Larry M

Okay, so employer contributed, say, 5% to eligible employees instead of the 4% he (or she) intended to contribute. and, for whatever reason, he does not want to allocate the extra 1% to them this year. consider the extra 1% an advance contribution which just happens to be allocated to the employees this year and then, next year, reduce that year's contribution by the 1%. In effect, an advance contribution has been made, the deduction taken in the current year, without any excise tax imposed, and the employer gets "whole" in the following year. Simple, neat, avoids potential fees (administrative, legal and regulatory) and makes everyone happy - except, of course, the person who set up the program for the discretionary advance contribution and did not recognize the non-participants and who is now looking for another job..... [This message has been edited by Larry M (edited 07-01-2000).]

Assuming you are discussing a group medical contract which has an expereince rating refund (Yes, Virginia, there are some), I suggest: a. if the spd, employee booklets, etc., state something to the effect the employee will pay 20% of the current premium and the employer will pay the balance of the premium due, then the employer has the right to all the refund (to the extent it does not exceed 80%). b. if the booklets and other material state or imply the ee/er share 20/80, then the employees are entitled to the proportionate share of the refund. In either event, allowing the employees to share in the refund would be good employee relations and one which is less likely to create a law suit from embittered employees. [if the excess assets arise from surplus assets in a terminated pension plan, there are other issues which have been argued in the courts and which have yielded mixed results.]

this expands upon Richard's comment: Forfeitures are not considered an employer's contribution in the year and do not count toward the 15% (or 25%) deduction limitation. Even in a year where the forfeitures are in excess of 15%, the employer can still make a deductible contribution to the profit sharing plan. Forfeitures are taken into account in determining the maximum annual additions applicable to individual accounts.

another way to reduce costs (at least temporarily) is to do away witht he prescription card and handle prescriptions as you would any other medical expenses (assuming an indemnity plan) - subject to deductible and coinsurance. the offset may be additonal administrative expenses handling what used to be relatively small dollar amounts.

Kip, when I said, "...one and a half to three times the expected costs...", I was referring to the costs of the portion of claims in excess of the stop loss. When the reinsurer quotes "5% of expected claims", the 5% is on the total of all claims, while the expected excess claim may be only 1 or 2% of the total expected claim. By the way, I have negotiated experience rated reinsurance premiums for my clients (when claims are low, there is a refund or reduction in rates; when claims are higher, there can be an increase). So, yes, I have seen reinsurance premiums reduced because of good experience. [This message has been edited by Larry M (edited 06-08-2000).]

stop loss v aggregate reinsurance? hmmm. if I am the employer and concerned with limiting my annual costs, why am I concerned with individual stop loss? Should I care whether my extraordinary health benefit costs are the result of two or three major claims or one humungous one? Yes, yes, I know, the individual stop loss may result in a reducton of net claim payments during the year - BUT, any reinsurer (the one taking the risk on the stop loss) worth its salt will be charging me one and a half to three times the expected costs each year. Seems as if that's a heavy price to pay for such a benefit. On the other hand, if budgeting and the ability to sleep at night if claims go crazy are the reasons for the reinsurance, why not limit it to the aggregate kind?

spreadsheets are nice ways to project costs - especially on a per person basis - but only if you have a good sense of the changes which might be expected. [i am assuming you will remain self funded but are moving to another tpa and its network and management philosophy.] the changes you will see involve a number of issues: a. the reimbursement level for the participating providers (doctors, hospitals, labs, pharmacies); b. the percent of employees (and their dependents) who will go out of network, and c. the effect of changes in gatekeeping. Once you have determined the current costs associated with your current plan (segregating among hospital, physician, specialist, xray, lab, prescription), estimate the costs you will be incurring for the next year (increasing the costs for general inflation and changes in utilization) to get your estimated costs on your current plan. then plug in the changes you expect to see using the UHC's networks and revised plan design - you will have to make adjustments for changes in Rx copay and such. When you are done, you will have a sense of the differences you can expect between keeping your current plana nd movng to UHC. Note, no matter how well you can estimate the differences between current costs and those expected next year, your estimates will be wrong - even if you do not change tpas!. The best you can hope to achieve is to get the estimate within ten percent of actual - and if that comes to pass, your employer should present you with a medal and you can be inducted into an honorary actuarial society....

I am having difficulty justifying the carrier's annual increase in premium of $800 per employee to go from a $1,000 deductible to a $500 deductible plan. Outpatient XRay and Lab should be a relatively small portion of the overall costs. Therefore, I shall ignore the effect of the increased dedcutible on your plan. What you seem to be describing is a service type of arrangement for professional visits and a Rx card for prescriptions (an expensive benefit) and the extra deductible will apply only to hospital charges. This means, to the carrier, the significant cost change is in hospital fees. The increase in deductible saves $500 on every hospital admission and most emergency outpatient hospital visits. My guess is the annual hospital admission rate will be somewhere between 10% and 20% - that is, for every 10 persons covered (employee and dependent) I would expect 1 or 2 hospitalizations per year...equivalent to a cost of $50 to $100 per person. If the average family size is 4, the expected cost of the deductible is $200 to $400 per year. I do not understand the pricing - other than to discourage the employer from reducing the deductible. Back to the question of saving money - consider getting rid of the prescription card and treat prescriptions the same as any other medical expense. What you currently have with the card is a benefit whose costs are growing at a much, much faster rate than any other segment of the medical expense beneifts - and you have no controls over its use. Granted employees like its "convenience". But, I would guess you could replace the drug card with a $25 per quarter bonus for each employee and save money. Fortunately, you do not have to guess at the savings - you should have that information available to you and know what it is costing you. [This message has been edited by Larry M (edited 05-31-2000).]

