Lawmaker seeks change to life insurance payout policy

A House Democrat on Wednesday introduced legislation that would make lump-sum payments the default payout option for federal life insurance program beneficiaries.

The bill (H.R. 6175), sponsored by Rep. Gerry Connolly, D-Va., would require participants in the Federal Employees Group Life Insurance program to opt out of receiving lump-sum benefit payouts; the current default payment option is a retained-asset account, where insurance benefits are deposited and from which beneficiaries can withdraw funds using what appear to be checks.

The Federal Deposit Insurance Corporation does not protect funds in retained-asset accounts and a financial institution must cash the checks. The account management firm controls the money until beneficiaries cash out the accounts in full. Concerns about whether beneficiaries and their families are aware of the payout options are behind Connolly's push for an opt-out default.

"We're all busy, and insurance companies aren't motivated to inform [participants] because they get to make money off of that," he said. "As long as everyone is fully informed and has choices and can make decisions about investments, that's a fairer way to proceed."

National Treasury Employees Union President Colleen Kelley said she supports having lump-sum payments as the default option under FEGLI.

"For those beneficiaries who prefer another payment option, such as a [total control account], an active election will allow one," Kelley said in a statement. "However, we believe (your) approach with a lump-sum default is the more prudent practice in this federal program, while still affording transparency and choice for the federal workforce family."

Rep. Edolphus Towns, D-N.Y., in August expressed concern that Prudential Financial, which manages accounts for the Servicemembers Group Life Insurance program and the Veterans' Group Life Insurance program, has failed to inform participants' families about the procedures for receiving benefits. A Prudential spokesman said the company would cooperate fully with Towns' request for information, and the Veterans Affairs Department this month announced improvements to its financial counseling process to clarify benefit payment options.

Connolly said his legislation might be considered in Congress' lame duck session, but added he will continue to push the issue.