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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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