seems as if you are maing this unecessarily complex. [i assume the employer does not intend to pay 100% of the expenses incurred between $500 and $1000, and then have the carrier pay 80 of the excess over 1,000. If the employee incurs, for example, $700 of medical expenses, the employer intends to pay him $160 - 80% of the $200 in excess of $500.) If the carrier is required to keep track of the expenses from $500 to 1000, and provide an EOB for those as well as the ones which exceed 1,000, it will be doing the same work as if it were responsible for paying those amounts. The only savings the company MIGHT incur are any premium tax, commission, some investment yield and insurance company risk or profit charge on the portion of claims from $500 to $1,000. Offsetting these savings are teh expenses of the employer's administration of the claims on the first $1,000 of bills per employee. Why not, instead, just go with a high deductible plan.

Isn't this one of the three approaches used in Medicare situations - it is a "carve out" method where the seconday carrier will determine the benfits it will pay and subtract from that the benefits paid by the primary carrier. The logic is simple: Company B (the one with the secondary plan) has decided it wishes to protect its employees from certain medical expenses - up to a point. Once the reimbursement to the employee reaches that point, the employee is on his own. The employer does not want to have its employee reach a situation where additional, perhaps marginally necessary medical expenses are incurred just because it costs the employee nothing.

You say "Our claim experience is quite high". My response is "why?" Your comment raises a lot of questions, including: Does your company feel it is important to pay every medical bill an employee incurs? Does it enjoy spending money that way? In addition to correcting some of the administrative problems you mention, there is a much more expensive concern - the high cost of claims. Is there something about the makeup of your employees which makes them either sicker than other companies' employees or more prone to use certain benefits in your plan? Does your company's work situation encourage people to go to the doctor for relief? Is there something in the design of your plan or employee benefits programs which encourages employees and their dependents to use the plan's benefits? or to use more costly (to the employer) services because it doesn't cost the employee anything? Is the claim administrator paying claims without regard to their being necessary or reasonable? Before you shop for a new carrier or claims administrator, you should find out why claims are high and then what you can do to correct that situation. Whether a plan is self funded or insured or a combination of those two, the ultimate cost is equal to the amount of benefits paid plus the cost of administration (offset by any investment earnings) Since claims should be the major portion of the cost (by far) it behooves you to make sure your plan's design is not responsible for the high claim experience for which your company is paying a heavy price.

Gary, welcome to the world of consulting actuaries - you'll love it (assuming you can survive Georgia's summer climate...) When you are starting out, almost everything is expensive - relatively. Later, it remains just as costly, but the income increases and so it seems as if it costs less. I do not know which RIA subscriptions you have - my (also solo practice) subscriptions developed from CCH/BNA/RIA hard copy books (with weekly delivery of hundreds of pages to file in multiple volumes) to RIA cd roms to, currently, RIA's internet based service, which allows me to pick and choose from among a range of services (and prices). [i dropped the RIA P&B Weekly Updates because there were alternatives available - such as the daily newsletter from this site - which were more current and free.] One source of current interest rates is the Society of Actuaries' web site (consider joining its Pension Council for more info and networking). The Academy has an internet based "Alert" system which may help you. Also extremely important, I developed and maintained a wide group of other pension professional (including actuaries, attorneys and administrators) friends to whom I can turn for help whenever a question arises. Part of the development was joining with actuaries or estate counsel people in a local/regional group (some formal, some informal) which met on a regular basis to discuss various topics. Consider, as well, joining the Conference of Consulting Actuaries - its sessions are very practical and it provides an excellent place for developing your own network. [There are some who feel ASPA provides a similar service...and which is better suited to you is something you should decide.]

What was/is the intent of the sponsor of the plan? Does the plan document reflect that intent (in its definition of terms as they are applied)? If it does not reflect the intent, then amend the plan.

Yes, you can use an assumed entry date or entry age for funding purposes when using an entry age normal type of funding. We quite often used an entry age which was the earlier of (a) actual age of hire, and (B) age xx (the latter depending upon the type of business and expected average future entry ages).

goodness - every one knows an "R" year is one in which you can't eat oysters.

