WASHINGTON BUREAU — Rep. Edolphus Towns is asking the U.S. Government Accountability Office (GAO) to look at use of retained asset accounts (RAAs) at the federal employees’ group life plan.
Towns, D-N.Y., chairman of the House Oversight and Government Reform Committee, wants the GAO to look at how the Office of Personnel Management (OPM) came to let MetLife Inc., New York (NYSE:MET), use the RAA as the standard vehicle for paying Federal Employees Group Life Insurance (FEGLI) death benefits.
An insurer uses an RAA to pay benefits through an arrangement that resembles a checking account rather than sending the beneficiary a check for the whole amount.
Critics say RAAs often pay lower interest rates than bank accounts and are not insured by the Federal Deposit Insurance Corp.
Supporters say RAAs pay rates comparable to the rates provided by other safe, highly liquid accounts, are backed by state insurance guaranty funds, and give grieving beneficiaries time to postpone making complicated financial decisions.
Towns says he believes MetLife earns about 4%
on the funds in RAAs and that the accounts pay beneficiaries a rate of about 0.5%.
“It appears that MetLife is paying itself a much higher interest rate on the money in these accounts than the interest they pay to the account holder,” Towns says in a statement. “To many people that does not seem fair.”
Towns says he also has concerns about whether beneficiaries understand that they have a right to get immediate, lump-sum payment of benefits.
“This raises questions about disclosures and account protections provided to the beneficiaries of the accounts, and in turn highlights the cost of the program to the federal government,” Towns says.
The GAO raised concerns about FEGLI operations in the 1970s and 1980s, and it is not clear whether those concerns ever were addressed, Towns says.
The FEGLI program provides coverage for about 4 million people.