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TABLE 2.-ADMINISTRATION EXPENSES FOR YEARS ENDED DECEMBER 31, 1977 AND DECEMBER 31,

1976—-Continued

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C. BENEFIT PAYMENTS Table 4 shows the benefits paid in 1977 and each of the two prior years. This table provides the benefit information by category of beneficiary and by type of benefit.

Total benefit payments in 1977 were $6,489,500. This was $572,800 (10 percent) more than in 1976 and $1,837,900 (40 percent) more than in 1975.

In 1977, there were 9,905 seamen eligible for the full benefit program. In 1976, there were 10,139 and in 1975 there were 11,440. Accordingly, the decline between 1977 and 1976 was about 2 percent as compared to 11 percent between 1976 and 1975.

In 1977, there were 280 seamen eligible for partial benefits as compared to 234 in 1976.

Seamen eligible for full and partial benefits totalled 10,185 as compared to 10,373 in 1976, a decline of about 2 percent.

Since benefit payments increased by 10 percent and you have now seen that the number of seamen decreased by about 2 percent, it follows that benefit payments per capita in 1977 were somewhat higher than in 1976.

The higher level of benefit payments was due to increases in many of the benefits provided by the fund but most particularly with respect to the major medical benefits provided to both seamen and dependents and with respect to the prescription drug and dental programs. Major medical benefits paid on behalf of seamen increased by over 30 percent, the major medical benefits paid on behalf of dependents increased by almost 43 percent. This indicates both increasing utilization as well as the known factor of increasing hospital, surgical and medical costs.

The prescription drug claims increased by about $73,000—about $8 per eligible seaman per year. In this case, utilization remains very low—2.45 claims per seaman and pensioner eligible per year, and most of the increase is the result of increases in drug costs. The average prescription cost in this case is $8.34, which is higher than most other welfare funds. This is in good measure the result of the low utilization which indicates a higher than normal pattern of not using the prescription plan for

small prescriptions and not filing for direct reimbursement. In any event the cost of
about $4.00 per seaman per month is markedly lower than most other funds.

The dental claims increased by about $129,400--58 percent. On a per capita basis,
the increase was only slightly lower-about 57 percent-since there were essentially
the same number of covered employees over the 2 years. This increase was not
unexpected in view of the past history of the employees covered by this fund with
respect to the utilization of new benefits.

Total per capita benefits paid to seamen increased about 6 percent, per capita benefits for dependents were about 17 percent higher and pensioner benefits were about 10 percent lower. All of these figures are derived from the statistics provided in table 4 and in table 5 which shows the benefit payments per eligible seaman. This table is prepared so that the actual trends in benefit payments from year to year are seen independent of the number of seamen covered from year to year.

At the bottom of table 5 you will see that the grand total of benefit payments per eligible seaman per year was $546.40 in 1977 as compared to $484 in 1976. This is an increase of almost 13 percent.

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STAMFORD LIDD A DELID

TABLE 4.—WELFARE BENEFITS PAID, 1975–77

Item

1977

1976

1975

$409,045

58,000 447,669

17,702 360,627 83,026 23,223 360,052

4,350

$438,972

70,000 419,469

27,046 353,219 77,967 20,655 282,738

4,800

$478,406

95,000 362,640

36,614 145,106 27,659

9,411 112,638

6,690

1,763,694

1,694,866

1,264,164

Seamen's benefits:

Death
Accidental death and dismemberment.
In-hospital disability..
In-hospital extended
Hospitalization (R. & B. and miscellaneous) ...
Surgical.
Doctors' hospital visits.
Major medical..
Christmas benefit to hospitalized seamen.

Total seamen's benefits.
Dependents' benefits:

Hospitalization.
Surgical
Maternity
Scholarships—Children.
Doctor's hospital visits
Major medical....

Total dependents' benefits
Pensioners benefits:

Hospitalization.
Surgical...
Doctor's hopital visits.
Major medical...
Hearing aids
Hospitalization — Dependents.
Surgical — Dependents.
Doctor's hospital visits—Dependents.
Medicare — Puerto Rico
Major Medical — Dependents.........
Maternity-Dependents...

