Larry M

It must be late in the day - or year - please tell me, what is an "LA annuity"?

Usually, the benefits of the plan are the amounts paid on behalf of covered medical expenses. In these situations, covered medical expenses are the charges for services and supplies. The "lifetime maximum" applies to the benefits paid by the plan. If the plan sponsor really wanted to reduce the lifetime maximum by its "premiums" paid on behalf of the individual (or his family), it could provide the maximum amount is $x minus $y times the number of years of participation in the plan....a lifetime maximum which reduces by each year of participation in the plan. The result is that newer employees would have a bigger benefit than long term employees - - not a very good employee relations setup.

Vebaguru: Although a statistical error is defined as you state, the normal connotation of "error", especially when combined with "actuarial" still leaves a bad taste in my mouth. Even if one could argue that "actuarial error" is an appropriate term for statisticians to use, we still have the Tres Reg saying ""erroneous actuarial computation". This, I believe is beyond the statistical definition. My concern is the public considers the term "actuarial error" and "erroneous actuarial computation" as meaning the actuary has made a mistake in his or her calculations. Further, I would hate to be involved in a malpractice suit where the attorneys are trying to defend "actuarial errors" and "erroneous actuarial calculations". Therefore, I am trying to get help in developing substitute phrases which do not stick in the craw. [Aside to Texas_Acty: I am surprised a Texan would be upset with "deviance". Heck, I thought Texans were proud of their individuality.] As with pax, I prefer something which more clearly defines the situation as having excess assets because experience differed from expectations. Now, how do we get the people at Treasury to drop all their other assignments and spend time rewriting Reg. 1.401-2(b)(1)? As long as we are dreaming, how can we get Congress to recind all the obnoxious amendments to ERISA? ...but that's the theme of another thread.

"Erroneous actuarial computations" and "actuarial error" are two phrases which annoy me. The first appears in the 1956 Treaury Reg. 1.401-2(b)(1), as the basis for the exception allowing an employer to recover surplus assets. The second phrase appears in other literature as a synonym for the first. The phrase is intended to recognize actuarial assumptions and methods are intended to approximate reality and rarely will duplicate the expereince of a plan. Actuarial assumptions are used to estimate the costs in advance and we expect and hope the projections will come close to the truth. Reasonable actuarial assumptions, no matter how well developed and used will rarely, if ever, develop a fund which exactly meets the liabilities upon termination of a plan. There is no "error" involved. If I were to call something an "accounting error" or a "legal error", it would be a slap in the face of the accountant or attorney....and I might be subjecct to a law suit. Yet, we actuaries allow the world to use the perjorative phrase. So, I ask your help to develop a phrase which will replace the offensive ones. To start the ball rolling, we have actuarial deviance experience adjustment experience deviation experience disparity or as a result of Al Qaeda..

Litigation is an expensive process to all. A subpoena can request tons of data. However, it is not always necessary to provide all the documentation requested. The least expensive option, in my experience, has been to ask (and pay) my legal counsel for help in complying with the subpoena in the most efficient manner.

"Larry offers some very valuable advice..." Aw shucks..but, then, you forgot to add "as usual". ...[VBG]

Whether the $35,000 offer is reasonable will depend upon a number of things. Among them: a. your friend's age; b. his/her physical condition; c. the amount and length of the daily benefit (e.g. $10 per day for 30 days is not worth much; 2,000 per day has lots of value); d. whether the policy is guaranteed renewable or non-cancellable (Is premium rate guaranteed level for life?); e. how soon, how often and for how long does your friend expect to be hospitalized considering the current physical state and probable degeneration. f. the current premium g. the ability to continue paying premiums; h. whether policy has a waiver of premium under certain conditions etc., etc., etc.

GBurns, The original question discussed a new benefit package to be added to a current plan. As I read the question, the following referred to the new package of benefits for the retirees: "Must have worked here 20 years Employee pays premiums (although the idea of employer paid is still being tossed about) Benefit never ends until employee does (no stopping or COBRA eligibility upon Medicare eligibility)" I did not read the question to state the actives also had to have worked there for 20 years, or paid all the premium.

GBurns: An employer can contribute differing amounts for employees in different classes of employment. The employer can pay 100% of all the active employees' costs and a differing percentage of the retired employees' costs. If, by the "real rate" you mean the actual cost of the benefit plan for an individual, then , yes, an employer group plan can charge an individual more than the actual costs of the benefits attributable to that individual (or class). For example, many plans charge employees 50% of the average premium for the group. Ifthe group's demographics include a fair number of older employees, then the younger employees' cost of 50% of the average premium could well be more than the benefit cost (plus administration) for the younger employees.

