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EMPLOYEE BENEFITS IN CAPTIVES. Risk Management for Financial Managers & Accountants November 17, 2000. EMPLOYEE BENEFITS IN CAPTIVES. BASIC CONSIDERATIONS ERISA COLUMBIA ENERGY NON-ERISA STRUCTURE BRANCH CAPTIVES. EMPLOYEE BENEFITS IN CAPTIVES. BASIC CONSIDERATIONS

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Employee benefits in captives

EMPLOYEE BENEFITS IN CAPTIVES

Risk Management for Financial Managers & Accountants

November 17, 2000


Employee benefits in captives1
EMPLOYEE BENEFITS IN CAPTIVES

  • BASIC CONSIDERATIONS

  • ERISA

  • COLUMBIA ENERGY

  • NON-ERISA STRUCTURE

  • BRANCH CAPTIVES


Employee benefits in captives2
EMPLOYEE BENEFITS IN CAPTIVES

BASIC CONSIDERATIONS

  • Employee benefits allowed in Hawaii captives

  • Fronted program

  • Third-party risk

  • ERISA


Employee benefits in captives3
EMPLOYEE BENEFITS IN CAPTIVES

ERISA

  • Plan:

    • includes welfare benefit plan and a pension benefit plan;

    • WBP generally includes medical, accident, disability, etc. programs

  • Insurer qualified to do business in a state


Employee benefits in captives4
EMPLOYEE BENEFITS IN CAPTIVES

ERISA

  • Prohibited transaction

    • Party-In-Interest includes with regard to plan

      • an employer

      • a corporation to which 50% or more of the combined voting power is owned (direct or indirect) by the employer (e.g., a captive)

  • Prohibited transaction exemption


Employee benefits in captives5
EMPLOYEE BENEFITS IN CAPTIVES

COLUMBIA ENERGY

  • Bermuda captive with a Vermont branch

  • Captive a party-in-interest

  • Captive licensed in at least one state

  • Independent audit by certified CPA w/in one year preceding transaction

  • Captive retains independent fiduciary at Columbia’s expense


Employee benefits in captives6
EMPLOYEE BENEFITS IN CAPTIVES

COLUMBIA ENERGY

  • Financial exam of captive by domiciliary regulator (VT) w/in 5 years preceding transaction

  • Licensing state requires annual independent actuarial review of reserves


Employee benefits in captives7
EMPLOYEE BENEFITS IN CAPTIVES

COLUMBIA ENERGY

The Plan:

  • No commissions paid by Plan on direct sale of contracts or reinsurance thereof

  • Reasonable and market competitive premium

  • Immediate and objectively determined benefit to Plan’s participants and beneficiaries

  • “A” or better rated front (Wausau)


Employee benefits in captives8
EMPLOYEE BENEFITS IN CAPTIVES

COLUMBIA ENERGY

The Plan - continued

  • Big Difference < 50% Unrelated


Employee benefits in captives9
EMPLOYEE BENEFITS IN CAPTIVES

NON-ERISA STRUCTURE

  • Established as a Qualified Self-insured

  • Front provides excess coverage above minimum state required retention

  • Captive provides Aggregate stop loss coverage to Front at minimum state required retention (Pass through)

  • Policy considered contractual liability not Benefits. Outside ERISA jurisdiction


Employee benefits in captives10
EMPLOYEE BENEFITS IN CAPTIVES

BRANCH CAPTIVES

  • Used when captive reinsurer is domiciled in an offshore jurisdiction

  • In Hawaii - Act 133, SLH 2000 allows licensing of branch captives

  • No branch needed if captive reinsurer domiciled in Hawaii


Employee benefits in captives11
EMPLOYEE BENEFITS IN CAPTIVES

WHY DO IT?

  • Premium Deductibility

  • Increase Employee Benefit & Retention

  • Strengthen Captive


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