Such an analysis will include a determination of whether or not the assets of the Plan will be sufficient to cover its liabilities if the Plan continues to function indefinitely and if the Plan is terminated. Without such a study statements regarding the financing of the Severance Benefit Plan are generalizations that are not supported by facts. The Plan as Beneficiary The naming of the Plan as beneficiary for the life insurance can be questioned since the Plan retains part of the death benefits. The legality of this Procedure could be questioned on the grounds that the Plan has no insurable interest in the lives of the Members in excess of its obligation to pay death benefits to beneficiaries. Over a reasonable period of time, the accumulated value of premiums paid for life insurance for a large group of persons will exceed the accumulated value of the death claims and the cash values of the remaining policies because of the expenses and profits of the insurance business. The situation is comparable to betting on all of the horses in a horse race. The purchase by the Plan of excess insurance for expected gain of the Plan cannot be justified on the basis of reasonable principles of insurance and of probability. The principal purpose of buying life insurance to provide the death benefits payable to the beneficiaries is to avoid random fluctuations in total death benefit payments in one year that the Plan would have to absorb if the death benefits were self insured. The gains for the mass purchase of insurance on a large number of lives with benefits payable to one organization are by the insurance agents and maybe the insurance companies. PROBLEMS FOR STUDY AND ACTION Study of and possible action on the following problems involving the Severance Plan is recommended: 1. The payments by insurance companies of large advances against first year commissions. 2. The payment of persistency bonuses in place of expense reimbursement allowances. The payment of persistency bonuses does not appear to be legal under the New York statute. 3. Agent's commissions, general agents' override commissions, expense allowances and bonuses provided by agency contracts and actual paid. 4. Determination if the life insurance policies are self-supporting on the basis of reasonable assumptions for the future experience for the separate classification of insurance. 5. Study of the legality of Naming the Plan as a Beneficiary either for all of the insurance or for that part of the insurance in excess of the liability of the Plan to the beneficiaries. 6. The fiduciary responsibility of the Trustees to invest and to spend the employer payments on behalf of the employees to the best advantage of these employees. 7. The administration expense charges to the Plan for expenses of the Trustees and for payments to Fringe Programs, Inc. 8. Audit of the Income, disbursements and assets of the Plan and the determination of the present value of liabilities. 9. The sufficiency of Gross Premiums for the insurance policies as compared with the net premiums used to calculate legal reserves for the insurance. The views expressed in this memorandum represent the consensus of opinion of those signing below and do not necessarily represent the views of the agencies by which they are employed. The names of these agencies are listed under the signatures for purposes of identification only. LAWRENCE M. HYMAN, Supervising Examiner, State of New York Insurance Department. Senior Examiner, State of New York Insurance Department. Assistant Director and Actuary, U.S. General Accounting Office. APPENDIX VII STATE OF NEW YORK INSURANCE DEPARTMENT, In the Matter of the Applications and/or Licenses of LOUIS C. OSTRER, SAMUEL SCHEINHAUS, AND SEYMOUR GREENFIELD, RESPONDENTS FINDINGS OF FACT CONCLUSIONS AND DECISION The above entitled matter having come on for hearing on September 20, 1967 at the office of the Superintendent of Insurance, 123 William Street, New York, New York to show cause why all licenses issued to respondents should not be suspended or revoked, and why all pending applications for licenses should not be denied, on the grounds that respondents have demonstrated their untrustworthiness to act as insurance agents and brokers within the provisions of Sections 117 and 119 of the Insurance Law, and have violated Section 125 of the Insurance Law and Departmental Regulation No. 29; said proceedings having been commenced by the service of citation upon respondents in accordance with Sections 22, 23, 117 and 119 of the Insurance Law; Louis C. Ostrer having appeared by Norick & Pollina, Esqs., Michael C. Pollina of counsel; respondent Samuel Scheinhaus having appeared pro se; respondent Seymour Greenfield having appeared by David E. Flatow, Esq.; the Insurance Department having appeared by Robert Cohen, Esq.; and after having heard the proof presented by the parties herein and the matter having been fully submitted and due deliberations having been had, the following findings of fact, conclusions and decision are made: FINDINGS OF FACT 1. The citiation in the above entitled proceeding issued by the Department was served upon respondents in accordance with the provisions of Sections 22, 23, 117 and 119 of the Insurance Law on August 23, 1967. 