Conference of Consulting Actuaries The Proceedings, 2002 Volume LII Published by: The Conference of Consulting Actuaries 1110 W. Lake Cook Road, Suite 235 Buffalo Grove, Illinois 60089-1968 Note: Copies of this and prior issues of The Proceedings may be obtained from the Conference office.
Foreword The Proceedings is the professional journal of the Conference of Consulting Actuaries. It contains written transcripts of certain sessions held at the Conference s 2002 Annual Meeting in Amelia Island, Florida from November 3 to November 6, and research papers written by members. These works reflect the views of the authors and do not necessarily represent the position of the Conference. Neither CCA nor its officers, members, or staff assume responsibility or liability for the accuracy of information contained herein nor the appropriateness of its use with specific clients. Each actuary is advised to make an independent judgement regarding the content and use of this information. The Conference wishes to express its gratitude to all persons who have contributed to these Proceedings. We especially thank those who are not members of the Conference for their valuable contributions to the Annual Meeting and this book. David M. Zolt Chair, Publications Committee Keith G. Stewart Director of Operations, Conference of Consulting Actuaries Catherine P. Cieck Assistant to Director of Operations Copyright 2003, Conference of Consulting Actuaries All rights reserved by the Conference of Consulting Actuaries. Permission is granted to make brief excerpts for a published review. Permission is also granted to make limited numbers of copies of items in this issue of The Proceedings for personal, internal, classroom, or other instructional use, on condition that the foregoing copyright notice is used so as to give reasonable notice of the Conference s copyright. This consent for free limited copying without prior consent of the Conference does not extend to making copies for general distribution, for advertising or promotional purposes, for inclusion in new collective works, or for resale. The Conference assumes no responsibility for statements made or opinions expressed in the articles, criticisms and discussions published in these Proceedings. PRINTED IN THE UNITED STATES OF AMERICA
Contents of Volume LII...iii 2001-2002 Conference Board of Directors...ix 2002 Annual Meeting Committee...x Publications Committee, Volume LII...x John Hanson Memorial Prize...xi Future CCA Annual Meetings/Future Enrolled Actuaries Meetings...xi Pension Asset Valuation Methods...34 Dennis M. Monaghan, Speaker Portland, OR Tonya B. Manning, Speaker Winston-Salem, NC Bruce A. Cadenhead, Speaker Proceedings of the 2002 Meeting Pension Benefits Retirement Choice...1 Stephen B. Wagner, Moderator Hewitt Associates LLC Minneapolis, MN Ken Cook, Speaker CNA Insurance Cos. Executive Compensation for the 21st Century...14 Randolph B. Root, Moderator Stamford, CT Max J. Schwartz, Speaker Sullivan & Cromwell Accounting for Cash Balance Plans...24 Kenneth A. Steiner, Moderator Watson Wyatt Worldwide James G. Durfee, Speaker Valhalla, NY Lawrence J. Sher, Speaker Buck Consultants, Inc. Social Security DB vs DC...47 Kenneth A. Steiner, Moderator Watson Wyatt Worldwide Ronald Gebhardtsbauer, Speaker American Academy of Actuaries Late Breaking Developments...60 Donald J. Segal, Moderator The Segal Company Ethan E. Kra, Speaker Paul T. Shultz, Speaker Internal Revenue Service James E. Holland, Speaker Internal Revenue Service Max J. Schwartz, Speaker Sullivan & Cromwell Current Pension Accounting Topics...75 James R. Kreamer, Moderator KPMG LLP Stephen N. Eisenstein, Speaker Ernst & Young LLP iii
