Pensions were originally set up to reward loyal employees
for the fruits of their labor and were once viewed as guarantees. However, since the most recent economic
downturn, many pensions that were once viewed as invincible are now being
questioned about their solvency. Due to
uncertainties pensions are proposing dramatic changes that will impact current
and retired employees.
In particular, the State Teachers Retirement System of Ohio has
proposed several changes to insure they remain solvent. The current system allows for educators to
retire after 30 years of service with unreduced benefits, which they are
looking to increase the eligibility to retire without unreduced benefits to 35
years of service. They are also looking
to increase the employee and employer contributions to the system by 2.5% of
employees’ annual income, which employees currently contribute 10% towards STRS
and employers contribute 14% of employees’ annual income. Another possible change is to increase the
final average salary from the three highest years to the five highest years of
service. In addition, they are looking
to reduce the incentive for employees to work more than 30 years by making the
annual increase a flat 2.5% instead of increasing 1% thereafter, which
decreases the percentage to 78.5% from 88.5% with 35 years of service.
Additionally, they
are not only looking to change existing employees but possibly retired
employees. For example they are looking
to decrease the cost of living adjustment, which is currently 3% simple
inflation and they are looking to reduce it to 2% over a phase in period. In addition, even though health care has not
been discussed to be reduced or eliminated for retired employees, it is a
concern that many current and retired employees worry about since it is an
elective benefit.
These proposed changes are a reflection of the financial
stress on current pension plans. In
order for these systems to remain viable and solvent the systems are going to
have to make fundamental changes that will have a direct impact on current and
retired employees. Also, these systems
could pass part of the burden onto employers which may indirectly be passed off
to consumers or tax payers.
For many of us, one of our greatest fears is that we'll need long term care and be unable to afford it. When our assets run out, Medicaid (but not Medicare) can be a source of funds, but at the expense of almost everything we've worked so hard to build. Long Term Care insurance can help provide those funds, and a measure of financial independence.
If, of course, the company through which it was purchased is still around.
For a number of years, Penn Treaty (and its subsidiaries)marketed long term care insurance plans around the country, writing thousands of policies for folks who trusted that the company would be there to pay their claims. Unfortunately, Penn Treaty became over extended, and has been taken over ("put in rehabilitation"in insure-speak) by various state departments of insurance.
And it gets a bit more complicated still: Penn Treaty policies were actually underwritten and issued by both Penn Treaty Network America Insurance Company (PTNA) and the American Network Insurance Company(ANIC). Both of these carriers are now undergoing rehabilitation.
As an Ohio-based blogger, I've been asked by Insurance and Annuities' John Power to report on the efforts undertaken by the Buckeye State's commissioner of insurance, Mary Jo Hudson. Ohio, like all states, has a Life and Health Guaranty Fund which functions much like the FDIC; that is, when a carrier becomes insolvent (or looks to be heading that way), the fund steps in to make whatever arrangements are necessary to protect the policy holders. In this case, since PTNA and ANIC are Pennsylvania-domiciled carriers, that state's insurance department has taken the lead role.
According to the Ohio Insurance Department, there are just shy of 4,000 Ohio PTNA policy holders, and about 3 dozen who own ANIC policies.The Pennsylvania Department has asked that the companies be liquidated, and their assets sold off, and they'll need to find a "home" for the companies' policy holders. This will involve selling the books of business to another carrier (or carriers). The Ohio Guaranty Fund can assess other carriers to cover policy holder claims, up to certain limits. In Ohio, this means that claims of up to $100,000 (which could be several years' worth of long term care) are covered by the Fund. According to the Ohio Department of Insurance,"Claims not covered by a Guaranty Association, including any portion exceeding the Guaranty Association’s statutory limit, become claims against the estate of the company and will be paid to the extent funds are available. Policy holder claims have priority over most other claimants."
While this may not be the best news, it represents something very important: life insurance policyholders can count on the states' guaranty funds to protect them in the rare instances that a carrier becomes insolvent. In this case, it appears that the funds, and the insurance departments are doing everything they can to protect the interests of the folks who bought these policies, and counted on them to help pay for this crucial and expensive type of claim.
For more information, I strongly suggest clicking here for a bird's-eye view.
[Henry Stern, LUTCF, CBC is an independent insurance agenti n Dayton, OH. A licensed Continuing Education instructor for Ohio, Kentucky and Indiana, he has over 25 years of experience in “the biz.” He blogs everyday (or so it seems) at InsureBlog.]