2. Respondents are presently licensed as follows: (a) Louis C. Ostrer is licensed individually as an insurance agent pursuant to Section 113 of the Insurance Law, and as sublicensee of SMB Agency, Inc. and of The Homer Agency, Inc., both corporate agents pursuant to Section 113 of the Insurance Law. (b) Samuel Scheinhaus is licensed individually as an insurance agent pursuant to Section 113 of the Insurance Law, and as sublicensee of SRS Planned Estates, Inc., a corporate insurance agent pursuant to Section 113 of the Insurance Law. (c) Seymour Greenfield is licensed individually as an insurance agent and insurance broker pursuant to Sections 113 and 119 of the Insurance Law, respectively, and as sublicensee of Lincoln Affiliates Inc., of Viscount Agency, Inc. and of The Homer Agency Inc., corporate insurance agents, all pursuant to Section 113 of the Insurance Law, and as sublicensee of Sportsmen Brokerage Inc., a corporate insurance broker pursuant to Section 119 of the Insurance Law. 3. The Allmetal Screw Products Co., Inc. (hereinafter referred to as "Allmetal") a New York corporation having its home office in Garden City, New York, held life, insurance policies on the lives of its key executives, including Sylvan Haenel and Nat Epstein, among others, issued by the Canada Life Assurance Company (hereinafter referred to as the "company"). The company extended to holders of life insurance policies the privilege of depositing funds with said company, which deposit would be used for the payment of future premiums, to be allocated when same became due. Allmetal elected to deposit money with the aforementioned company to be used for the payment of future premiums on the policies held by Allmetal. The amounts so deposited were to be applied in payment of premiums through the year 1973. A portion of the funds so advanced for deposit by Allmetal was borrowed from the Long Island Trust Company, in return for which said policies were assigned to the bank as security. During March 1964 Allmetal issued checks totalling the sum of $379,341.86 made payable to the company representing deposits for future premiums on the Sylvan Haenel and Nat Epstein policies. Said checks were delivered to respondent Louis C. Ostrer who was a sublicensee of Louis C. Ostrer Associates, Inc., at that time corporate agent of the company. In pursuance of a plan or scheme to improperly divert and/or misappropriate funds, said respondent, without authorization, altered the aforesaid checks by inserting above the name of the payee company the following: "Louis C. Ostrer Associates, agents for". Thereafter, said respondent endorsed the checks and converted and/or misappropriated the proceeds of said checks to his own use and benefit. He also failed to remit to the company such funds representing deposits for future premiums. To date, respondent has not accounted for or returned such future premiums collected as outlined herein. 4. Prior to the period hereinabove mentioned, respondent Samuel Scheinhaus was secretary and sublicensee of Louis C. Ostrer Associates, Inc., as an accommodation officer, having resigned such office in December 1963. He neglected to inform this Department of such resignation and to surrender his sublicense at that time. 5. On or about February 27, 1967 respondent Louis C. Ostrer as sublicensee of Executive Affiliates, Inc., then a corporate agent of the company, and in pursuance of another plan or scheme to improperly divert and/or misappropriate funds, obtained or had printed for such purpose, letterhead stationery of Allmetal. On or about February 27, 1967, March 8, 1967 and April 4, 1967 he prepared and produced letters on such stationery of Allmetal addressed to Executive Affiliates, Inc., requesting refund of deposits made, as outlined hereinabove, and respondent Louis C. Ostrer signed such letters with the name of an officer of Allmetal. Said letters were subsequently forwarded by Louis C. Ostrer to the company with a request from him that the company honor the demand for refunds. During the period from March 2, to April 6, 1967, the company forwarded to said respondent for delivery to payees as mentioned herein, 12 checks totalling the amount of $359,639.86 payable to Allmetal and the Franklin National Bank or Allmetal and the Long Island Trust Company. Upon receipt of the aforesaid checks, respondent Louis C. Ostrer, without authorization, endorsed the names of the payees thereto, and then negotiated said checks to the Midtown Commercial Corp., and thereupon converted and/or misappropriated the proceeds thereof to his own use and benefit. 