Objective 7 - Retiree Benefits

Question 1

Reasons for offering a retiree group benefit plan

Answer 1

1. Retiree group benefits are a tax-effective means of providing retirement financial security
2. Retiree benefits are a valuable benefits for those currently receiving the coverage or who are soon to retire
3. Benefits can support workforce planning and growth opportunities for employees
4. Providing ongoing health care coverage is a social responsibility of the employer
5. Retiree health care benefits help provide competitive package of total compensation
6. The current cash costs are nominal relative to total spending on benefits
7. Retiree benefits are often at the top of the list of union demands

Question 2

Methods for coordinating benefits with Medicare

Answer 2

C = covered expenses
M = medicare payment
% represents the application of employer’s benefit provisions
1. Standard COB: plan payment = lesser of (C * %) or (C - M). Plan pays lesser of regular plan benefits, or total covered expenses minus medicare. Referred to as Full COB in ASOP #6
2. Exclusion: plan payment = (C - M) * %. Exclude Medicare payment, then apply benefit formula of secondary plan
3. Carveout: plan payment = (C * %) - M. Apply benefit formula first, then subtract Medicare payment
4. Supplemental plans (Medigap)

Question 3

Recent plan design changes to control retiree medical plan costs

Answer 3

1. Making eligibility requirements more stringent (e.g., age 60 with 15 years of service)
2. Introducing service-related benefits (i.e., varying employer cost share based on length of service)
3. Adjusting retiree contributions based on employee’s age at retirement (i.e., early retirement reduction)