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Benefits payable to persons terminating or retiring at age 65 or more were essentially the same as those payable to other persons terminating for reasons other than death, except that noninception members were apparently not required to forfeit any portion of the contributions made on their behalf.
The termination benefits have not been substantially changed by the revisions to the Plan documents and administrative procedures which have taken place during the first quarter of 1973.
PAYMENTS UPON TERMINATION OF EMPLOYMENT
The beneficiary of a member whose employment terminated because of death received, in addition to the severance benefit, a death benefit which was funded by the proceeds of life insurance purchased by the Plan on the member's life. Section 3.17 of the rules and regulations prescribed the following basis for determining amounts payable to the beneficiary in such cases:
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"Payment of the Member's net account shall be
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Minutes of the trustees' meetings show, however, that payments were not actually made on the above basis. Although section 3.17 indicated that the benefit, exclusive of the benefit stemming from the insurance contract, was to be based on the member's net account, the Plan actually made such payments during the first 16 months at amounts equal to the contributions made on the member's behalf.
Furthermore, the trustees allowed beneficiaries to elect to receive the death benefits in single-sum payments instead of installment payments. In such cases, the trustees paid only the discounted value of the installments, although the rules and regulations did not specifically authorize this practice. (See p. 18.)
PAYMENTS TO MEMBERS UPON TERMINATION OF PLAN
Section 6.02 of the rules and regulations indicated that, upon termination of the Plan (or complete discontinuance of contributions), the members would receive their share accounts and the insurance policies on their lives. There was no guarantee that the members would receive at least the return of contributions on their behalf if the Plan were terminated.
AMOUNTS OF LIFE INSURANCE PURCHASED BY PLAN
The face amounts of the insurance policies purchased on the life of a member during the first and second Plan years were determined (subject to specified minimums) by multiplying the employer's weekly contribution by 50 and then by the number of years between the member's age and age 65. Under this formula, the following amounts of insurance were purchased for members of the ages indicated who entered the Plan during the second Plan year when the contribution rate was $30 per week.
If insurance were to have been purchased on the same basis during the third Plan year, the insurance amounts for a member entering the Plan then would have been as follows:
The premiums for the insurance purchased during the first 2 Plan years were slightly less than one-half of the contributions made to the Plan by the employers.
INSURANCE ASPECTS OF THE PLAN
The Plan, as initially adopted by the trustees, provided that a life insurance policy (or policies) was to be purchased on the life of each member. Ordinary levelpremium life insurance policies were purchased during the first Plan year (December 1, 1970, through November 30, 1971) from The Executive Life Insurance Company of New York and during the second year (December 1, 1971, through November 30, 1972) from Trans World Life Insurance Company of New York, As of March 1973, trustees had decided not to continue these insurance arrangements for the third and subsequent years. (See ch. 5.)
Aspects of the insurance coverage purchased by the trustees during the first 2 years which may interest the Subcommittee in its investigation are
--the Plan's use of individual insurance policies
rather than a less expensive group policy,
--the Plan's naming itself as beneficiary of the
--the trustees' practice of not paying members'
beneficiaries the full proceeds of the poli-
PURCHASE OF INDIVIDUAL INSURANCE POLICIES--
The policies purchased during the first 2 years of the Plan were treated as ordinary or individual insurance to determine commissions payable to insurance agents and to comply with State regulations; however, many characteristics of the insurance and its handling resembled group insurance.
According to officials of the New York Insurance Department, using individual policies instead of a group .policy for a union-management welfare or pension fund the size of Local 295 is unusual and results in substantially higher insurance costs.
Group insurance is more appropriate for Plan
The Plan had the following characteristics which generally indicate situations where group insurance principles would apply instead of individual insurance.
-- Insurance coverage was purchased on a mass basis
for a group of persons with common characteristics (Local 295 group).
-- Insurance coverage was provided without the usual
evidence of individual insurability (such as med-
--The amount of insurance available to a member
was determined by a formula which applied to all
-- The Plan trustees, rather than the insured per
sons, were the owners of the policies.
-- The insurance companies handled sales and bill
ings on a bulk basis.
--The trustees paid premiums from funds contrib
uted by the employers of the insured persons.
Although individual whole-life policies generally provide several advantages to the insured which are not provided by group insurance, it is significant to note that the major advantages discussed below had little relevance to the plan in which the policies were held by the trustees rather than the insured.
Plan members had no freedom to choose the plan or insurance amount or to tailor the coverage to their specific needs. Premiums were paid from employers' contributions for a large group of members; therefore, the level-premium feature provided no significant advantage for the individuals.
The cash-value feature of whole-life policies provided no advantage to a member. He could only use the cash value when he terminated, and if he chose to continue the policy he would have to purchase the policy from the trustees.