Other Post-employment Benefits (OPEB): Funding Solutions in the Public Sector. A Guide to Welfare Benefit Management Solutions

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1 welfare benefit funding Other Post-employment Benefits (OPEB): Funding Solutions in the Public Sector A Guide to Welfare Benefit Management Solutions

2 Welfare benefit funding The Governmental Accounting Standards Board s (GASB s) Statements 43 and 45 have significantly increased awareness toward non-pension retiree benefits (also known as other post-employment benefits, or OPEB) provided to employees of governments and other public entities. The statements put forth accounting standards which require a switch from pay-as-you-go accounting to accrual accounting in regard to OPEB liabilities. This change has impacted public employers financial statements by showing increased expenses and adding significant, previously unreported liabilities. Employees value benefits like post-retirement life and health insurance. Almost 60% of employees consider retirement benefits to be a very important driver of company loyalty. 1 However, in general, people are living longer, which can result in substantially higher benefits costs due to an increased number of retirees, relative to active employees. Pressures to balance budgets and maintain strong credit ratings, despite GASB s accounting changes, are creating a need for strategies to manage these OPEB liabilities more effectively. OPEB Funding Solutions in the Public Sector

3 MetLife can help employers successfully manage their OPEB liabilities with a dedicated Post-Retirement Benefits (PRB) team that specializes in the design and development of funding solutions for retiree life insurance and other welfare benefits. With over 40 years of experience helping employers, the PRB team offers focused expertise along with a portfolio of products and services that provide welfare benefit liability management and funding solutions that may help to: METLIFE S GOAL IS TO HELP EMPLOYERS SUCCESSFULLY MANAGE THEIR WELFARE BENEFIT LIABILITIES WITH FUNDING SOLUTIONS DESIGNED AND DEVELOPED TO MEET EMPLOYER-SPECIFIC NEEDS. > Reduce the long-term out-of-pocket cost of providing group term life insurance and other welfare benefits to retirees. > Enhance an employer s ability to provide retiree life insurance and other welfare benefits. > Strengthen financial statements and bond ratings. > Reduce retiree plan administrative work. > Increase financial flexibility. The following is a brief description of MetLife s portfolio of welfare benefit liability management solutions. These solutions have been designed with the flexibility to effectively fund and/or transfer an employer s retiree life insurance liabilities, fund general welfare benefit liabilities and offer ways to meet specific liability situations and financial objectives. OPEB Funding Solutions in the Public Sector 1

4 Life Insurance Funding Account MetLife s Life Insurance Funding Account (LIFA) is an easy and flexible way to pre-fund most group term retiree life insurance liabilities. LIFA adds a simple amendment to an employer s MetLife group term life insurance plan to establish a reserve to pre-fund the cost of retiree life insurance for both current and future retirees. This allows an employer to set aside money to ensure funds will be available to finance future coverage. Having a LIFA helps ensure that an employer will be able to continue to offer its retiree life plan as long as it wishes to do so. An employer s commitment to providing benefits can reinforce a sense of security in active and retired employees, which can improve employee morale and enhance the ability to attract and retain quality employees. Life insurance pre-funding also helps strengthen financial statements and may improve bond ratings since it qualifies as an asset and offsets reported liabilities. In addition, GASB allows a plan or employer to use a more favorable discount rate in the actuarial valuation for its liability if that liability is pre-funded. Funding Valuation and Funding Schedules MetLife analyzes an employer s group term retiree life insurance liability to develop pre-funding approaches. Subsequently, if the employer notifies MetLife of any changes in demographics or underlying plan assumptions, we update the analysis so that the pre-funding program remains on track. Interest Crediting Rates Rates are declared in advance, based on the initial amount deposited to the LIFA, and are reset based on the LIFA fund balance maintained. Moreover, LIFA offers employers the flexibility to vary funding levels, and receive a minimum guaranteed crediting rate. 2 Flexibility LIFA can be a useful cash management tool for financing these benefits from year to year. LIFA helps maintain financial flexibility with pre-funding approaches, but does not require annual deposits. 2 OPEB Funding Solutions in the Public Sector

