Need some help (case cites especially)on determining permitted uses of dividend or policy surplus funds from group insurance programs. Specifically, have identified excess funds from a plan that is approximately 80% funded by employee contributions and 20% employer contributions. A proposal has been made to refund the money pro rata to the parties who paid in, whether or not they are still employees. (eg. 20% to employer, 80% to current and former employees. The possible universe is 66% current employees, 34% former employees/retirees.) The environment is highly unionized.

Is anyone aware of case law that would either prohibit refunding plan monies to former employees or, conversely, would require refunding plan monies only to current plan participants?

Appreciate any thoughts or leads.

It seems to me that this is somewhat analogous to the disposition of the proceeds received from the demutualization of the insurer. There have been some articles on that lately.

Kirk, appreciate your reply. I really need to get as close as possible to treatment of experience refunds under an ongoing insurance contract. Ideally, I must locate case law or other significant guidance that is directly on point.

Has anyone ever dealt specifically with this issue of distributing experience-rated refunds that are from a program with both employer and employee contributions? Your help will be greatly appreciated.

Thanks in advance.

Kirk, appreciate your reply. I really need to get as close as possible to treatment of experience refunds under an ongoing insurance contract. Ideally, I must locate case law or other significant guidance that is directly on point.

Has anyone ever dealt specifically with this issue of distributing experience-rated refunds that are from a program with both employer and employee contributions? Your help will be greatly appreciated.

Thanks in advance.

Assuming you are discussing a group medical contract which has an expereince rating refund (Yes, Virginia, there are some), I suggest:

a. if the spd, employee booklets, etc., state something to the effect the employee will pay 20% of the current premium and the employer will pay the balance of the premium due, then the employer has the right to all the refund (to the extent it does not exceed 80%).

b. if the booklets and other material state or imply the ee/er share 20/80, then the employees are entitled to the proportionate share of the refund.

In either event, allowing the employees to share in the refund would be good employee relations and one which is less likely to create a law suit from embittered employees.

[If the excess assets arise from surplus assets in a terminated pension plan, there are other issues which have been argued in the courts and which have yielded mixed results.]

Try Corley v. Hecht Co., 530 F Supp 1155 (D DC 1982) and Ruocco v. Bateman, Eichler, Hill, Richards, Inc., 12 EBC 1557 (9th Cir. 1990).


[This message has been edited by Kirk Maldonado (edited 06-27-2000).]