Total pensioners' benefits
Drug program.
Optometric benefits:

Optometic department—New York...
Outport optometric benefits....

Total optometric benefits

1,000,568
179,499
56,909
78,508
80,458
998,668
2,394,610

963,183
176,657
59,599
84,279
86,760
714,725
2,085,203

820,705 163,447 46,702 72,860 61,537 690,969 1,856,220

181,267
51,464
16,310
29,049
23,943
97,439
21,787
6,116

183,639
52,031
17,108
36,908
33,503
119,879
24,936
6,855
9,320
21,224

9,680 515,083

160,584 38,112 13,131 30,488 36,522 102,937 25,771

6,634 11,900 23,047 9,547

20,570
5,876

453,821

458,673 286.162

483,268

410,401

183,236
220,987

189,648
192,075

171,983 204,067 376,050

404,223

381,723

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TABLE 5.-BENEFIT PAYMENT PER ELIGIBLE SEAMAN - IN 1977, 1976, AND 1975

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Drug program..
Pensioners' benefits:

Hospital.
Surgical
Doctor's hospital visits
Major medical.
Medicare....
Hearing aids.
Dependents' hospitalization (including mater-

18.1
5.1
1.7
3.6

.9
3.3

2.8 1.0 3.2

2.4

12 31 38 ? 2 31 71 34 DO 47 11

nity)
Surgical.
Doctor's hospital visits
Major medical...

10.4
2.2

.6
2.1

12.8
2.5

.7
2.1

9.8 2.3

.6 2.0

Total

45.8

50.8

40.1

Dental....

Grand total per eligible seaman per year ......

34.6 546.4

22.0 484.0

333.3

Based on the number of full eligible seamen (9,905) in 1977.
2 Includes full and partial eligibles (10,185).

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D. RESERVE ADJUSTMENTS Various reserves have been established under the Welfare Plan based on formulas developed over the years of the plan's operation. These formulas were tested seven years ago and were found to be quite close to the actual run-out of claims. The various reserves and the adjustments based on the 1977 experience are as follows:

Reserve for pending and unrevealed claims

At the end of each year, there are a certain number of claims that are still being processed. In addition, there have been deaths, hospitalizations, etc., for which the Plan is obligated to pay when the claims are received and processed. We compute an estimate of that liability. It is compared to the corresponding reserve at the end of the previous year. Any increase or decrease is chargeab to the Plan's experience during the year.

In 1977, the formulas produced an increase in this reserve of $151,100. This directly reflects the increase in the total dollar volume of benefits paid. The following shows the reserve for pending and unrevealed claims in the past two years: Reserve for pending and unrevealed claims as of December 31, 1977 ..... $1,325,100 Reserve for pending and unrevealed claims as of December 31, 1976 ...... 1,174,000

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Increase in amount of reserve

151,100

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Reserve for scholarships

A reserve is established to fulfill future payments of scholarships to students as of
December 31, 1977:
Reserve for scholarships—December 31, 1977

$136,300 Reserve for scholarships—December 31, 1976

128,200 Increase in amount of reserve.

8,100 Reserve for welfare benefits for pensioners and their dependents

Benefit payments for pensioners and their dependents were bound to increase over a long period of years as the number of persons on the pension rolls increased. The actual cash expenditure in any one year was not an adequate measure of the long-term cost of the program. Accordingly, the Plan has accumulated a reserve to meet the ultimate cost.

Each year, we compute the level annual cost of welfare benefits to pensioners and their dependents. From that amount is subtracted the actual welfare benefit expenditure for pensioners and their dependents; the difference is an addition to reserve for future welfare benefits to pensioners and their dependents. Also, this reserve has to be credited with interest since such an interest accrual entered into the calculation of the level annual cost. The following is the accounting for 1977: Annual level cost of welfare benefits for pensioners and their dependents .......

$202,500 Interest accrual required for year.....

117,600 Total

320,100

Less: Welfare benefits paid for pensioners and their dependents..

