Value of Insurance Contract Where Employer Has Not Paid Premiums, But

[Guest PAUL DUGAN]

If you know the monthly benefits under the contract (if not the insurance company can provid) and the age of the individuals intitled to benefits any actuary or good life agent can calculate a value.

[Alonzo]

Our client sponsors a defined benefit pension plan that provides benefits partly through a trust, and partly through an guaranteed annuity contract that was set up in the 70s. Due to a very complicated dispute involving both the insurance company and the employer that used to own the location for which the db plan is maintained, the client has not paid anything to the annuity company. (Note -- the annuity is not a single premium arrangement). However, the insurance company continues to pay benefits under the plan.

The question is -- what value to put on the contract?

The complications:

Because of the dispute, the employer has not assumed ownership of the contract.The contract itself covers more than just the single location covered by our client's db plan. The insurer refuses to make any special breakdown for our client. So the Schedule A is useless for establishing the contact's value.

The original sponsor's actuarial firm put a value on the contract years ago, and the value for the contract has been established by subtracting the amount of payments from the contract. This seemed like an OK methodology, and the accountants have bought off on it for years. However, for the last couple of years, the value of the contract under this methodology has become negative.

Now the client wants to sell the division, and wants the pension fund to look as good as possible. And he's looking for a way to put a positive value on the insurance contract. The insurer has not demanded money from our client. (The fact that our client is not the owner may have something to do with that.) And the insurer keeps paying benefits from the pension fund.

There are attorneys working on the problem. I'm looking at it from the consulting side. And, I was wondering if anyone out there had any ideas.