The Teetering Balance Beam - Balancing the Need to Cut Cost with the Need to Motivate and Retain Key Employees...88 Jeffrey S. Hoffman, Moderator Southfield, MI Margaret M. McDaniel, Speaker Atlanta, GA Robert Cummins, Speaker Robert Bosch Corporation Broadview, IL Chris Marin, Speaker Sparo Health System Lansing, MI Employee Choice in Pensions - Case Studies of Private and Public Sector Choice Programs...103 Patricia A. Rotello, Moderator Buck Consultants Inc. Teaneck, NJ Kevin SigRist, Speaker Florida State Board of Admin. Talahassee, FL Christine E. Shaffer, Speaker Buck Consultants Inc. Teaneck, NJ Stephen T. McElhaney, Speaker Richmond, VA Dialogue with the IRS...117 Donald J. Segal, Moderator The Segal Company James E. Holland, Speaker Internal Revenue Service Paul T. Shultz, Speaker Internal Revenue Service Mergers & Acquisitions - I Researched, I Bought, Now What Do I Do?...132 Stephen N. Eisenstein, Moderator Ernst & Young LLP Steven B. Cohen, Speaker Ernst & Young LLP Julie Ann Curtis, Speaker The Boeing Company Seattle, WA Jim Donohue, Speaker Hewitt Associates LLC Minneapolis, MN Defined Benefit Plans - If Not Now -Then When?...147 Thomas S. Terry, Moderator Chicago Consulting Actuaries LLC Stephen J. Gould, Speaker Boston, MA Q and N/A...157 Donald J. Segal, Moderator The Segal Company Adrien R. LaBombarde, Speaker Houston, TX Ethan E. Kra, Speaker International Accounting Standards...168 James R. Kreamer, Moderator KPMG LLP Paul M. Lefelhocz, Speaker Cleveland, OH iv
Replacement Ratios - Driver or Passenger in the Plan Design Vehicle?...178 Tonya B. Manning, Moderator Winston-Salem, NC Retiree Medical Stephen M. McGivney, Speaker Current Trends in Retiree Medical Benefits...190 Derek N. Guyton, Speaker Health Dale H. Yamamoto, Speaker Hewitt Associates LLC Lincolnshire, IL What Can Employers Learn From Their Drug Claims...203 Thomas S. Tomczyk, Moderator Pittsburgh, PA Annette Boyer, Speaker Pittsburgh, PA To Insure or Not to Insure? Evaluating Options for Group Health Plans...215 Mark F. Olson, Speaker Boston, MA Janet M. Carstens, Speaker Minneapolis, MN Harry L. Sutton, Speaker Reden & Anders Ltd. Minneapolis, MN Consumer-Driven Health Care...225 William M. Sneden, Speaker Hewitt Associates LLC Charlotte, NC David M. Tuomala, Speaker Definity Health St. Louis Park, MN Penny R. Hahn, Speaker Humana Inc. Louisville, KY Fools on the Hill Is Washington Hazardous to Your Health...239 Thomas S. Tomczyk, Moderator Pittsburgh, PA Cori E. Uccello, Speaker American Academy of Actuaries Chip Kerby, Speaker Consumer Driven (a.k.a. Defined Contribution) Healthcare Pricing and Risks Considerations...252 John J. Bauer, Moderator Melville, NY Theodore A. Prospect, Speaker Hewitt Associates LLC Norwalk, CT Lawrence J. McCarthy, Speaker Glen Allen, VA Multi-line Captives...266 Stuart H. Alden, Moderator Watson Wyatt Worldwide Philadelphia, PA Rosemary A. Moore, Speaker UnumProvident Corporation Portland, ME John F. Woyke, Speaker Woyke & Company New Canaan, CT v
