N001427
Monday, January 07, 2002 8:21 PM
Benefits Offset
Sirs,
Your rule provides that an offset shall be made for collateral sources
including "life insurance, pension funds, death benefit programs.."
Inclusion of pension funds and life insurance raises a number a ambiguities.
You should carefully spell out how these are to be resolved so that people
can make an informed decision as to whether or not to apply for your
program.
Let me give you a few examples:
1. Unlike life insurance, pension funds eventually accrue to an individual
(and his/her family) even if he/she is not deceased. An event that triggers
initiation of a pension benefit is only a windfall for a family if the
present value of that benefit exceeds the present actuarial value of the
benefit given that the family member had not died. Only the net increase in
value of the pension benefit should be offset against the
government-provided compensation.
2. Some pension benefits should be construed as deferred compensation and
should not be considered a collateral source.
3. Are social security benefits considered to be "pension benefits"?
4. Employers differ in their mix of retirement plans between
defined-benefit (i.e. "pension") plans and company-match
defined-contribution (e.g. "401-k" or other plans). Self-employed
individuals may have no defined-benefit pension. Unionized and blue collar
workers often have no "401-k" savings, but will have a pension program. If
you only include defined-benefit plans as an eligible collateral source will
you not be discriminating against employees whose employers elected to
emphasize defined-benefit types of retirement plans? Or, will you include
401-k, IRA and other tax-sheltered and/or company-subsidized retirement
savings programs under the rubric of "pension benefits" ?
5. Individuals (or their employers) pay fair value for life insurance
premiums. Why should an insurance payout be considered a windfall for the
employee's family, especially if the insurance premiums were paid for by the
deceased individual. When paid for by the employer, these paid life
insurance benefits are really a form of compensation. Also, why should
benefits from term life policies (whose entire payout can be construed as
triggered by the death of the individual), be treated the same as other
"whole" forms of insurance in which a substantial part of the payout is
really a return to the family of retirement savings by the individual?
6. Pension benefits are usually taxable, insurance benefits are not. Is
the offset to be before or after tax?
7. Beyond the issue of the potential for extreme unfairness in the
treatment of different types of retirement programs, there is a significant
practical issue that should be born in mind.
Most professional workers (and one can assume at the least that a good-sized
minority of the victims were white collar professionals) have substantial
insurance and pension benefits. Most companies offer at least 2 times
salary in life insurance plus some form of pension benefit, at the very
minimum. It would not be at all surprising if one-third or more of the
victims of the 9/11 disaster would, in effect, lose $250 thousand (or more)
apiece due to the collateral offsets rule. You must spell this out in
stark black and white for the applicants to this program, or you will have
another very significant human catastrophe on your hands. You should make it
clear to individual applicants when their particular circumstances deserve
close scrutiny by an experienced legal/accounting advisor. If these people
are soundly advised, I would predict that a very substantial majority will
elect to pursue compensation through conventional legal means rather than
through the government program.
Individual Comment