Group 19 Retiree Group Benefits

Question 1

Retiree benefit design

1. Reasons for offering group benefits
2. Medicare prescription drug coordination

Answer 1

1. Reasons for offering retiree group benefits
   
   1. 1 it’s tax effective
   2. 2 a valuable benefit for retired or those soon to retire
   3. 3 support workforce planning and growth opportunities for EEs
   4. 4 providing ongoing health coverage is a social responsibility of the ER
   5. 5 Helps provide a competitive package of total compensation
   6. 6 current cash costs are nominal relative to total spending on benefits
   7. 7 to meet union demands
2. Medicare Prescription drug coordination
   
   2. 1 Variety of alternatives for employers
      
      2. 1.1 Maintain ER sponsored plan and receive drug subsidy from Medicare (RDS)
      3. 1.2 contract with a PDP or MA-PD
      4. 1.3 Contract with CMS directly to become a Medicare PDP or MA-PD for its own retirees
      5. 1.4 Provide separate drug plan that supplements any available PDP
   3. 2 PPACA eliminated the tax advantage of RDS for employers

Question 2

Retiree prefunding

1. An ideal funding vehicle would provide
2. Investment vehicles used to prefunding retiree life and health benefits

Answer 2

1. An ideal funding vehicle would provide
   
   1. 1 current company tax deduction for contribution
   2. 2 tax free or tax deferred savings
   3. 3 earnings that accumulate in a tax-sheltered environment
   4. 4 tax free benefits paid to retirees
   5. 5 no impact on plan design provisions
   6. 6 funds counted as an asset under FAS 106
   7. 7 assets are revocable
2. Investment vehicles used to prefund retiree life and health benefits
   
   2. 1 welfare benefit funds
      
      2. 1.1 trusts referred to as VEBAs
      3. 1.2 Continuance funds held by insurance companies
   3. 2 IRC 401(h) funding in a qualified pension trust
   4. 3 a profit sharing plan
   5. 4 EE purchased group annuities
   6. 5 401 (h) account with a money purchase plan

Question 3

Retiree prefunding

Deficit reduction act (DEFRA)

Answer 3

1. Limited use of welfare benefit funds
2. Limits deductible contribution
3. Taxes investment income earned
4. Limits the level of assets in the fund
5. Profit sharing accumulates funds tax effectively, but tax on benefits
6. EE contributions to group annuity contracts are made after-tax

Question 4

Retiree benefit design

Answer 4

1. Pre-65 retirees: health plan typically a continuation of program available while they were working
2. Post-65 retirees
3. 1 an indemnity plan using Medicare payment rates
4. 2 Dental coverage is terminated
5. 3 Life insurance benefits are reduced
6. 4 Average ER subsidy is 60%
7. Reasons for offering retiree group benefits
8. Medicare integration (details on appendix F cards)
9. Medicare prescription drug coordination
10. Future plan design considerations
    
    6. 1 need to reduce total costs to make plans affordable for ER and retiree
    7. 2 providing an account-based ER subsidy
    8. 3 consumerism initiatives to encourage efficient care
    9. 4 Overall total cost management
    10. 5 Methods to effectively coordinate the ER plan with Medicare
11. Other Retiree Benefits
12. 1 Dental, vision, and hearing
    
    7. 1.1 Many ERs provide these only to age 65
    8. 1.2 plans for retirees have same benefits as plans for active EEs
13. 2 death benefit coverage has declined significantly
14. 3 Medicare part B premium reimbursement: coverage has declined

Question 5

Retiree benefit legal issues

Answer 5

1. Amending or terminating benefits: communicate that ER has right to amend or terminate the plan
2. Bankruptcy code
3. Age discrimination: different benefits allowed between those eligible for Medicare and those that are not

Question 6

PPACA health care reform affecting design of Retiree Group Benefits

Answer 6

1. No lifetime limits, no pre-existing condition limits, coverage of children until age 26, uniform explanation of coverage, 100% coverage of preventive services
2. MA changes result in higher premium rate increases and lower benefit levels
3. Loss of tax deductibility of the retiree drug subsidy
4. Exercise tax on high cost plans
5. Retiree reinsurance program
6. Medicare Part D closes the coverage gap by 2020
7. Introduction of health insurance exchanges and the individual coverage mandate

Question 7

1. Retiree benefit design - accounting

2. Actuarial assumptions

Answer 7

1. Accounting
   1.1 FAS 106 accelerated the accounting recognition of the benefit cost
   1.2 GASB expected to have similar impact on governmental entities
   1.3 international standards will require amendments to improve transparency
   2 actuarial assumptions
   2.1 please see retiree 9 flashcards below