Certain insurance agents have been found to have sold annuities to seniors where the senior will not likely benefit from the product during their lifetime, and where they cannot withdraw the funds early without paying a penalty. Ohio law requires agents and companies to assure that annuities sold to Ohioans are suitable for the policyholder, based on their age, income and other needs.
Important Questions to Ask::
- Does this annuity fit well into my overall financial plan for the future?
- Will I incur surrender fees and penalties if I need to withdraw money from the annuity before it reaches maturity?
- When will the policy reach its date of maturity? Is the annuity appropriate for my age and future income needs?
- Is the agent I'm dealing with licensed in Ohio and qualified to offer financial planning and to sell me this product?
Important Consumer Tips::
- Carefully review the insurance product being considered with a trusted advisor or contact the Ohio Department of Insurance
- Oftentimes, high-pressure tactics are used to scare the client into signing paperwork selecting a product.
- A licensed agent will be more than willing to show adequate credentials.
- Remember, if it seems too good to be true, it probably is!
- Always review the contract before you decide to buy an annuity.
- To find out if an annuity is right for you, think about what your financial goals are for the future.
- Compare information for similar contracts from several companies.
- Ask your agent and/or the company for an explanation of anything you don't understand.
- As you complete your research and decide to purchase a particular policy, it's important to keep detailed records.
What protection do I have if my life or health insurance company goes broke and is forced out of business?You have limited protection through the
Ohio Life and Health Insurance Guaranty Association (OLHIGA). OLHIGA is a private association established by state law.
What does the Guaranty Association do?OLHIGA covers claims of people who are insured by a member company which has been or is about to be liquidated. For an insurance company, liquidation is similar to bankruptcy.
What companies belong to OLHIGA?All insurance companies licensed by the state of Ohio to sell life, health, and
annuity policies must belong to the Guaranty Association.
What kinds of policies does OLHIGA protect?The association protects
life insurance and
health insurance policies as well as annutiy contracts.
Where does the Guaranty Association get money to pay claims?From its members. OLHIGA assesses member companies whenever money is needed. It receives no tax money and has no other funding.
When does OLHIGA become involved with a company?The Guaranty Association can get involved anytime a member company is in danger of not meeting its financial obligations or when a court has ordered a company to be liquidated.
What does the state do when a company is in financial trouble?The Ohio Department of Insurance can take various regulatory
actions to preserve the company’s financial strength. Depending
on how severe the problem is, the Insurance Department may:
• Place a limit on new sales in Ohio
• Order the company to stop selling in Ohio
• Prohibit the company from renewing policies unless they are
“guaranteed renewable”
• Declare the company insolvent — a court can then order the company to liquidate its assets
Other state insurance departments have similar authority in their states.
Why would a company be liquidated?If a company cannot pay claims, it is unable to serve its primary
purpose. Liquidation is similar to bankruptcy. The company is forced to go out of business, sell all its assets, and use the cash it
collects to pay creditors and insureds.
Would I get the same amount of money from the Guaranty
Association that my insurance company would have paid?Maybe. It depends on the kind of policy and the amount involved. But no matter how many policies you may have with the company, OLHIGA will pay you no more than $300,000.
Are life and health policies protected for their full amounts?No, different kinds of policies have different limits.
• Annuity $100,000 • Life (death benefit) $300,000
• Health $100,000 • Life (cash surrender) $100,000
I have three annuities worth $100,000 each. How much is protected by the Guaranty Association?Only $100,000 — that’s the maximum OLHIGA can pay you for all the annuity contracts you bought from the same company.
My annuity is supposed to pay 10% interest. Will I be paid the same rate if the company is liquidated?No. Interest payments are not based on your contract. They are
based on a discounted market rate at the time payments are made.
Are only Ohioans protected by OLHIGA?The association protects you only if you are an Ohio resident
when the insurance company is liquidated. It doesn’t matter
where the company is or where you were when you bought the
policy. Your beneficiaries are covered, no matter where they live.
What if I bought the policy in Ohio, but now live in another state?Each state has its own association. You are usually protected by
the state where you live at the time the company is liquidated.
OLHIGA does NOT protect:
• Non-guaranteed policy benefits or benefits for which the
insured has assumed risk
• Reinsurance policies (unless an assumption certificate was issued)
• Interest rate yields that exceed an average rate
• Dividends
• Credits associated with the administration of a policy by a group
contract holder
• Self-insured employer plans
• People eligible for protection under the laws of another state
• Policies sold by companies not licensed to do business in Ohio
• Policies issued by medical, health, or dental care corporations
• Managed care companies (HMO, PPO, etc.)
