Life Insurers Getting More Creative

Life Insurance companies are getting more creative in the products they offer. One example is a life insurance product that offers a long term care rider. If you purchase this type of policy and rider, then if you need long term care the death benefit is available during your life to pay for long term care. You are literaly buying one policy that covers two contingencies.

Another new product is a policy that gives you a break in rates even if you are a smoker. But the rate lasts only three years. If you don't cease smoking by the third year, your life insurance premiums jump.

Also, don't forget that the estate tax rates go to zero next year, but jump back to the old rates the following year. It is time to visit your estate planning professional and life insurance agent to start examining your options.

HealthCare -- I

America's healthcare system is neither healthy, caring, nor a system. --Walter Cronkite

It is time to begin the dialogue. The next few weeks we will begin a discussion of what we think Congress will do, what really needs to happen, and how we must demand from the Congressional leadership real reform not "sausage."

Let me hear from you.

Ignoring Risk Management is Risky.

Corporate fraud, data theft, financial reporting risk-and a host of others-can cost organizations dearly, says Ernst & Young in a new survey. That's why it's so important for today's businesses to get their risk management strategies right. Doing so protects organizations' valuable assets, and can also create a competitive advantage.
"This financial crisis has taught us that unidentified risk can lead to catastrophe," says Ernst & Young Partner Tanya Khan. "Clearly, leadership in Canada and around the world must refocus and intensify their efforts to ensure effective risk management is tied directly to business priorities."
In The future of risk: Protecting and enabling performance, Ernst & Young finds 96% of organizations believe they can improve risk management, while nearly half say committing additional resources to risk management could actually drive a competitive edge.
Despite the tangible negative effects of neglecting this area, not everyone plans to spend now. Sixty-one percent say they won't commit more resources to risk management over the next 12 to 24 months. Instead, companies are focused on doing more with the same or less resources and budget.
The survey further finds coverage and focus of multiple risks functions has become increasingly difficult to manage and is compounded by a lack of alignment. Fifty percent of respondents say they have gaps in coverage.
"Departments tend to assess how risk affects them, not the entire organization," Khan explains. "Risk management needs to move out of its silo, and reach across an entire organization if it's going to work well. Companies need to ask: Do our efforts allow us to understand what big-picture risks might emerge 12 months from now?"
Khan adds that there can be an upside to risk. "New opportunities will emerge, even now, and companies must ask themselves how they can seize them. This is the perfect chance to make sure your business has a handle on risk management before something goes wrong."

A few questions to consider for balancing risk, cost and value:
1. Do we understand the risks that our company faces?
2. Do we have a comprehensive risk framework in place?
3. Do we have duplicative or overlapping risk functions?
4. Are the risks we take aligned to our business strategies and
objectives?
5. Are we taking the right risks to achieve competitive advantage?

ERISA Basics

This article begins a series concerning Fiduciary Responsibility under the Employee Retirement Income Security Act (ERISA). Few fiduciaries understand their duties, the liabilities associated with their responsibility, or whether they are even fiduciaries. This first article provides an overview of fiduciary responsibility under ERISA and some basic practices fiduciaries must take to exercise their duties.

Basics of Fiduciary Responsibility under ERISA

The role of a fiduciary is paramount underthe Employee Retirement Security Act.[1] ERISA provides protections for participants and beneficiaries and specifies fiduciary standards of conduct. Yet many who serve as fiduciaries are unaware of their legal obligations. There is also a misunderstanding about the extent of fiduciary responsibility service providers have under ERISA.

The operation of a retirement plan requires many participants. Some are clearly identified as Fiduciaries, others actions make them fiduciaries, while a third group acts under the direction or control of a fiduciary. ERISA defines a fiduciary[2] to the extent an individual
Exercises discretionary authority or control respecting management of a plan or disposition of its assets.
Renders investment advise or has authority or responsibility to do so, or
Has discretionary authority or responsibility in the administration of the plan.

A fiduciary has four primary duties[3] which must be carried out to discharge those duties solely in the interest of the beneficiaries and participants interest.

Duty of exclusive purpose
Duty of prudence
Duty to diversify
Duty to follow plan documents.

Failure to follow these duties may expose a fiduciary to personal liability to restore losses or profits. Willful violation also exposes fiduciaries to criminal penalties.

ERISA specifies five prohibited transactions[4] that a plan may not engage in with a party in interest. They include:

A sale of property between a party in interest and the plan.
Lending money between a party in interest and the plan.
Furnishing goods or services between the plan and a party in interest.
Transfer or use of plan assets by a party of interest.
Acquiring employer securities or real property in violation of ERISA.

A fiduciary may not:

Deal with plan assets in its own account or own interest.
Act in a transaction where the fiduciaries’ interest are adverse to the plan or its beneficiaries.
Individually receive anything of value from someone dealing with the plan.

There are basically two types of fiduciaries. The first is someone named in the plan document who has responsibility for managing the plan’s assets. The other are fiduciaries by reason of his/her actions becomes a fiduciary . Named fiduciaries include:

Plan administrator
Plan Trustee

If the plan so provides any person may serve as both Plan administrator and Plan trustee.

Plan documents usually control a Plan’s administrator in this regard. However, delegating responsibility is considered a fiduciary action. The appointing fiduciary has the obligation to prudently select and monitor the performance of its appointees. Thus when a plan manager appoints an investment manager the other fiduciaries are relieved of this responsibility and, as long as the appointing fiduciary is prudently selected and monitored there is a real transfer of risk of the investment decision responsibility.

