Magazine article Risk Management

Taking Employee Benefits Offshore

Magazine article Risk Management

Taking Employee Benefits Offshore

Article excerpt

More than ever before, employers need cost-effective solutions to funding nonqualified benefits plans such as supplemental executive retirement programs, retiree medical, disability and corporate-owned life insurance. Over the last several years, the U.S. government has eroded many of the programs typically available for funding benefits by reducing the income available for qualified plan funding and requiring employers to account for unfunded liabilities on their balance sheets. Many employers now realize that these unfunded liabilities are becoming large enough to affect shareholder value and that if they are not handled properly, they can decrease earnings per share substantially.

For years, employers explored funding benefits in captives without success. The primary obstacle was that ERISA prohibits transactions between related entities and welfare benefits plans. A transaction between an employer health plan and a pure captive would fall under this prohibition.

However, in 1979, a class exemption was released (PTE79-41) that allowed related entities to transact business with one another if 50 percent or more of the captive's business came from unrelated sources.

To meet these guidelines, a number of companies participate in "rent-a-captive" programs specifically established for employee benefits to meet the ERISA prohibited transaction exemption requirements and qualify as insurance.

Companies can save substantially on frictional costs with an offshore program and avoid many of the negatives often associated with property/casualty rent-a-captives. …

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