• Fraternal benefit societies
• Mutual protective associations & similar plans which subject the
policyholder to future assessments
A recent Government Accountability Office (GAO) report stated
that the military troops and their families are still often sold
inappropriate life insurance products. The report,
released on June 29, 2009, showed that while sales of the inappropriate
life insurance products have slowed, military personnel and their
families are still being targeted for products that aren’t right for
them. However, there have been no reports of
inappropriate sales activity in Ohio, according to Ohio Department of
Insurance officials.
Department Director Mary Jo Hudson is reminding Ohio’s
military personnel and their families about the adoption of a rule
aimed at protecting the state's active military personnel and their
families from unsuitable life insurance products and sales practices.
The rule, approved by the Joint Committee for Agency Rule Review
(JCARR), became effective Sept. 1, 2007.
"The
Department is committed to protecting Ohio's military personnel and
their families from predatory sales practices," Director Hudson said.
"The standards adopted under this rule give us the tools to take action
against those agents who mislead our men and women in uniform into
buying unsuitable life insurance products."
The rule was adopted in response to the federal Military
Personnel Financial Services Protection Act, which was signed into law
by President George W. Bush on Sept. 29, 2006. The federal law
enactment was prompted by Congressional findings of "predatory
and abusive" sales practices of life insurance products marketed on and
off military installations to members of the U.S. Armed Forces.
After years of documented abuse across the country, the
federal Act clarified that the state departments of insurance have
primary jurisdiction to regulate insurance sales on military
installations. It called for the states to work with the secretary of
defense to ensure appropriate standards identified in the Act are
implemented and a progress report is submitted to Congress by Sept. 29,
2007. Ohio, as well as other states, worked with the National
Association of Insurance Commissioners (NAIC) and the secretary of
defense to develop a model rule. The Ohio rule (3901-1-08) is based on
the NAIC's Military Sales Practices Model Regulation.
The Department of Insurance has adopted the following standards:
- Agents must make a suitability determination to ensure the
product meets the insurance needs of the service member and his or her
dependents.
- Agents must fully disclose information about themselves, their purpose and the insurance product being offered.
- Agents may not receive any referral or incentive compensation in connection with the sale.
- Agents may not use military personnel in facilitating,
soliciting or selling insurance products to service members or their
dependents.
- Agents and companies dealing with service members must assure
their sales practices are honest, do not mislead, deceive or confuse
and that military personnel and their families are treated with the
utmost fairness.
Prohibited sales practices in Ohio include:
- Soliciting service members in a group meeting that is mandatory.
- Knowingly making appointments with service members during
their normally scheduled duty hours or in places not approved by the
installation commander.
- Misleading use of military direct deposit devices for the purchase of life insurance.
- Using military personnel as representatives to sell life insurance to subordinates.
- Misrepresenting life insurance products as being endorsed by the U.S. military.
- Disparaging the life insurance that is already offered by the U.S. military to service members.
- Selling a life insurance product that does not cover a loss or death in the line of duty.
The
Ohio Department of Insurance through its Ohio Senior
Health Insurance Information Program (OSHIIP) is the state’s lead educational program to explain health coverage options available to Ohio retirees whose benefits have been reduced or terminated by their former employer.
Companies can decide to reduce or terminate retiree
health benefits as a cost-cutting measure for different reasons, such as a difficult economic environment. Some companies may hire insurance agencies to help their retirees shop for other coverage options. However, such agencies may not be able to shop all of the available Medicare products because of sales agreements with the insurance companies they represent. These agencies may send information to retirees via mail and hold local informational sessions.
The Department’s OSHIIP program provides free and unbiased
health coverage information through trained representatives. Representatives can help retirees sort through every coverage option on the market to identify the one that best fits their healthcare needs and financial situation. Options for retirees who have lost employer-provided coverage can include: Original Medicare, a Medicare supplement plan, a Medicare Part D prescription drug plan, a Medicare Advantage Plan, private insurance or paying all healthcare costs themselves.
Job
termination or a reduction in hours may result in a loss of pension and health
benefits. You have rights under the Employee Retirement Income Security Act of
1974 (ERISA) which are designed to help employees and their families cope with
employment change.
The
Consolidated Omnibus Budget Reconciliation Act of 1985 — commonly called COBRA
— may allow you to purchase extended health care coverage. The Health Insurance
Portability and Accountability Act of 1996 — known as HIPAA — protects you and
your family from discrimination because of pre-existing medical conditions.
