diocesan post-retirement liability & fas 158fas 158 – · pdf filediocesan...

Diocesan Post-Retirement Liability & FAS 158 Wh t d thi ?FAS 158 – What does this mean?

Rev. Richard Vega – NFPCgCline Young – GRS AustinKevin Cooksey – GBS Dallas

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Presenters Father Richard Vega is President of the National Federation of Priests' Councils. Prior to

NFPC, he served for 12 yrs as pastor of La Purisima Concepcion Parish in Lompoc, CA. Previously, he served as parochial vicar of several parishes within the Archdiocese of Los y, p pAngeles. Along with his pastoral duties, he has served as a member of various archdiocesan boards and has been a presenter for the Offices of Religious Education & Worship. He served for 12 yrs on the Los Angeles Archdiocesan Presbyteral Council and 5 yrs as its chairman. He was elected chairman of Region XI Council of Priests' Senates (RECOPS). He is a member of g ( )SOMELIT and continues to be a presenter for the Office of Worship in Los Angeles. He is past president of the National Advisory Council of the US Conference of Catholic Bishops.

Cline Young is an Executive Benefits Consultant in the Gallagher Retirement Services office located in Austin TX Cline has an extensive background designing strategic approaches tolocated in Austin, TX. Cline has an extensive background designing strategic approaches to funding post retirement benefits for organizations.

Kevin Cooksey is a Health & Welfare Consultant in the Gallagher Benefit Services office located on Dallas, TX. Kevin has 18 years experience managing all aspects of benefit plans for Catholic Dioceses and currently serves of the Senior Leadership team for the Religious &Catholic Dioceses, and currently serves of the Senior Leadership team for the Religious & Nonprofit Practice Group.

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Backdrop 28,000 total diocesan priests in U.S. with 3/4 of still active

0% f i i l i ill i i i i 50% of Diocesan priest population still in active ministry expect to retire within next 10 years

O di h 1 ti d i t f 2 ti i t On average, dioceses have 1 retired priest for every 2 active priests

1/2 of all priests currently in active ministry are over age 60

Significant rise in healthcare costs

Significantly increasing costs in assisted living & nursing home care

It is Bishop’s responsibility to provide care for his priests


Model Plan

Pension Benefit

d l l l hMedicare Supplemental Health Coverage

Long Term Care

Independent Living Options

Funeral Expenses covered by Life InsuranceFuneral Expenses covered by Life Insurance


PensionCurrent Status Avg. annual pension benefit for diocesan priests = $18,000. Social Security benefits average less than $8,000. Total income for retired diocesan priests = $26,000. Average annual living expenses = $30 000 ‐ $32 000 Average annual living expenses = $30,000 ‐ $32,000. Shortfall = $4,000 ‐ $6,000Needs Pension benefit of $22,000. Vesting Portability PortabilityCost Actuarial value of $4,000 per year at retirement


Medical and LTC Issues

Canon law (CL 281 section 2)

lFAS 106 & 158 – FY July 1, 2009

FAS 132 – FY July 1, 2010

Demographics and aging of priests

Medical plan or Medicare supplementMedical plan or Medicare supplement

Long Term Care

h i i li h l diffEach Diocese is slightly different


Potential Solutions

• “Pay as you go”

d f l ( ll )• Product specific solutions (typically insurance )

• Medicaid

• Diocesan facilities

• Diocesan Owned Life Insurance• Diocesan Owned Life Insurance

• Combination of any or all of the above


Self Insuring

Paying expenses out of current cash flow; current revenues; or, escrowed funds specific to this purpose; , p p p

Determination of how much to payCase‐by‐case basis (as it happens)Allocation per priest for escrow (prior to when it happens)

Difficult to forecast costs year‐to‐year and project going forwardgoing forward

Difficult to budget for income needed to provide the anticipated benefits

Benefit costs presumably will continue to rise; potentially beyond ability to pay


Product Specific Solutions

Insurance based products

d d lIndividual or Group Long Term CareTransfers risk of long term care

Pay today for benefits paid tomorrow

May not be able to insure everyone

Pure expense if not used

Premiums not guaranteed in many cases

Self Insured Group Medical

Individual or Group Medicare supplements


Individual or Group Medicare supplements

Medicaid

Priests must spend down personal assets to qualify for Medicaid benefitsqualify for Medicaid benefitsMedicaid facilities only

’ f lImpact on priest’s family

Perception value

Future solvency of system


Diocesan Facilities

Long term care facilities shared by the public and clergy membersand clergy membersFinancing methods

ll d b lCosts still incurred but to a lesser extent

Opportunity costs (discounted revenues for clergy ti t f ll f i t ipatients versus full revenues for private paying

patients)


Diocese Owned Life Insurance

Institutionally designed life insurance insuring priests; owned by and payable to the Diocese

Purpose is establish a long term asset to recover costs of benefits paid and create a short term liquid asset for access if needed Typically medical expenses are paid from general revenues of the Diocese and

d d h frecovered at death of priest

Medical expenses can be accessed from the cash values within the life insurance policy if needed through loans or withdrawals

Long term care rider may be available to offset specific costs of long term care Long term care rider may be available to offset specific costs of long term care; the balance, if any would be paid in a death benefit

Premiums may be structured to create maximum efficiency; both short term and long termand long term

Limited underwriting might be available

Investment returns may not be as favorable due to costs involved in insurance policy internal expenses


Combination Approach

Objective is to create the most efficient solution to the issue of future medical andsolution to the issue of future medical and long term care expense liabilities

l dSteps involvedDetermine Diocese’s financial ability and

b h b fcommitment toward both escrow and benefit payments

D t i li bilit l l iblDetermine liability as closely as possible

Model each alternative for pricing and benefit efficiency


efficiency

Combination Approach

Objective is to create the most efficient solution to the issue of future medicalsolution to the issue of future medical expense liabilities

l dSteps involvedDetermine Diocese’s philosophy toward escrow & b fbenefit payments

Determine actuarial liability

Model each alternative for price & benefit efficiency


Case Study #1

207 Priests

h d hDiocese had no cash reserve, no escrow

Pay as you go and Diocesan owned facilities

$12.7MM LTC liability

Found $6MM savings in medical planFound $6MM savings in medical plan

Recommended use of medical savings to fund LTC liability in DOLILTC liability in DOLI

Use DOLI to offset present value of projected L C li bili i b 2 %


LTC liabilities by 27%

Case Study #2

144 total priests

$ l b l$14MM LTC liability

“Pay as you go” funding

Diocese has $3MM in escrow

Diocese escrows $300 000 annuallyDiocese escrows $300,000 annually

Found 32% NPV savings over current escrow by purchasing Hybrid LTC productby purchasing Hybrid LTC product


Recommended Process

• Design your plans with experts on pre and post retirement benefitspost retirement benefits

• Calculate the projected liability of expenses d d h l dincurred and the annual service costs required

• Model the most efficient cost and product structures within the guidelines required by the Diocese

• Implement and monitor any and all plans created going forward, on a quarterly basis.


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