6. Respondent Seymour Greenfield was treasurer and sublicensee of Executive Affiliates, Inc., as an accommodation officer thereof. CONCLUSIONS The evidence clearly establishes that respondent Louis C. Ostrer pursued the herein described plans or schemes and misappropriated the funds mentioned therein. Accordingly, I conclude that he has demonstrated his untrustworthiness to act as an insurance agent within the contemplation of the Insurance Law, and has violated Section 125 of the Insurance Law and Departmental Regulation No. 29. With respect to respondents Samuel Scheinhaus and Seymour Greenfield, there is no evidence indicating that they knew of or participated in the aforesaid fraudulent schemes. I, therefore, find that they were not personally at fault, directly or indirectly, in the matters on account of which licenses are being herein revoked. DECISION Therefore, pursuant to the provisions of Sections 117 and 119 of the Insurance Law, it is Ordered, That the charges and specifications against respondents Samuel Scheinhaus and Seymour Greenfield be and the same are hereby dismissed, and it is Further ordered, That all licenses issued by this Department to respondent Louis C. Ostrer be and the same are hereby revoked, and that all pending applications for licenses be and the same are hereby denied, and it is Further ordered, That such revocation of licenses and denial of applications shall take effect ten days after the mailing of a copy of this decision to respondent Louis C. Ostrer, by registered mail. Dated: New York, N. Y., October 4, 1967. ALBERT J. MILLUS, Deputy Superintendent of Insurance. Richard E. Stewart, Superintendent of Insurance, pursuant to the authority vested in him under the New York Insurance Law, hereby approves and adopts the determination herein above made. Dated: New York, N. Y., October 4, 1967. RICHARD E. STEWART, Superintendent of Insurance. STATE OF NEW YORK INSURANCE DEPARTMENT, Licenses held by Louis C. Ostrer, a Manhattan insurance agent, charged with improperly diverting more than $700,000 from a Canadian life insurance company, have been revoked in an order issued by the New York State Insurance Department. Ostrer, an agent for Canada Life Assurance Company but not an employee of that company, was also the sublicensee of SMB Agency, Inc. and of The Homer Agency, Inc. both of 377 Fifth Ave., New York City. The licenses of both agencies also were revoked. The revocation order results from an Insurance Department hearing, at which it was established that Ostrer had demonstrated his untrustworthiness to act as an insurance agent within the intent of the Insurance Law. The Department charged that Ostrer altered checks made out to Canada Life Assurance Company for $379,341 by inserting "Louis C. Ostrer, Associates, agents for" above the name of the Canadian insurer, cashed the checks and kept the proceeds. The checks had been forwarded to him from Allmetal Screw Products Co., Inc. as deposits for future premiums on life insurance policies. The Department also found that Ostrer had used purported letterhead stationery of Allmetal, without its permission, to obtain refunds of premiums held on deposit by Canada Life Assurance Company. Through letters purportedly signed by officers of Allmetal, but in fact signed by Ostrer on the corporation's stationery, he obtained 12 checks totalling $359,639 payable to Allmetal from the insurance company. He endorsed the checks without authorization and kept the proceeds. Ostrer, who resides at 181 Kings Point Road, Kings Point, N.Y., was licensed individually as an insurance agent under Section 113 of the Insurance Law, and as sublicensee of SMB Agency, Inc., and of The Homer Agency, Inc., corporate agents. The Insurance Department has also denied all Ostrer's applications for licenses. He has been indicted for grand larceny and forgery by the New York County Grand Jury. APPENDIX VIII STATE OF NEW YORK INSURANCE DEPARTMENT, WELFARE FUND BUREAU, REPORT ON EXAMINATION OF THE LOCAL 295 SEVERANCE Trust as of June 30, SIR: In accordance with Appointment Number WB 3085 dated May 23, 1972, I have made an examination as of June 30, 1971 of the Local 295 Severance Trust Fund, 179-30 149th Avenue, Jamaica, New York, 11434. ADMINISTRATION The fund is administered by ten trustees, five representing the union and five representing the employers. Trustees serving as of June 30, 1971 were: Union trustees: James Costa, James Hallahan, Michael Hunt, John Moran, and Tom Sweeney. Employer