COBRA -
Extending Your Health Care
You may be
able to purchase extended health care coverage under COBRA if your job ended
for any reason other than gross misconduct, or if your hours were reduced. To
qualify, your employer must have had 20 or more employees, you must have been a
participant in your employer’s group health plan, and the employer must
continue to maintain a health benefit plan.
Once your job
ends, your plan must provide you with written notice explaining your rights
under COBRA. You have 60 days from the date the notice is provided or from the
date coverage ended — whichever is later — to elect COBRA coverage. It begins
the day your health care coverage ended and lasts for up to 18 months (and
longer in some cases). You should also know that under COBRA you may have to
pay the entire group rate premium for health insurance coverage.
HIPAA -
Protecting You from Discrimination
HIPAA requires
that most plans provide coverage for pre-existing medical conditions after 12
months (in most cases). Further, HIPAA requires a new employer’s plan to offset
this 12-month exclusion period by giving you credit for the number of days you
had previous coverage — unless you had a major break in coverage. Your former
employer is required to provide a certificate that documents your “creditable
coverage.”
ERISA -
Protecting Your Pension
If you lose
your job, request a copy of your plan’s summary plan description (SPD) and ask
for an individual benefit statement. If you were an active participant in your
employer’s pension plan, you may be eligible to roll over your vested pension
benefits to an Individual Retirement Account (IRA) or to a new employer’s
retirement plan. See your SPD for details.
COBRA coverage
Ask if you are eligible for your employer’s Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage. You have the right to continuation of individual and family health insurance coverage if you lose your job.
• if you have pre-existing health conditions and are eligible, you cannot be turned down or charged more due to your health conditions.
•COBRA is a federal law providing for continuation of coverage for former employees of companies with 20 or more employees. COBRA lets you continue the same policy, in some cases up to 36 months.
•Employers should send you a COBRA notice. You then have 60 days to elect the coverage.
• for workers who were involuntarily terminated between Sept. 1, 2008, and Dec. 31,2009, the federal government will subsidize 65% of their premiums under COBRA for up to 9 months beginning March 2009.
• to receive the subsidy, participants must attest that their same-year income will not exceed $125,000 for individuals and $250,000 for families.
Mini-COBRA coverage
Ohio law provides those who were employed by small companies with 2 to 19 employees or certain religious organizations may have the right to continue coverage under a group plan for up to 12 months. Your insurer or employer should send you a state continuation coverage (mini-COBRA) notice.
• for workers who are on continuation coverage on or after March 1, 2009, the federal government will subsidize 65% of their premiums for up to a possible 9 months beginning March 2009.
HIPAA coverage
If you are not eligible for COBRA or when COBRA expires, but you have had 18months of continuous group health coverage where the most recent coverage was under an employer group health plan, you are considered “Federally Eligible”for a Health Insurance Portability and Accountability Act (HIPAA) plan. The 18months could be a combination of any creditable health coverage, including medicare. You need to apply for either the “Ohiobasic” or “Ohiostandard” health plan within 63 days of losing your previous coverage.
To learn more about health insurance
The Ohio
Department of Insurance is encouraging Ohio
life insurance companies to begin using uniform annuity disclosure templates to
help consumers more clearly understand fixed and indexed annuity contracts
before a purchase is made, Director Mary Jo Hudson announced.
The Department,
the American Council of Life Insurers (ACLI) and the Association of Ohio Life
Insurance Companies (AOLIC) are partnering in a pilot program to test templates
for written annuity disclosure that began on April 1, 2009 and lasts one year. Ohio is the second state
to participate in the initiative. Iowa
was the first state to launch the pilot program in February 2008.
“This initiative
will help ensure that Ohio
insurance consumers have clear, concise information about their annuity
purchases,” Director Hudson said. “Currently, companies provide annuity
disclosure information in formats that vary from one insurer to another, making
comparisons difficult for consumers. The templates will set a standard format
that will assist consumers in making comparisons. The initiative also provides
companies with guidelines and suggested language for explaining certain
contract features in plain-English.”
The disclosure
templates, which insurers will tailor to their own specific annuity products,
highlight key information about annuity contracts – owners’ rights,
obligations, benefits, and risks. The accompanying instructions provide
companies with guidelines on how to present information in a consumer-friendly
way and to describe contract features in simple terms. Topics covered by the
templates include: surrender charges, how to get income from an annuity, fees
and expenses of owning an annuity, how the value of an annuity grows, and how
indexed interest is calculated and when it’s credited.
