Retirement & Financial Planning Report

One of the major differences in health insurance between active employees and retirees is that in general, the former group can pay premiums with pre-tax money while the latter group can’t. This can make FEHB coverage substantially more expensive for some retirees.

When looking at this issue, keep in mind an exception is the 1996 Pension Protection Act, which allows a limited premium conversion tax advantage for retired public safety officers. Originally, OPM was of the opinion that this provision didn’t apply to public safety officer annuitants who were covered by CSRS or FERS. However, OPM changed its mind in Benefits Administration Letter 07-201. Here’s the key portion of that guidance:

The Office of Personnel Management has determined that the Civil Service Retirement System (CSRS) and Federal Employees Retirement System (FERS) are eligible retirement plans under section 845 of the PPA. Retired public safety officers are deemed to have a premium conversion election for this purpose. As a result, retired public safety officers whose CSRS or FERS annuity payments include a direct premium payment to a health insurance carrier or long term care insurance carrier may self-identify eligibility for, and self-report, the tax exclusion to the Internal Revenue Service. IRS Publication 721Tax Guide to U.S. Civil Service Retirement Benefits at contains additional information on this tax advantage.

Note the words "self-identify" and "self-report." Whereas the identification and reporting of employee premium conversion activities are handled by agencies, if you are a retired public safety officer who wants to take advantage of this form of tax relief, you’ll have to establish your eligibility with the IRS and report any excluded income up to a maximum of $3,000 annually.

If you aren’t sure whether you qualify as a public safety officer, that term has the same meaning as will be found in section 1204(9)(A) of the Omnibus Crime Control and Safe Streets Act of 1968 (42 U.S.C. 3796b(8)).