Get Hip with HIPAA...277 John J. Bauer, Moderator Melville, NY Chip Kerby, Speaker Managed Care: Show Me the Quality...291 Steven D. Bryson, Moderator Lewis & Ellis Inc. Richardson, TX Life Janet M. Carstens, Speaker Minneapolis, MN Mark E. McGuire, Speaker Kentucky Dept. of Insurance Frankfort, KY Whither Goest Split-Dollar After IRS Notice 2002-8? Current Developments and Continuing Uncertainties..300 Harold G. Ingraham, Moderator Boca Raton, FL Donald O. Jansen, Speaker Fullbright & Jaworski LLP Houston, TX Life Insurance in Qualified and Nonqualified Plans...311 Harold G. Ingraham, Moderator Boca Raton, FL Mark H. Heller, Speaker Fredler La Rocca Fin. Planners New Orleans, LA Professionalism The Mix of Professionalism and The Consulting Profession...332 Louis E. Boero, Moderator Buck Consultants Inc. J. Gregory Gaston, Speaker J. G. Gaston & Associates Inc. Asheville, NC Tonya B. Manning, Speaker Winston-Salem, NC The New Professional Environment...343 Lauren M. Bloom, Speaker American Academy of Actuaries Lawrence A. Johansen, Speaker New York State Teachers Albany, NY Walter Bardenwerper, Speaker Watson Wyatt Worldwidel Communications Communicating Complex Concepts to Your Clients...362 Lorraine Dorsa, Moderator Lorraine Dorsa & Assocs. Inc. Jacksonville, FL Scott E. Kropf, Speaker Norwalk, CT Derek N. Guyton, Speaker Casualty Property/Casualty Consulting Growth Prospects...323 James A. Hall, Moderator GPW & Associates Inc. Phoenix, AZ vi Martin M. Simons, Speaker Columbia, SC James Ely, Speaker Cedar Hill Scottsdale, AZ
General Interest General Session: Economic Outlook...370 Dr. Donald Ratajczak, Speaker BrainWorks Ventures Atlanta, GA What Clients Want and Need From a Consultant..387 George B. Wagoner, Moderator Glen Allen, VA Bob Ihrie, Speaker Lowe s Companies, Inc. Wilkesboro, NC Don Broecker, Speaker Charter Communications Inc. St. Louis, MO Lost in E-Space HR and the Internet...397 Timothy J. Carey, Moderator Baltimore, MD Mergers & Acquisitions Other Than Benefits...431 Jeffrey W. Stevenson, Speaker Chicago Consulting Actuaries LLC Marc D. Bassewitz, Speaker Latham & Watkins Doug Lawson, Speaker US Bancorp Piper Jaffray Long-Term Care Strategies for Baby Boomers...441 Adam J. Reese, Moderator Hay Group Arlington, VA Dawn E. Helwig, Speaker P. J. Eric Stallard, Speaker Duke University Durham, NC Randy Tyson, Speaker Eugene Ritzenthaler, Speaker The Arbitration Actuary...409 Louis E. Boero, Speaker Buck Consultants, Inc. Kenneth A. Kent, Speaker Paul A. Meyer, Speaker Watson Wyatt Worldwide Organizational Change Workshop...419 Richard A. Feller, Speaker Lynchval Systems Worldwide Inc. Chantilly, VA David H. Jackson, Speaker Baltimore, MD vii
Reports of Officers, Committees and Guests Business Meeting...458 Opening Remarks Donald J. Segal Report of the President Kenneth A. Kent Report of the Nominating Committee Robert J. Rietz Report of the Treasurer Dale H. Yamamoto Luncheon...462 Announcements Donald J. Segal Passing of the Gavel Kenneth A. Kent / Stanley C. Samples Presentation of CCA Officers Stanley C. Samples In Memoriam In Memoriam...465 Thomas C. Barham, III, Kenneth V. Eckhart, John S. Edwards, Stephen H. Endres, Katharine M. Hand, Feliciano F. Miravite, Robert D. Murray, Robert H. Smith, Raymond H. Stevenson, James D. Wolfenden, and Jack E. Wood. viii