The Department
has issued a bulletin (2009-09) advising companies selling annuities in Ohio
that proper use of the templates will satisfy the requirements of Ohio’s annuity
disclosure rules (3901-6-14 and 3901-1-47). The templates build on the
requirements contained in the National Association of Insurance Commissioners’
(NAIC) annuity disclosure model regulation, which forms the basis for Ohio’s general annuity
disclosure rules. While insurers must comply with annuity disclosure rules, Ohio currently does not
require companies to file disclosure documents for approval.
During the
year-long pilot, the Department will continually evaluate the use of the
templates in the marketplace, including seeking input from consumers who
received them. If the pilot is deemed successful, the Department will propose
the adoption of a rule to require all Ohio-licensed insurers who sell annuities
to use the disclosure templates.
ACLI is working
with state insurance departments to establish the uniform disclosure templates
as the preferred method for satisfying annuity disclosure laws across the
nation.
“ACLI is proud
to be working with the Ohio Department of Insurance and Director Hudson on this
joint initiative,” Frank Keating, President and CEO of ACLI said. “Given the
important role annuities can play in retirement, it is essential to provide
consumers with the tools they need to better understand their annuity
purchases.”
“This pilot
program will be an important part of the efforts by insurance companies to
provide Ohio
consumers with clear explanations about the benefits, costs, and features of
fixed and indexed annuity products,” Faith Williams, Legislative Counsel of
AOLIC said.
Life insurance provides money typically to beneficiaries after a loved-one who has life insurance dies. Coverage is often provided by employers but can also be purchased separately through an insurance agent. The Ohio Department of Insurance urges consumers to regularly review their need to secure life insurance as part of their financial and estate planning.
Life Insurance Can Help:
- Replace your income with non-taxable death benefit
- Reduce the financial burden on your family of having to continue without you
- Put the kids through school
- Pay the mortgage, car note, and other debts you leave behind
- Pay your funeral expenses
- Pay your estate taxes
Types of Life Insurance:
- Term Life: Generally less expensive than other life insurance products and is designated for a certain time period or to a certain age. Term is named for the contracts limited length or "term" and is pure life insurance. Term policies generally last for 1, 5, 10, 15, or 20 years, or to some specified age such as age 65 or age 100.
- Whole Life: Lifetime coverage at a premium that does not increase with your age after you buy.
- Universal Life: Premium amount and death benefit are both flexible. Able to change the amount of your premium payments and/or death benefit after you buy the policy. Increasing your premium payments as you age is important to maintaining your universal life policy.
Who Can Take Out a Policy on My Life?
- Only someone who has an "insurable interest”, such as someone in your immediate family. A stranger cannot buy a policy to insure your life.
How Much Life Insurance Should Someone Get?
- Your life insurance plan should be structured to meet your life circumstances.
- How much life insurance a person should get depends on their life situation. Some people have life insurance through their employer, which sometimes use 1x salary or 2x salary as a coverage limit and may allow the employee to purchase additional term insurance.
Life Insurance Shopping Tips:
- Your life insurance plan should be structured to meet your life circumstances (for example, a single person may need less life insurance than a couple or a couple with children).
- Life insurance is complicated. Utilize the services of trained insurance professionals.
- An agent is not allowed to be the beneficiary of a life insurance policy the agent has sold you – unless the agent is a family member or a funeral director. Nor is the agent allowed to misrepresent any aspect of the policy being sold or a policy you already own or encourage you to put incorrect information on your application.
- Decide what type of life insurance policy you want: term, whole life, universal life or a combination of these policies. Make sure you calculate your total premiums for the life of the policy. It is possible to pay more in premiums than the face amount of the policy.
- Some policies have an accelerated benefits feature, which is a policy provision that lets the policyholder, under certain conditions, collect part of the death benefit before he/she dies.
- Be alert to any promise that you will never have to pay premiums again (the vanishing premium pitch). Also, make sure you are aware of any surrender penalties.
- Don’t sign any life insurance application that has not been completely and accurately filled in and dated, and make a copy for your files.
- Immediately study the policy once you receive it and make sure it’s exactly what you ordered: many life companies will offer a “free-look” (or “right to review”) provision. Take advantage of it.
- The policy owner is the only person who can cancel the policy. If premium payments are not being made the insurer will generally send a payment notice before cancellation.
- Make your premium payment check to the insurance company, not the agent.
- A failure to pay your premium will cause your policy to lapse or it could be terminated.
- Review your policy periodically. Your insurance needs change during different periods of your life.