Don, If I understand your various entries correctly, you are suggesting a plan where each individual pays a premium which is equivalent to his or her expected claim costs for the period (year or month or whatever), (the premium would also include the cost of administration...and any profit for the insurance company). If we are going to do that, why not drop the intermediary and allow each individual to pay for his or her own medical expenses directly? Seems that would solve a lot of problems. Among them: takes the steam out of all those people who argue the CEOs of the carriers are making too much money; eliminates the need for carriers to dictate - oops - be concerned with reasonable and necessary services and charges; cures Medicare's ills because there will be no need for the government to pay for those now covered by the program.

GBurns, The data I have seen implies retirees have about a 40% higher claim cost than actives of the same age. and sex. With respect to a blended rate, let's assume 8 actives each at 1000/yr and 2 retirees (same age) at 1400/yr each. The blended rate is 1,080 ((8,000 + 2800)/10). If retirees are paying 1,080, I believe the employe has to reflect a liability of 640/yr per retiree projected out with trend, terminations and the rest of those wonderful things we actuaries do.. On the other hand, if the retiree is asked to pay the 1,400 (as opposed to 1,000 minus the employer's contribution for he/she was paying as an active), some of the retirees will balk at paying this, to them, extraordinarily high premium. The healthier retirees will not enroll. Therefore, the 1400 will not be adequate because the ones who enroll will anticipate claim costs greater than the premium they are asked to pay - so costs will be greater than anticipated. Each year, the employer will be trying to develop a rate to charge the retirees which will anticipate the retiree's selection. An almost impossible task. The situation is similar a. to that found in COBRA enrollment, where claims exceed the premiums charged; and b. for those who still have individual medical policies and find the costs become much higher as the group matures; and c. for those who try to maintain small group pools.

Sheila, jsb's and amp's suggestions make sense - except your management is living in a dream world and not focusing on the extraordinary costs the plan will develop in the future. To GBurns, the employer's liability arises if the premium charged to the retirees is the same as those developed by blending the experience with the active employees. The liability will be the difference between the value of the employee's contributions and the actual costs of the retiree group. Unfortunately, if the retirees are asked to pay for their own costs (that is, charging them a premium equal to their own claims) the premium rate will be too high for most of them and, I believe, will lead to a continuous underfunding of the retiree pool by the retirees alone. I suggest you have someone project the costs to your employer and retirees of the various scenarios. This, alone, should make you employerhesitant - unless, of course, yours is a governmental agency and no one cares.

Jay21, I agree with your analysis. If the plan provides a benefit, in an annual (or monthly) amount equal to the individual's normal retirement benefit, and payable when the individual becomes disabled (as defined by the plan - not necessarily the social security definition), it is an "incidental" benefit and does not have to be reduced for payment commencing prior to NRA. Therefore, you can provide a benefit of 175,000 per year payable when the individual becomes disabled - even if it is at age 35. The benefit can be payable as a lump sum at, in this case, age 35. It is a taxable benefit to the individual.

joeyd, The comments made by Mike Preston should give to you a good idea as to the range of contributions you can make to a plan today. Please bear in mind the following: 1. any amounts contributed to a qualified plan represent tax deferrals. Eventually, a tax will be paid when the amounts are withdrawn (assuming no major change in basic tax law). 2. there is no "best" plan which can be designed to day and which will remain the "best" plan forever. As we grow older and our needs change, so may another plan become "best" for that situation; further, Congress has a long history of micromanaging qualifiedplans so often it almost seems as if there is a new set of rules emanating on a daily basis. 3. If you do establish a plan, use the qualified plan assets as if they were sacrosanct. Invest them wisely. 4. from one of your comments, I got the impression you are in the construction business. As such, you can understand the difficulty you would have if I should ask you to come up with the "best" house design. You understand, much better than I, there are an infinite combination of design features and materials which can go into a house - and we have not considered the location, not have we considered changes in building codes. So it is with qualified plans. You can discuss the options, consider the alternatives, understand the nature of Congress is to change the playing field whenever such items as tax revenues or major layoffs become hot, and with all that, decide upon a plan which meets most of your objectives but still allows you some flexibility if things change. There are a lot of extremely knowledgable people on these boards - many of whom could help you.But you need personal service which is beyond on capabilities on a public forum. I suggest you contact a local attorney who is knowledgable in qualified plans (your accountant should know a couple) and sit with him or her for an hour or so getting personal advice. Then, with the attorney's and accountant's help, choose a capable consulting actuary or plan administrator to help you fine tune the plan which most closely fits your current needs and capabilities.

