Larry M

In the days when I had hair, and could read without a magnifying glass, the "group-type" plans to which Don Levit refers were called "franchise plans". They were hybrid policies - with a mix of individual and group features and which were not subject to all the very strict rules and regulations concerning individual policies (concerning renewability, pricing and the like) and which could be offered to certain types of groups (e.g., associations) without requiring the normal group participation and employer contribution. As for discrimination, I am strongly in favor of allowing every employer as much flexibility as the employer can have. Unfortunately, there are a number of employment laws (federal and state and municipality) which limit some of the flexibility; and there are a number of (usually) reasonable insurance underwriting requirements which limit the employer in other directions. Don, With respect to another aspect of your comments, I am not sure what you mean by "total premium for each employee be one that is negotiable". If you are suggesting having an employee's premium rate individually adjusted to provide for exactly that person's benefits, plus expenses of handling the benefits (marketing, administration, taxes, etc.), this could be done theoretically. However, it would mean that the individual who becommes ill and uses a lot of medical services and supplies, would have to pay an extraordinary amount, while all those (the vast majority of employees) who had no claims (or very small claims) would pay a small amount on their own behalf. [imagine a fire insurance option which, for the nominal sum of $5 per year, will allow you to receive an insurance policy for your house which will allow you to reimburse yourself for the value of the house and contents lost in a fire?] Alternatively, if you are suggesting where the employer has an average rate per employee which is needed to cover all expenses and benefits, in total, then each employee can negotiate, with the employer, how much he or she will pay, below, equal to, or above the average, how could that work? Which employee, knowing the average, would agree to pay more? However, if you are suggesting the employer set up a tiered plan, where employees can choose the benefits of any one of the tiers and pay its corresponding premium, then this is something which is available currently and in practice.

Waid10, if you are asking whether an employer can allow you to pay the full premium, plus any administrative fees, and continue to be covered by his plan, in a manner similar to a COBRA option, my answer would be "Yes, if the employer also likes to commit financial suicide, and if it is not an insured plan whose contract forbids such an arrangement.".

I believe that was an oversight and IRS, unfortunately, informally, is requesting comments from practitioners to protest this omission.

Following up on ERead's first sentence - how does the tpa perform its functions with respect to the plan if it does not have a copy of the document? ...of course, we may not want to see the answer...

Now, I am confused (this has been happening too frequently lately, but that belongs in another thread..). Why is 401(a)(26) being brought into the situation? There are many plans covering the sole employee...and they are qualified.

Don, Weeds are flowers growing in the wrong places.

Don, Oops, myself!! the phrase should have read "x%", not "x5". [Now corrected.] Each insurer uses its own set of credibility factors. Some states require the filing of rates bases, but, to the best of my knowledge, do not mandate the factors. Yes, in many states, for smaller groups (defined specifically by state), there are banding requirements and limits on the variance of premium rates among the groups within a specific band. And some carriers have 100% community rating for smaller groups.

Be wary of focusing upon the term "trend factor" when negotiating your renewal rates with the carrier. Instead, you should determine whether, in your circumstances, the requested rate is reasonable. "Trend" is defined distinctly by each carrier in its renewal actions and takes into account a variety of items, including: inflation, (anticipated, reported or negotiated) changes in provider fees. estimates of changes in prescription costs, changes in mandated benefits, aging of group (either with respect to the length of time insured or to the ages of the individuals insured), estimated changes in medical care management These factors, and any other aspects the underwriter feels are appropriate (such as whether there is a surge of unemployment in the geographic area), will be used to determine the individual group's (or class of groups') "trend factor". Most studies published by the larger firms (Mercer, Segal, Milliman, Buck, etc) are a compilation of the rate increases reported to them by larger companies which have received renewal actions - and those may not be reported and compiled until a few months after they have happened. Some of the studies differentiate between overall increases and the trend factor portion of the increase. The renewal action of a carrier may also place their insured groups in pooled classifications, with each pool's renewal rates determined by a combination of X% of expected pool experience and 100-x% of expected specific insured group's experience. As a result, an individual group's renewal rate may be much higher or lower than the average trend factor used by that group's carrier or by the average of many carriers. Remember, the goal of every carrier is to charge a premium which will cover the claims it expects your group to incur, the cost of administrating the benefits (including marketing) and a margin for risk and profit. As such, each carrier's actuarial staff will compare the previous years' estimates with the actual results; determine whether there were any flaews in the methods used to determine the estimates and then revise those methods to try to make the current year's estimates closer to the truth. [...and then, sometimes, competition creates a need to ignore the principles and keep the case at all costs!!]

