONTACT: Bryce Baker, (202) 606-2858 or FAX:
(202) 606-0824 or EMAIL: payleave@opm.gov.
SUPPLEMENTARY INFORMATION: At the President's direction, OPM will
implement a health insurance premium conversion plan for employees
participating in the FEHB Program. The premium conversion plan is part
of a ``cafeteria plan'' under Section 125 of the Internal Revenue Code.
The premium conversion plan will take effect on October 1, 2000.
Under the plan, employees' FEHB premium withholdings are treated as a
pre-tax salary reduction. Because premium conversion lowers employees'
taxable income, it reduces their tax burden. The reduction in taxable
income reduces the base for Federal income tax, Social Security and
Medicare taxes, and, in most States and localities, State and local
taxes based on income.
Employees in the Executive Branch of the Federal Government who are
participating in the Program and whose pay is issued by an Executive
Branch agency, will automatically have their salaries reduced and their
health benefit premiums paid under the premium conversion plan. Also,
individuals enrolled in the FEHB Program who are employed outside the
Executive Branch, or whose pay is not issued by an agency of the
Executive Branch, will have their salaries reduced and their FEHB
premiums paid under our premium conversion plan if their employer, in
coordination with their payroll office, agrees to offer participation
in the plan. However, any individual enrolled in the FEHB Program who
does not want to participate in premium conversion may waive
participation, subject to certain limitations.
Premium conversion has no effect on: statutory pay provisions or
the General Schedule; the amount of any employee's health insurance
premium; or on the amount of the Government share towards the FEHB
Program premium on behalf of any employee. Base pay for retirement,
life insurance and Thrift Savings Plan purposes is unaffected.
To ensure that the premium conversion plan qualifies for pre-tax
treatment of health insurance premiums, OPM is amending its allotment
regulations at 5 CFR part 550, subpart C. Each employee participating
in premium conversion will make an allotment to his or her employing
agency in the amount of the employee share of the FEHB premium. The
agency will then use that amount to pay the employee's FEHB premium.
The allotment will be automatic unless the employee elects to waive
premium conversion.
We are also amending the allotment regulations to make clear that
except where there is an authority specific to Federal employees (i.e.,
a statute, Executive order, Presidential directive, or OPM regulations)
agencies may not authorize allotments for the purpose of reducing
taxable income. For example, a salary reduction for a transportation
fringe benefit under 26 U.S.C. 132(f)(4) is another type of pre-tax
allotment that is permitted by 5 U.S.C. 7905(b) and Executive Order
13150.
OPM is issuing a separate interim rule amending its FEHB
regulations to establish the premium conversion program effective in
October 2000. No FEHB premium may be allotted except as allowed under
the premium conversion program. Therefore, no allotment of FEHB
premiums is permitted until the first day of the first pay period
beginning on or after October 1, 2000.
Waiver of Notice of Proposed Rulemaking
In accordance with section 553(b)(3)(B) of title 5 of the U.S.
Code, I find that good cause exists for waiving the general notice of
proposed rulemaking. An opportunity for public comment prior to issuing
this rule is unnecessary and contrary to the public interest. In
developing this regulation, OPM worked extensively with affected
stakeholders. OPM followed the Internal Revenue Code to develop a plan
document and regulations that comply with tax law and parallel the
practices of private sector employers. It is necessary that payroll
offices begin work on systems changes so that this benefit will be
available at the start of Fiscal Year 2001--a logical time in terms of
Federal agency budget and payroll administration.
Regulatory Flexibility Act
I certify that this regulation will not have a significant economic
impact on a substantial number of small entities because the regulation
will only affect tax withholdings for Federal employees.
Executive Order 12866, Regulatory Review
This rule has been reviewed by the Office of Management and Budget
in accordance with Executive Order 12866.
[[Page 44644]]
List of Subjects in 5 CFR Part 550
Administrative practice and procedure, Claims, Government
employees, Wages.
U.S. Office of Personnel Management.
Janice R. Lachance,
Director.
Accordingly, OPM is amending 5 CFR part 550 as follows:
PART 550--PAY ADMINISTRATION (GENERAL)
Subpart C--Allotments and Assignments From Federal Employees
1. The authority citation for subpart C of part 550 continues to
read as follows:
Authority: 5 U.S.C. 5527; E.O. 10982, 3 CFR 1959-1963 Comp., p.
502.
Sec. 550.301 [Amended]
2. Section 550.301 is amended by removing the definition of pay.
3. In Sec. 550.311:
A. Paragraph (a) is amended by removing the period at the end of
paragraph (a)(7) and adding a semicolon in its place;
B. A new paragraph (a)(8) is added; and
C. Paragraph (b) is revised.
The addition and revision read as follows:
Sec. 550.311 Authority of agency.
(a) * * *
(8) An allotment to the employing Federal agency to pay an
employee's share of Federal Employees Health Benefits premiums,
consistent with part 892 of this chapter.
(b) In addition to those allotments provided for in paragraph (a)
of this section, an agency may permit an employee to make an allotment
for any legal purpose deemed appropriate by the head of the agency.
This authority does not extend to allotments to the paying agency for
the purpose of reducing taxable income, except where there is an
authority specific to Federal employees (statute, Executive order,
Presidential directive, or OPM regulations) permitting agencies to
provide the pretax benefit in question.
* * * * *
4. In Sec. 550.312, paragraph (f) is added to read as follows:
Sec. 550.312 General limitations.
* * * * *
(f) Notwithstanding the requirements in paragraphs (a) and (c) of
this section, an agency may make an allotment for an employee's share
of health benefits premiums under Sec. 550.311(a)(8) without specific
authorization from the employee, unless the employee specifically
waives such allotment. Agency procedures for processing employee
waivers must be consistent with procedures established by the Office of
Personnel Management. (See part 892 of this chapter.)
5. Section 550.313 is added to read as follows:
Sec. 550.313 Order of precedence when there is insufficient pay to
cover all deductions.
(a) Except as provided in paragraph (b) of this section, an agency
must deduct allotments from any net pay remaining after applying all
deductions authorized by law, including any deductions for retirement
and other benefits, Social Security and income tax withholdings,
collection of a debt to the Government via levy or salary offset, and
garnishment. If there is insufficient net pay to cover all of the
employee's allotments, the agency must deduct allotments in the order
specified under its established rules of precedence.
(b) An agency must deduct an allotment for an employee's share of
health benefits premiums under Sec. 550.311(a)(8) before deducting any
type of tax withholding.
[FR Doc. 00-18232 Filed 7-14-00; 3:19 pm]
BILLING CODE 6325-01-P