An individual or entity can also become a fiduciary by filling a void. For example, a plan sponsor’s chief financial officer may begin to make investment decisions for the ERISA plan for lack of action by the Plan administrator or expedience. By so doing the CFO becomes a fiduciary without realizing the consequences. Such a sequence of events can lead to further exposure if the CFO discovers an act of self dealing between the employer and the plan. The CFO must remember that his/her duties to the plan are paramount.

ERISA specifies three circumstances[5] that give rise to liability for a fiduciary.

A fiduciary knowingly undertakes to conceal, an act or omission of another fiduciary, knowing that such act is a breach
A fiduciary in performing its responsibilities has enabled another fiduciary to commit a breach
The fiduciary has knowledge of another fiduciaries breach and does not make reasonable efforts to remedy the breach.

A service provider can be considered a fiduciary by virtue of rendering investment advice for a fee. While some acknowledge this responsibility as a co-fiduciary this approach does not transfer liability as previously discussed. The provider may later claim advisory capacity without discretion. Thus the importance of getting a service provider’s duties and responsibilities in writing. An investment consultant must acknowledge fiduciary status so they are bound by the duties of prudence, diversification, and adherence to plan documents.

Documentation is the cornerstone of demonstrating sound fiduciary governance and prudent decision making. The first step is to formally identify all plan fiduciaries and each fiduciary’s responsibility to the plan. Second all fiduciaries should meet on a regular basis. Thirdly, no fiduciary should perform multiple functions for a plan; the opportunity for conflict of interest is just too great. Finally, all documents and paperwork that relate to the plan or the decision-making process should be organized and accessible.

Conclusion

Litigation for fiduciary breaches under ERISA is growing exponentially. The burden of proof in such cases lies with the plan fiduciaries. Liability is not necessarily determined by investment performance, but on whether prudent investment practices were followed.

The most effective strategy for achieving the “exclusive purpose” of providing benefits for plan participants is to establish and follow documented procedures that demonstrate a prudent process. Such an approach will provide greater clarity into plan composition and performance, enabling fiduciaries to make better decisions and help their plan participants retire with meaningful benefits.

[1] Brussian v. RJR Nabisco
[2] ERISA Para. 3(21) (A).
[3] ERISA Para. 404(a)(1).
[4] ERISA Para. 406(a)(1).
[5] ERISA Para. 405(a).

Off the Beaten Path

Major League baseball will not let Pete Rose in Cooperstown. We condemn athletes when they bet legally on other sports in Vegas. Professional athletes are encouraged to help in the community. So what do my wonderous eyes see on TV? The Washington Redskins partnering with statewide lotteries to sell lottery tickets with the prizes being Redskins tickets, Super Bowl trips,etc.

That is right the Washington Redskins are endorsing gambling, and taxing the poorest of the poor. They are making money on the very activities that ban ballplayers from career long accolades and cause them to be pariahs in their communities. I do not know if other teams engage in this ultimate of hypocrisy. Let's hope they don't. But when this Nation's Capital sports franchise openly endorses gambling and taxing the poor, it must be condemned and treated as its ballplayers.

We should tell its owner you have lost your tax exemptions, your right to participate in the championship, and you must forfeit your ownership. Perhaps then will the NFL begin to have the social conscience it demands from its players.

Medicare,Medicaid, and SCHIP Extension Act of 2007 (the "Act").

The Act requires Responsible Reporting Entities ("RREs") to report to the Centers for Medicare and Medicaid Services ("CMS") any partial payment, settlement, judgment or award made to a Medicare beneficiary. The Act, which was originally scheduled to go into effect on October 1, 2009, has been delayed by CMS until April 1, 2010.

RREs include liability insurers, no-fault insurers, workers compensation insurers and self-insureds. Hence, insurance companies are responsible for reporting under the Act for many of their insureds. If your customers must register because they fall into one of these two categories, they may designate a reporting agent. If, on the other hand, your customer has a deductible policy or a TPA with which the insurance company has contracted, makes all payments to the claimants on behalf of the customer, then they must register as the RRE and designate the TPA as the reporting agent. Instructions and additional information regarding the Act and registration can be found at http://www.cms.hhs.gov/MandatoryInsRep.

The information provided should not be relied upon on as legal advice or a definitive statement of the law of any jurisdiction. For such advice, the reader should consult with their own legal counsel. No liability is assumed by reason of the information contained herein.

Rolling The Dice in Uncertain Times?

Failing economy, layoffs, high unemployment have become a drumbeat these days. So how do companies react -- cut insurance costs by dropping or lowering limits on employment related paractices insurance? Wrong move.

Employees who are laid off or terminated have one outlet -- they were discriminated. Recent EEOC numbers confirm this trend.

• Discimination claims jumped 13%
• Age discrimination claims jumped 22.3%
• Retaliation claims jumped 18%

The cost:

• The average overall jury award is $252,000.
• The average settlement is $75,000.
• The employers cost of defense averages $120,000 per claim.
• If the employer loses add $200,000 the average cost for the employye's attorney.

So before you think about dropping EPL coverage or reducing your limits, think again.

Just to keep you from ignoring this advise ask your lawyer what Congress recently did regarding ADA and Fair Pay.