What options did you consider and how did you reduce or eliminate your

[Guest Pat Riccio]

This is addressed to companies that have (or had) retiree medical and the impact that FAS106 had on the coverage. What kind of changes did you make to your retiree coverage? Increase the retiree paid portion? Freeze the company-paid portion? If you eliminated retiree medical, how did you do it? A phased approach? All at once? Did you give employees any subsidy to make up for the loss of retiree medical (e.g., an additional contribution to a defined contribution plan or lump sum payment)? How was that subsidy calculated?

[vebaguru]

I have been actively working with a group in Michigan on a project which will permit their clients to drop retiree medical guarantees, while offering employees some protection. Obviously, FAS106 shocked a lot of companies when they ascertained the amount of liabilities they had to recognize. Most employers began to raise the employees' share of retiree premiums in order to reduce the liability. However, with medical costs going up as much as they have been since FAS106 came into being, companies are still faced with formidable liabilities.

The solution we propose to companies is to convert their post-retirement medical plans to a defined contribution type of plan, which we call VEMAs (for "Variable Employee Medical Accounts") Rather than explain the approach in detail, you may read an article I posted on my website, at http://www.bsgbenefits.com/cgi-bin/articles/0006.

We believe the solution to be for the employer to fund whatever amount it can reasonably afford, and to turn the responsibility for worrying about whether coverages will be sufficient over to the employees.

I don't believe that in most cases it is politically feasable to eliminate retiree medical for employees already retired. However, for all other employees, we propose to give them an election of health plans: the traditional retiree health plan (typically with increased employee contributions), or coverage under the VEMA with a lump sum transferred over from the prior health plan. The lump sum would be actuarially determined using the same methods, factors and assumptions as the FAS 106 liability (since those were "reasonable").