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Employee vs Employer $ Refund DOL Reg


Guest Cha1
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Can someone refer me to the regulation that spells out the requirement that employee money may not be

returned as a refund to the employer. I believe this is a requirement of the employer, not the insurer.

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I think that you might want to explain further.

What type of benefit?

Why is the money being refunded etc?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Employee pay all supplemental group life insurance.

Example:

The employer pays for a basic life benefit and the employees pay for a supplemental life benefit under a group policy. If the year end accounting results in a shortfall on the basic life and a premium surplus on the supplemental the employer is not supposed to apply the employee paid supplemental surplus to the basic life or receive the supplemental surplus as a margin refund or dividend. Thus, supplemental plans are typically set up on a non participating basis while the basic plan may be participating or set up as a separate non participating arrangement. I believe it is a DOL requirement that employers not use employee money to fund or offset the cost of employer paid benefits such as non contributory basic life. I'd like to know where to find the regulation. Thanks!

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I doubt that there is any such DOL Regulation. If there is regulation it most likely will be state DOI and IRS.

I question your use of the term "non participating". Non-participating in life insurance means not participating in any "dividends" issued by the insurer. That is not what you are referring to. You might mean contributory and non-contributory.

Group term life has fixed premiums known in advance of the employee's election to participate. Since the premiums are fixed (as filed with the State DOI etc ) and are deducted on a predetermined schedule (each payroll) and remitted on a predetermined schedule (almost always monthly) along with the employer portion for the basic coverage, Why would there be any shortfall or any surplus?

What is this year end accounting of which you speak? Accounting for premiums and covered lives, whether for group life or for group health, is usually done monthly so as to reconcile the covered lives and premiums as shown on the billing statement. This way terminated employees are removed and new enrollees added. If you do not reconcile the billing statement, the insurer will be expecting payment of premium for employees who are no longer covered and will not be expecting premium or issuing coverage for the new people. This is not something that waits until the end of year.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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"Dividends" issued by the insurer are precisely what I am referring to. Dividends generated by employee contributions on employee pay all supplemental life insurance are not supposed to be used by the employer to fund a benefit such as basic life offered free to the employee by the employer.

The word "participating" in this context generally means dividend eligible while "non participating" means pooled.

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I think GBurns is correct, look to your state codes. Advice of your counsel would be a good idea. In California, it is California Insurance Code Section 10214, which several years ago when I copied this cite read:

10214. If hereafter any dividend is paid or any premium refunded

under any policy of group life insurance heretofore or hereafter

issued, the excess, if any, of the aggregate dividends or premium

refunds under such policy over the aggregate expenditures for

insurance under such policy made from funds contributed by the

policyholder, or by an employer of insured persons or by union or

association to which such insured persons belong, including

expenditures made in connection with the administration of such

policy, shall be applied by the policyholder for the benefit of such

insured employees generally or their dependents or insured members

generally or their dependents. For the purpose of this section and

at the option of the policyholder, "policy" may include all group

life and disability insurance policies of the policyholder.

(For governmental employers, CA Government Code Section 53205)

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jsb you are correct but only with regard to ...funds contributed by the policyholder (i.e. plan sponsor), or by an employer of insured persons or by union or association to which such insured persons belong. I believe that Steve 72's statement about individual participant contributions is correct.

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Cha1,

Are you saying that this is participating Group Term Life?

And that the insurance company issues dividends on these policies?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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This cannot be a hypothetical situation. You either have a participating term life policy paying dividends or you do not.

If the insurance company did not issue a participating policy then there can be no dividends and whatever it is that you state that is being refunded and being kept by the employer is not dividends but something else. That something else gets different treatment than dividends would.

That is why it cannot be hypothetical but has to be real and true. You cannot take action on hypotheticals you can only get hypothetical answers which would serve no purpose.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Cha1 - Does the Group contract differentiate between the basic and voluntary programs regarding dividends? I had an older policy that made no distinction, which would allow the dividend to be treated as stated in the above Insurance Code cite. Employer can get ALL of its money back first, then anything left over goes to the benefit of plan participants. Therefore there really aren't any leftover employee contributions (employee money) being refunded until AFTER the employer is fully reimbursed. Is it "fair"? Depends on your perspective, but it is what the law seems to allow, at least in CA. (I am not an ERISA plan so will defer any ERISA considerations to those that are.)

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Thanks for all your responses. In the meantime I think I may have found the ERISA wording I was looking for:

Section 406(b)(1) of ERISA prohibits a fiduciary with respect to a plan from dealing with the assets of the plan in its own interest or for its own account.

In this case it would mean using "dividend" money attributable to the experience of an employee pay all supplemental plan's experience to fund a deficit recovery generated by a basic life benefit plan provided at, supposedly, no cost to employees. By combining the basic and supplemental life for dividend purposes the employer is potentially using employee money to fund an obligation that belongs exclusively to the employer.

I know this is prohibited as I have seen the DOL in action when they become aware of it. I just wanted to see the text of the regulation.

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