trustees: Frank Della Pelle, William Ermer, Martin Hoffenberg, Frank Labell, and Rubin Steiner. Professional services are provided by the following: Finkelstein, Goldstein & Rick, CPA's (Accounting), 570 17th Avenue, New York, N. Y. Herbert Simon (Legal), 99 West Hawthorne Avenue, Valley Stream, N.Y. Haskell Wolf (Legal), 150-36 182nd Street, Jamaica, N.Y. Fringe Programs, Inc., (administrator) 377 5th Avenue, New York, N.Y. Fidelity bond. The fund has a $350,000 commercial blanket bond covering all trustees and employees. MEMBER BENEFITS Pursuant to collective bargaining agreements effective December 1, 1970 between Local Union 295 and various employers, the employers agreed to con tribute to the Local 295 Severance Trust Fund. The amounts of contributions required under the agreement are $15 for the first year of the contract, $30 for the second year and $40 for the third year for each week in which the employee appears on the employer's payroll. A separate account is maintained for each member showing the employer payments made for him. Benefits consist of a cash settlement upon termination of employment and a death benefit. Following are comments on the plan and its administration: [Plan provisions have been applied erroneously, resulting in overpayments to terminated members in substantial amounts.] Section 3.06 of the plan states: In the event of termination of employment of a Member other than by death, he shall be entitled to the following benefits: (a) If the terminated Member was a Member of the Plan on December 1, 1970, he shall be entitled to the amount standing to his share account as of the date of determination as computed in Section 4.04. (b) If the terminated Member entered the Plan after December 1, 1970, he shall be entitled to the following benefits: Period of Membership in the Severance Plan of a Member entitled to Severance Benefits and Employer contributions credited to the Member's account: At least (1) year, but less than two (2) years: 20 percent. At least two (2) years, but less than three (3) years: 40 percent. At least four (4) years, but less than five (5) years: 80 percent. Section 4.04 of the plan states: The Member's account in the Severance Plan as of the last evaluation date shall consist of an aggregate of the following: (a) The total Employer contributions to the Trust Fund on his behalf, less; (b) The allocated share of charges against the Trust Fund on account of necessary cost, fees and other expenses, if any, incurred in connection with the establishment and administration of the Severance Plan, less; (c) The insurance premiums paid on Contracts issued on the life of such member, plus; (d) The increment or decrement credited to his account from his entrance into the Severance Plan up to the last evaluation date. Increment or decrement shall be annually credited to each account in the same proportion as the money in each individual account is to the total fund of all accounts. In accordance with the plan it appears that the cash benefit upon terminations of employment should equal the total contributions made on behalf of the member less his allocated share of administrative charges, less the premiums paid by the fund on the insurance contract obtained on his life plus any increments or decrements credited to his account. While the plan does not so specifically provide, equity and logic would seem to dictate that a terminated member should recieve the insurance policy on his life, in addition to the cash benefit. In actual practice the trustees have paid cash benefits, to inception members who terminated employment, equal to the total contributions made on their behalf. This apparent misapplication of the rules has resulted in substantial overpayments to terminated members. [Members have not consented in writing to insurance coverage on their lives.] The amount of coverage on the life of a member, obtained by the fund, varies in accordance with the age of the member. The formula for determining the face amount of insurance is as follows: subtract the member's age at the age of issue of the policy from 65 and multiply the result by $750. Inception members were covered for insurance immediately. In accordance with the plan, new members are covered for insurance on the first quarterly enrollment date following six months of employment with a contributing employer. Upon termination of employment the fund pays an additional two months premium to continue coverage. In addition there is a 30 day grace period which extends the insurance for a period of three months after termination. Members who are less than 55 years of age at the time of issue of the policy are covered for a waiver of premium benefit. If a member becomes totally and 1 Members terminated by other than death. |