2001-2002 Conference Board of Directors Term Expires Kenneth A. Kent, President 2004 Stanley C. Samples, President-Elect 2005 Janet M. Carstens, Vice President 2002 Harold G. Ingraham, Vice President 2003 Frederick W. Kilbourne, Vice President 2004 Margaret T. Sher, Vice President 2002 Thomas S. Terry, Vice President 2002 Thomas H. Shelby, Secretary 2004 Dale H. Yamamoto, Treasurer 2002 Robert J. Rietz, Immediate Past President 2003 Michael L. Toothman, Penultimate President 2002 William F. Bluhm 2003 Kenneth G. Buffin 2004 Charles F. Cook 2003 David N. Cook 2003 Richard J. Fallquist 2003 Pamela S. Morris 2003 John P. Parks 2004 Ronald B. Sonkin 2004 Thomas S. Tomczyk 2004 Ronald M. Walker 2002 Rita K. DeGraaf, Executive Director ix
2002 Annual Meeting Committee This committee plans the programs for the Annual Meeting, subject to the approval of the Board of Directors, and is responsible to the Board for the design and implementation of such programs. Donald J. Segal, Chair Lance J. Weiss, Vice-Chair Stuart H. Alden John J. Bauer Louis E. Boero Bryan E. Boudreau Janice P. Bricker Steven D. Bryson Timothy J. Carey Charles F. Cook Lorraine Dorsa Laurin S. Eastling Stephen N. Eisenstein Carl M. Harris Jeffrey S. Hoffman Harold G. Ingraham James R. Kreamer Stephen T. McElhaney Phillip A. Merdinger Dennis M. Monaghan David J. Moody Adam J. Reese Randolph B. Root Kenneth A. Steiner Jeffrey W. Stevenson Ira M. Summer Craig P. Taylor Thomas S. Tomczyk Stephen B. Wagner George B. Wagoner The Publications Committee, Volume LII This committee is responsible for editing and publishing The Proceedings of each Annual Meeting. David M. Zolt, Chair Douglas C. Borton, TCA Editor Debbie L. Benner Stephen T. Carter Linda J. Chapman James B. Dexter Jeffrey C. Harper Peter G. Hendee Carl A. Hess Kenneth A. Kent Sing W. Lee Janet G. Lockwood Walter B. Lowrie Gary Louis Montesano Raymond S. Nichols Heidi Rackley John W. Ruffini Maria M. Sarli John A. Steinbrunner Thomas S. Tomczyk George F. Tornay x
Award of John Hanson Memorial Prize The John Hanson Memorial Prize is given annually for the best paper on an employee benefit topic published in The Proceedings of the Conference. The author need not apply to be considered for the prize and need not be a member of the Conference. The prize consists of a cash award and a plaque. The amount of the cash award will be determined by the annual income on the John Hanson Fund established at the Actuarial Education and Research Fund by John Hanson s friends, family and business associates. A longtime treasurer of the Conference, Mr. Hanson s papers on pension funding and accounting set the standard for this important topic. The winning paper will be selected by an employee benefit subcommittee of the Committee on Papers. Papers are judged on appropriateness of subject material, timeliness of topic, originality and practical application to employee benefits. If no paper is found suitable in a year, no award will be given. The origin of this award is described in The Proceedings, Volume XXXV, pg. 772. Prizes awarded to date: Year Volume Author Title 1987 XXXVI William H. Blake 1985 Disability Study 1990 XL Daniel F. McGinn Multiemployer Retirement Plans in the 1990s 1992 XLI E. Paul Barnhart 1991 Long Term Care Continuance Tables 2000 XLVIII Robert J. Rietz Early Retirement Subsidies - A Plan Design Whose Time Has Passed? 2001 XLIX Robert L. Brown Impacts on Economic Security Programs of Rapidly Shifting Demographics Future Annual Meetings 2003 November 2-5 Westin La Paloma Tucson, Arizona 2004 October 17-20 Orchid at Mauna Lani Kohala Coast, Hawaii Future Enrolled Actuaries Meetings March 21-24, 2004 Marriott Wardman Park March 20-23, 2005 Marriott Wardman Park 2005 October 30 - November 2 Grove Park Inn Asheville, North Carolina 2006 September 24-27 TBA xi