[i am not an attorney - this is my lay opinion.] I assume the plan documents themselves have no specific language to deal with this combination. Under those circumstances, itis my understanding the ERISA rules would apply and the birthday rule is the one which has stood up in court. here are three cases which support that outcome: Prudential Ins. Co. of Am. v Evergreen Oak Elec. Supply & Sales Co. (1996, ND Ill) 1996 US Dist PM Group Life Ins. Co. v Western Growers Assur. Trust (1992, CA9) 953 F2d 543 Reinforcing Iron Workers Local 426 Health & Welfare Fund v Michigan Bell Tel. Co. (1990, ED Mich) 746 F Supp 668.

Ouch, Mr. Burns, you wound me. Are you insinuating I have bamboozled my clients during these last 30+ years by helping them design, price, submit for bid, maintain and revise their employee health and welfare plans, and negotiate fees and retentions with their carriers and tpas? ...and, yes, I am a consulting actuary - one of many in the health and welfare field.

Consider hiring a consulting actuary - one who has h&W background - on a fee for service basis, to help you determine the parameters of the plans you wish to provide, the details you provide in the rfp, the questions you should ask and interpretations of the responses. Prior (or as part of the process) to your developing the rfp, the actuary should also be able to provide you with an estimate of the costs (current and intermediate range) of the benefit programs you are seeking to give to your employees as well as those of the various options concerning not only plan design, but employee contributions and other aspects of an overall program.

Kirk, for shame - you know darn well there is no place for "levity" in a 401(k) situation.... on the other hand, if this were the cash balance message board.....

To expand upon Pax's comments, the key to the question is found by looking at the plan document to determine the benefit. It is rare the plan will use the term "final average pay". Rather, it will define the benefit in terms of a multiplier of "average compensation". If "average compensation" is defined by using the participant's salary over his years of service or participation in the plan, then it is considered a "career average plan". When we reduce the period over which the compensation is averaged by eliminating some of the early years, we have a "final average plan" These final average plans may define average in any number of ways, the most common of which are a. that of the last n years prior to termination of employment; b. that of the highest n consecutive years in the last y; and c. that of the highest n years any time "n" is usually 3 to 5" and "y" may be five to ten If a is the definition, then we do not look back to determine whether the average was higher in earlier years. If b or c are the definitions, then we look back to determine which years within the period created the highest average. [again,as with the entire universe of qualified plans, there are exceptions to "we don't look back" comment...for grandfathered benefits or early retirement benefits] [This message has been edited by Larry M (edited 12-24-1999).]

In addition to the questions concerning th ownership of the company, the persons who are important, and other info needed to help a new client, we ask for completion of the following form: QUALIFIED RETIREMENT PLAN TAKEOVER INFORMATION REQUEST Name of Firm:. Address: Phone: ( ) - Exact Name of Plan: Person to contact for Information: Address: Phone: ( ) - All of the following should be returned with this form. Check those attached: [ ] Copy of Plan Document and Trust Agreement with all amendments [ ] Copy of Summary Plan Description [ ] Copy of I.R.S. qualification letter and any subsequent correspondence [ ] Copy of letter(s) requesting I.R.S. determination [ ] Trust, Trustee or Fiduciary Federal Tax ID# - [ ] Copy of I.R.S. Form 5300/5301 and 5302 Application for Determination [ ] Copy of I.R.S. Form 5500 for each of last 5 prior years with Schedules A, B & SSA [ ] If a Defined Benefit plan, copy of all prior actuarial reports (or last 5 prior years) [ ] Copy of Trustee Reports, listing assets for each of last 5 prior years [ ] Worksheets or statements reflecting Participant Account values [ ] If insurance is in Plan, detailed listing of each policy including copy of face page and cash value table for each policy [ ] Complete listing of all current employees with exact name, date of birth, date of hire, sex, marital status, date of spouse's birth, compensation for Plan purposes for each of the past 5 years, and percent of stock ownership in this company. Indicate if union ("u") or non-union ("n"), and whether they work at least 1,000 hours ("a"), 501 - 999 hours ("b") or less than 501 hours (c") per year [ ] Copy of bond or name of bonding company if required for this Plan. Dollar amount of bond currently in effect $ [ ] Are any other businesses owned by this Company or Stockholders of this Company? [ ] Yes [ ] No (If "yes", please give details in Comments) [ ] Other - Copies of DC/DB combined fraction calculations for last five years [ ] - Copy of any settlement agreement with IRS Comments/Notes:

How about class 1 = owners born between 19xx and 19yy; class 2 = owners born between 19ww and 19uu; class 3 = owners born between 19zz and 19aa; class 4 = other employees who have at least 1000 hours, etc.?

Brenda, a good story is worth repeating...

An actuary is supposed to extend ciurtesy and cooperate with others in the client's interest. The actuary also may require compensation for the work required to assemble and transmit reklevant information. If you feel the actuary may have violated the code - or if you want to discuss this with someone who can give you more insight, (assuming the actuary is a member of any of the six North American actuarial organizations, he/she is , as PAX noted, subject to codes of professional conduct), call the Actuarial Board for Counseling or Discipline's (ABCD) staff attorney, Tom Griffin ((847) 706 3860). He will take the information and should be able to help you and, perhaps, have someone contact the actuary on your behalf.

yes, ERISA appplies to plans of employers with at least one non-owner employee.