Post Retirement Life Insurance

[dmb]

I don't have much experience with Post Retirement Life Insurance (PRLI) and i am trying to value the liabilities for a FAS report. I'm sure contracts are different from plan to plan would like to know if there is a basic principle. It was my understanding (or at least what i've been told) that a participant is not covered by the PRLI unless they retire (claim benefits) from active service so we weren't valuing liabilities for terminated particpants. I have a situation where it seems participants who terminate after age 55 (earliest date benefits can be claimed) but do not claim benefits until a later time supposedly become covered upon claiming benefits so these participants would need to be valued. Again, not sure if this is different for all contracts, but would like to get opinions if not actual facts. Any help is greatly appreciated.

[David MacLennan]

PRLI provided by a qualified retirement plan? I thought at least one old Revenue Ruling says that post-retirement insured death benefits are verboten.

[Ron Snyder]

While a DB plan can offer death benefits, maintaining those after retirement is quite unusual. I have been a small-plan actuary since ERISA for hundreds of DB plans and have never seen such an animal.

Moreover, there are potential ERISA and IRC violations, depending on how the benefit is structured.

Perhaps a clearer and more particular statement of the facts is in order.

To answer your question directly, there are no published actuarial standards, principles or guidelines for such a situation because these plans are not known to exist. If your plan genuinely provides a post-retirement death benefit, and if the plan is in compliance with ERISA and IRC rules, you may wish to look for guidance under section 79 cases and rulings, as those plans occasionally continue for life (most of them terminate by age 70).

The situation you describe doesn't make sense. No insurance company would permit a provision such as you describe (the participant can later elect coverage), as it promises coverage without evidence of insurability and invites adverse selection.

The only situation which I can imagine that might choose to offer such a benefit would be collectively-bargained. In that case, however, the benefit would usually be considered a welfare benefit to be provided through the welfare benefit fund rather than through a DB pension plan. Unless (thinking out loud), the union wanted a death benefit and the pension fund was overfunded * * *.

[david rigby]

I don't have much experience with Post Retirement Life Insurance (PRLI) and i am trying to value the liabilities for a FAS report.

What kind of FAS report? 87? 106? Other?

[dmb]

I don't have much experience with Post Retirement Life Insurance (PRLI) and i am trying to value the liabilities for a FAS report.

What kind of FAS report? 87? 106? Other?

Its a FAS 106.

[Effen]

dmb, I'm not clear.

Are you saying you have a client that provides post retirement death benefits and they need a FAS 106 valuation

or

Are you saying you are working with a qualified db plan that has post retirement death benefits as a benefit?

If it is the first, your FAS 106 report will look a lot like a FAS 158 report. Post retirement death benefits are fairly common as part of a post retirement medical plan or as a stand alone. I would just value the benefit and pretty much ignore the contracts. In other words, if the death benefit is $10,000 I think the plan's liability is just based on the $10,000. If they are insuring this risk it is just a vehicle used to fund the benefit, but it doesn't really impact the plan's liability. I have seen some people use a group term rates to set the liability, but this probably wouldn't be appropriate for a post retirement group since the group term rate is probably a composite and would include actives as well. In other words, the group term rate wouldn't properly reflect the post retirement group.

[dmb]

dmb, I'm not clear.

Are you saying you have a client that provides post retirement death benefits and they need a FAS 106 valuation

or

Are you saying you are working with a qualified db plan that has post retirement death benefits as a benefit?

If it is the first, your FAS 106 report will look a lot like a FAS 158 report. Post retirement death benefits are fairly common as part of a post retirement medical plan or as a stand alone. I would just value the benefit and pretty much ignore the contracts. In other words, if the death benefit is $10,000 I think the plan's liability is just based on the $10,000. If they are insuring this risk it is just a vehicle used to fund the benefit, but it doesn't really impact the plan's liability. I have seen some people use a group term rates to set the liability, but this probably wouldn't be appropriate for a post retirement group since the group term rate is probably a composite and would include actives as well. In other words, the group term rate wouldn't properly reflect the post retirement group.

It seems like the first option, the FAS 106 does look like a FAS 158 report. Thanks for the help.

[David MacLennan]

OK, I'll say it again. Insured post-retirement death benefits are not permitted in a qualified plan. It's a violation of the incidental benefit rules. Hopefully you have a DL on your plan.

[dmb]

OK, I'll say it again. Insured post-retirement death benefits are not permitted in a qualified plan. It's a violation of the incidental benefit rules. Hopefully you have a DL on your plan.

The PRLI is not part of the DB plan, its a separate entity.