Here is a possible scenario: There is an insured medical plan covering all employees and the HCEs have a supplemental medical insurance plan. The basic plan may be one which has a deductible, some co-payments and, most likely, an out of pocket maximum ("OOPM") per individual, and an overall maximum limit of $2,000,000 per individual per lifetime. For the sake of argument, let's assume the OOPM is $10,000. The supplemantal plan insures the HCEs for any coverd medical expenses which are not reimbursed by the basic plan (the maximum is the $10,000 OOPM plus any other covered expenses which may exceed individual limitations - e.g., mental health limitations or expenses in excess of the $2,000,000 maximum, but, in total, no more than $100,000 per year (or lifetime?). So, for $30,000 per year, the supplemental policy will insure the employee for a benefit which has a most likely net (expected claim cost) cost of much less than $10,000 per year. Well, this supplemental plan is considered "insurance". It definitely can get approval by insurance departments as a valid group insurance policy (and, if presented properly, as an individual policy). The question I have is why would an employer would pay the carrier an annual surcharge of $20,000 to $25,000 per employee for this supplemental coverage as opposed to no more than $5,000 to $10,000 as a combination of self funded beneifts plus the additional taxes on an occasional basis? Oops, I forgot. Many employers will pay thousands in fees and other expenses to avoid paying hundreds in taxes.

Rob, Instead of the waiver, why not limit future benefit accruals for the shareholders to their existing levels? ...or are their benefits already at a level which is "too high" for the plan?

Would you have preferred the term "retrospective" experience refunds? Yes, there still are fully insured plans which are experience rated. And, yes, the two types of premium adjustment noted in my previous comment are currently in use. Mind you, you need a cooperating insurer and plan sponsor, where both are financially astute. (the definition of "astute" includes having exceptionally good consultants....)

let's suppose two fully insured plans are identical as to demography and benefits and the claims are also identical for the period which is experience rated. Both plans call for employee contributions of $40 per month and employer "pays the balance of the cost of the plan"....and it is so stated in all spds and other ee communications. In both cases, the claims per employee plus retention equal $90 per month. Employer A's contract with the insurance company provides for an advance premium of $100 per month per employee (total) with an experience refund if the advance premium is redundant. So, the retroactive experience refund is $10 per month per employee. Employer B's contract is of the "a + b" type; where "a" is the advance premium (say $85), "b" is the additional premium required by the carrier if claims plus retention exceed "a". In this case, an additional $5 per month per employee is required. I believe we can agree the DOL will not require the employees to pay any portion of the $5 additional premium required in scenario B. Why, then, should it require Employer A to share the return of the excess premium (excuse me - refund amount) with the employees?

As usual, GBurns has provided good advice on how to determine what is causing the incumbent's rates to skyrocket. Presumably, the basic reason for the skyrocketing premium is a skyrocketing claim cost. Therefore, in addition to wishing (or praying) for things to get better, the church should redesign its plan to where it can afford the costs. Although it is paying 100% of the premium for those with longer service, its health plan is not required to pay 100% of the medical expenses. If the church feels it can not amend its contribution practices, it should be able to amend its plan to require its employees to pay a larger share of the claims - higher deductibles, increased copays; lower limits on certain items; ... the list goes on. No entity can continue to provide a benefit it can not afford.... not the church nor even the federal govt.

Let's see, Doc wants to direct investments, but does not want to have the hassle of letting any other employees direct investments. Why not put all the plan assets in one pool and appoint the Doc as the investment committee? Note though, if he is trying to be very aggressive in his investment policy (the real estate just east of Mt. Helena can be purchased at a distressed price....) all he has to fear is the wrath of disgruntled participants and their attorneys ...

I believe the act allows any individual under the age of 65 who has coverage only under a high deductible plan to establish an HSA. The problem may be in getting the child insured by a carrier.

Robbie, Two thoughts: one - spend some one on one time with the actuary and ERISA attorney, and two - the 401(k) plan in all probability will produce a smaller contribution (limit is 25% of net earned income) and immediate vesting of your deferrals (which, although they are not counted towards the 25% limit, do mean the minimum distribution requirement is not deferred), and three - as you can see, the simple becomes more complex. [This message illustrates an old joke - there are three kinds of actuaries - those who can count and those who can not.] By the way, in my earlier response, I was going to use the example of the individual who is not a doctor, reads Grey's Anotomy, watches ER, reads the "Your Health" section of the Sunday paper, diagnoses his illness and then tries to perform an appendectomy on himself... but I liked my mother's strudel better. It was in better taste...