452,800

Total 1977 reduction in reserve for welfare benefits for pension-
ers and their dependents

(132,700) Extended death benefit reserve

A seaman covered by the Welfare Plan who ceases to be actively employed because of total and permanent disability is entitled to a continuation of a death benefit in the amount

of $5,000 for one year following the termination of his welfare eligibility and thereafter in an amount which is reduced by $200 a month for each succeeding month until the amount is reduced to $1,500. To meet that obligation, a reserve is established. There were 186 persons on extended coverage as of December 31, 1977 compared to 182 the previous December 31. The accounting for this reserve is as follows: Extended death benefit reserve-December 31, 1977.

$363,200 Extended death benefit reserve—December 31, 1976.

385,200 Decrease in the amount of the reserve.

(22,000) Contingency reserve

Since the welfare benefits, other than dental, are not insured, the Plan should have available a reserve to meet a possible abnormal level of benefit payments in a particular year. The size of that reserve is affected by the level of claim payments. The accounting for that reserve is as follows:

Contingency reserve as of December 31, 1977.
Contingency reserve as of December 31, 1976...

$2,241,200 2,071,600

Increase in the amount of the reserve.

169,600

reserves.

Summary

Each of these changes in reserves affects the Plan's 1977 experience. The result of the total experience in this area was an increase of $174,100 in these assigned

The balance not committed to any of the reserves or other liabilities is $680,909 and this is about 9 percent of the cost of the Welfare Plan in 1977. The comparable unassigned fund balance as of December 31, 1976 was $2,938,409 and at that time it was the equivalent of about 39 percent of 1976 Welfare Plan cost. It can be seen therefore that the fund's unassigned reserves had been substantially depleted by the end of 1977. You will see later (see table 9) that the projected operating results in 1978 will reduce the unassigned reserves to under $100,000. However, you will also see (table 10) that the additional contributions called for by the new Memorandum of Agreement, effective June 16, 1978, will produce operating additions to reserves.

E. FUND ASSETS AND RESERVES Table 6 is a summary of the fund's assets, reserves, liabilities and unassigned funds.

Total assets decreased $1,906,200 (21 percent), while the total assigned reserves and liabilities increased $351,300 (6 percent). As a result, the unassigned funds of $680,900 held at the end of 1977 were $2,257,500 (77 percent) less than those held at the end of 1976.

The unassigned reserves at the end of 1977 are the equivalent of 8 percent of the projected cost of the Plan in 1978. At the end of 1976, the unassigned reserves then were 38 percent of the projected expenses for 1977. Thus it can be seen that the decrease in the unassigned reserves has resulted in a decrease in the period of time for which these funds would be available to meet fund expenses.

In point of fact, the audit report submitted by Kipnis and Karchmer indicates that at December 31, 1977 there was a net deficiency in net assets of $3,499,036 (Exhibit “A” of the audit report). This can be reconciled to our plus total of unassigned assets of $680,909 by the fact that the audit report sets up a reserve of $4,179,945 for “Estimated liability for future benefits based on Participants' accumulated eligibility” (Schedule “3” of the audit).

TABLE 6.–Balance Sheet at December 31, 1977
Assets:

Cash in banks and on hand
Investment in securities (at market)..
Interest receivable on securities
Employer contributions receivable.
Due from related NMU Benefit Plan: For administrative expense.
Prepaid expenses.....
Deposits and sundry receivables
Furniture, fixtures and equipment and leasehold improvements (at

cost less accumulated amortization and depreciation) Dividend due from Equitable Life Assurance Society

$282,694 5,602,080

92,266 470,749 106,949 58,200 30,062

360,778 347,075

Total assets......

7,350,853

Reserves, liabilities and unassigned funds:

Reserve for pending and unrevealed claims:....
Death claims (including extended death benefit reserve).
Accidental death and dismemberment claims ...........
All other casualty coverage claims.......

589,600

5,000 1,093,700

Reserve for welfare benefits for pensioners and their dependents .....
Reserve for future existing scholarships.
Contingency reserves for future benefits

1,688,300 2,344,600

136,300 2,241,200

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