With respect to notifying the ABCD, remember the ABCD has no jurisdiction over people who are NOT members of at least one of the actuarial organizations covered by ABCD.

Just a note to clarify the "embedding" aspect of this. A high deductible health plan must have, as a minimum in this year, a $2,050 deductible for any family member covered by the family plan. It MAY provide at least a $2,050 deductible for any individual, whether covered by family plan or employee only coverage, and the same 2,050 deductible as an aggregate for the family or, in the case of "embedded" plans, a higher aggregate deductible for the family as a whole. For example, the plan could provide a 2,500 for any one individual, but no more than $3,500 for all members of the family.

Mary, I believe your carrier is "almost" right. It is my understanding your plan's deductible could be modified as follows: single employee: $1,500 family deductible $3,000 in aggregate, but no more than 2,050 for any individual. Not quite what you have, but better than what the carrier is requesting. Note, Leevena, in the other forum, believes you can have the family deductible as 3,000 with no more than 1500 per individual. I can not find such a cite.

Leevena, Do you have a cite for the permission of embedded deductibles?

a. Price whatever multiple you use (and I am close to pax in my estimates), consider paying for theh acquisition over a period of years. For example, if 100% of gross is the value to which both sides agree; pay for it at the rate of 10% of the receipts from tose accounts you actually receive over each of the next ten years. Effectively, this gives a price which is less than 100% of current revenues unless your increase in fees more than offsets the combination of plan termination and present value of money. b. Due diligence get thee to an attorney and pay him to help you set up the ability to review the prospect's work and make sure he reviews and okays all agreements BEFORE you sign anything; the first, most likely, will be a confidentiality agreement.

I don't know about you guys, but, according to my wife and assocites, the only time I open my mouth is to change feet.

After you have read all the issues concerning laws and regulations, and BEFORE you proceed with the establishment of a plan, read Clarence Tookey's classic paper concerning Association Health Plans in the Society of Actuaries Transactions (my apologies, I do not have the exact issue - it was about 1950 1955). Basically he explains why an association health plan will FAIL, unless a. there is a strong, knowledgable administration firm handling the details of billing, collection, eligibility, claims administration (sometimes) and underwriting; AND b. an insurance company with sound experience in association plans; AND c. a cohesive group of employers in the association, who have joined the association for purposes other than getting insurance. Notice, all three must be in place for the plan to have a hope to succeed, and even then, there is no guarantee that premiums and benefits will be able to be kept in balance for any length of time.

With respect to the medical plans, I agree with Leevena, although I do wonder why an employer needs to spend money to provide eye and dental benefits to employees when these are relatively small ticket items which may be provided on a more efficient manner outside of the insurance framework. With respect to a 401(k) or any other qualified retirement plan, I suggest you consider going to a qualified consulting actuary or pension advisor who is not on a commission basis and is not tied to any financial institution. There are many options available to your non-profit and a 401(k) may or may not be the most appropriate for your firm. The qualified retirement plan is a long term benefit and one which should be entered into carefully. It will be well worth your firm's goals to spend a few hours of the consultant's time in order to learn the differences among them; the advantages and disadvantages of each; and the options available within each form of plan. Once you have decided upon the plan or plans which best fit your needs and finances, the consultant can help you install and administer the plan.

If you are looking for specific information concerning the development of claim reserves (yes, this is a claim reserve), then try the Society of Actuaries' or Casualty Actuaries Society' web sites and look for study notes on the development of claim reserves. Further, the AICPA has some papers on the development of claim reserves for insurance company accounting. All of them will lead you to the same comments you have been reading on this message. The first year's estimate is an educated guess, and subsequent years' estimates will be educated guesses based upon additional data. I doubt very much if the "error" (the difference between your estimate and the actual payout) will be a material one for the purposes of your client's financial statement.

get thee (and thy client) to an ERISA attorney, and save yourselves much grief and money.

My interpretation of the Controller's request is that he is asking for an estimate of the claims which the HRA will pay after the year end for services or supplies provided prior to the year end. Presumably, the estimate will be labeled as an account payable in the company's balance sheet. There are a number of actuarial techniques which can be used, including the one suggested by GBurns. It would seem as if the first year's estimate can be based upon any reasonable method. The Controller must recognize the amount is an ESTIMATE of the payable. The actual amounts paid will equal the estimate only by coincidence. Each financial period, a new estimate can be made which will be based upon the company's experience and any changes in the plan, composition of employees or laws.