Robbie, the high powered information you are getting is a joy to give from most of us. It reminds me, though, of the times my mother was asked for the recipes for her prized apple strudel. She gave it, readily, to whom ever asked. But, somehow, the results of the others' baking was never as good as hers. There is something about experience which allows you to adjust for a change in temperature or the feel of the mix or the size of the bits of the nuts. So, too, with defined benefit plans which are designed to be specific to an individual's desires. So, please, please, be aware there are many items which we have not discussed which could have a dramatic effect upon your plan. For example, you mention you have minimum distributions starting. From what kind of plan did these derive? Was this a defined benefit plan from a company you owned? If so, your new plan's benefit may be restricted. Further, no matter how much information you receive from us, in order to adopt and maintain a defined benefit plan, you will need to hire an actuary, you will need to have a plan document and, as a result, you will be incurring some modest expenses, annually to design, implement and maintain the plan. There is no way around this - especially if you want to squeeze as much out of your earnings as you appear to want. There is another "further", Congress has a tendency to "improve" [most of us would choose the word "complicate"] pension plans on an extremely frequent schedule. Each such "improvement" will involve costs to your plan and may involve a complete change in the course of your planning. So, here is some more advice: Sit down for an hour or so with a local consulting actuary (get a referral from a friend or an attorney steeped in ERISA) and, if he or she charges for the hour, it will be worth every penny. [Many of us will give you the hour as a "freebie" or absorb it in the fees for our continuing service to you.]

I guess I am just an old-fashioned actuary who believes it is necessary to know what is happening (e.g., the level of provider reimbursement, the basis upon which referrals are made, the ability of the tpa to pay claims properly, the charges made by these providers of services, the claims controls, etc.) in order to be able to help the client develop and maintain a plan and project future claims and future costs of administration. As such, I do get involved in these "non-actuarial" areas, including negotiating the contracts and analyzing the claims administration. I agree an actuary is not the only person who has the experience and training to review and evaluate these items - there are lots of people who have training and experience in some of these areas and a few people who have training and experience in many of the areas. I also recognize an actuary can not and should not be doing everything and it may be less expensive to allow others to perform certain functions. A good actuary is very much a key part of the management of any medical plan - whether insured or self-funded. (S)he must be involved in all aspects.

GBurns wrote: "There is much more to the insurance rates than that which is covered by actuarial techniques or underwriting analysis. In a self insured environment it is even of less value. Reimbursement schedules, provider contracts, provider placement, provider access fees, formulary, PBM fees, schedules and contract terms, claims adjudication, error checking of claims etc etc make up the vast majority of the expenses in a self insured plan, none of these items are subject to actuarial analysis." I take exception to your comment. Those are actuarial considerations and are provided by actuarial firms - large and small.

wojo, sometimes it helps to speak with an experienced person - at least to help point the direction. Try calling one of the consulting actuarial firms in your area and ask your question.

Your plan document should have a specific reference as to the length of time after which a claim may not be submitted, with a possible exception for special circumstances (e.g., a single person is in a coma for seven months and does not submit a claim until after that time ). But, be wary. State law may come into play in determining whether the cut off date is reasonable for the specific claim.

"Self-trustee" status gives an individual more control over assets and plan design than the package plans provided by most institutional vendors. In addition, the institutionalized plan usually may have language which could require the client to cover his household employees, inappropriately affect any other plans, etc. If there is enough money in the plan to keep the plan going, then there is enough reason to pay more than $40 per year for good advice. If you are looking for inexpensive maintenance, the Keogh plan may be better off, from a reporting and revising aspect, to be converted into an IRA. This may eliminate some creditor protection, may require some assets to be sold or eliminated and requires spousal consent. Again, these are valuable assets and any decision concerning their handling should be made with competent counsel.

I agree with Pax's comment - this is the stuff by which we make a living, and feed our families. With that in mind, perhaps we can help you do it yourself. When you say "compare", from what standpoint? If you are looking at it from the employee's point of view, then you can make a projection of the benefit the employee will receive at various times under the large company's combined plans as opposed to the smaller company's dc plan. To value the db plan's monthly benefit, you may have to use a rough approximation determined by going to one of the annuity pricing services on the net and finding out how much the monthly benefit will cost at each age. Yes, it will be a bit of work, but, if you have the time, you can manage it. If you are concerned with the cost to the employer, well, that's another story - and we are back to pax's comment.

I don't think the subject is "taboo"; rather I believe it is one upon which we can pontificate (my Reader's digest word for today) for a long time or simply state: the actuary should make sure the client understands there are many ways to fund a d.b. plan. For any plan, you can put more money in the beginning and less later, or less now and more later or anything in between. Whether a contribution is "maximized" in any one year is subject to a number of parameters. For many funding methods, there is a range whcih produces a minimum and maximum suggested contribution for that year and that specific set of assumptions. If you can, steer the client to one of these methods and suggest making higher contributions in good years to build up a credit balance for the bad years. On the other hand, if the client wants you to change your best estimate of assumptions and also change funding methods every year in accordance to whether there is money available to fund the plan.....well, you gotcha yourself a problem client who may not belong in a defined benefit plan.