5 Guaranteed Life Insurance Funding Account MetLife s Guaranteed Life Insurance Funding Account (GLIFA) can offer an employer an effective method to transfer the risk and liability on a group of specifically named retirees to MetLife. We guarantee that the employer will not have to pay any additional out-of-pocket amounts above the GLIFA price quoted. 3 GLIFA guarantees that there will be no additional out-of-pocket premium costs above the amount quoted. 3 The guarantee is provided through an Aggregate Stop Loss policy issued by MetLife. In essence, this product can provide a way for employers to cap out-of-pocket costs and transfer the liability and the plan administration to MetLife. In addition to these advantages, GLIFA provides beneficial accounting effects, reducing both the employer s expenses and liabilities reported under GASB Statements 43 and 45. Accounting and Financial Statements Since it is designed to qualify as allocated insurance under GASB Statements 43 and 45, GLIFA reduces both expenses and liabilities reported on financial statements. Exposure to mortality, funding and expense risks is removed because the accounting and liability for the retiree life insurance are transferred to MetLife. Plan Management MetLife provides plan recordkeeping, toll-free customer service and claims processing. And because a GLIFA can be done for a specific plan or group of retirees, it can reduce the number of programs an employer must administer. Financing One leading feature is an option to pay for GLIFA in a lump sum payment or finance the transfer through a series of installments. OPEB Funding Solutions in the Public Sector 3

6 Funding Agreements Liability management and funding are not only for retiree benefits. MetLife s Funding Agreements provide a safe, convenient and flexible way to fund general employee benefits. Amounts can be held for a variety of purposes to pay future premiums for insurance products, to fund various liabilities associated with self-insured and limited liability long-term disability plans or as an investment allocation for welfare benefit funding programs. Depending on an employer s objectives and the benefits being funded, several interest crediting arrangements may be available. Funding agreements provide a safe, convenient and flexible way to fund general employee benefits. Guaranteed interest rates for maturity terms of one to five years are available and can be matched to meet cash flow needs. Withdrawal of funds allocated to the guaranteed interest is not allowed until maturity; however, short-term index rates are available for a portion of the Funding Agreement to be kept liquid to meet current cash flow needs. Funds not withdrawn at maturity will also receive the short-term index rate. Deposits are usually made on a lump sum basis, but can be made in installments. The minimum amount required for a Funding Agreement is $500,000. Convenience A Funding Agreement is easy to establish and can be a convenient and cost-effective way to obtain the benefit of MetLife s guaranteed principal and interest rates. 3 MetLife can also help to analyze liabilities and assist in making allocation decisions to match cash flow needs. Flexibility Employers have more flexibility and control over the use of funds than would normally be the case with other insurance company products. Security All Funding Agreements provide a principal and interest rate guarantee. 3 4 OPEB Funding Solutions in the Public Sector

7 The MetLife Advantage As an established leader in life insurance, we have expertise to develop a variety of financially attractive retiree life financing alternatives which offer effective insurance and funding features. Long-term solutions that help employers meet the promises made to current and future retirees are only as good as the company that stands behind them. MetLife is one of the world s largest and most stable financial services companies, and our ratings reflect this. 4 TO HEAR MORE ABOUT OUR innovative, solution-based array of retiree life liability management products and services, please contact your MetLife Account Representative who will be glad to answer any questions that you might have. You can also visit our website at We help our clients meet business, benefits and financial objectives through pension risk management, retirement income solutions and funding benefit liabilities. For more information Us: PostRetirementBenefits@metlife.com 1 MetLife s 11th Annual Study of Employee Benefits Trends, The interest crediting guarantee is contingent on the LIFA fund balance being maintained in an amount equal to at least two years of group term life insurance premium on the covered retiree group. If the LIFA fund balance falls below this threshold, the interest crediting rate reverts at the next reset period, to the discount rate on six month treasury bills, set at the first weekly auction in the month, plus 0.25%. This revised interest rate is reset each month and is guaranteed for that month. 3 All guarantees are subject to the financial strength and claims-paying ability of Metropolitan Life Insurance Company. 4 For current ratings information and a more complete analysis of the financial strength of Metropolitan Life Insurance Company, please go to and click on About MetLife, Ratings. Like most group insurance policies, MetLife group policies contain certain exclusions, exceptions, waiting periods, reductions, limitations and terms for keeping them in force. Ask your MetLife group representative for costs and complete details. Neither MetLife nor its representatives provide tax, accounting, legal or investment advice. The rules relating to such matters are subject to interpretation and change. The appropriateness of any product for any specific company may vary depending on the facts and circumstances. Employers should consult with and rely upon their own tax, accounting, legal or investment advisors. OPEB Funding Solutions in the Public Sector 5

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