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 chargeable to the Plan's experience juring the year. In 1977, the formulas produced an increase in this reserve of $151,100. This firectly reflects the increase in the total dollar volume of benefits paid. The following snows the reserve for pending and unrevealed claims in the past two years: Reserve for pending and unrevealed claims as of December 31, 1977. Reserve for pending and unrevealed claims as of December 31, 1976. Increase in amount of reserve. Reserve for scholarships $1,325,100 1,174,000 151,100 A reserve is established to fulfill future payments of scholarships to students as of December 31, 1977: Reserve for scholarships-December 31, 1977. Increase in amount of reserve. Reserve for welfare benefits for pensioners and their dependents $136,300 128,200 8,100 enent 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. he actual caso expenditure in any one year was not an adequate measure of the Ongere cost of the program. Accordingly, the Plan has accumulated a reserve to શ Sot year, we compute the level annual cost of welfare benefits to pensioners and new dependents. From that amount is subtracted the actual welfare benefit exor pensioners and their dependents; the difference is an addition to ucure weitare benefits to pensioners and their dependents. Also, this be credited with interest since such an interest accrual entered into Cues died of the level annual cost. The following is the accounting for 1977: greas of welfare benefits for pensioners and their depend N Te ab equired for year. 1266 Natolia Aud for pensioners and their dependents.. **ediction in reserve for welfare benefits for pensionda shu deyendents... $202,500 117,600 320,100 452,800 (132,700) Phe Welfare Plan who ceases to be actively employed Twe en Ambiont disability is entitled to a continuation of a death Ami Ami & XW or one year following the termination of his welfare Cubit me Ay # amount which is reduced by $200 a month for each he amount is reduced to $1,500. To meet that obligation, a ***、、lika Poe were 186 persons on extended coverage as of December 4 ne previous December 31. The accounting for this reserve #ple Askatta Wher than dental, are not insured, the Plan should the inde pe not a possible abnormal level of benefit payments in a 190 X64) VÀ «that reserve is affected by the level of claim payments. Ave is as follows: Contingency reserve as of December 31, 1977. Increase in the amount of the reserve. Summary $2.241.200 2,071,600 169.600 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 reserves. 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). Employer contributions receivable.. 470,749 Due from related NMU Benefit Plan: For administrative expense.... 106,949 Prepaid expenses....... 58,200 Deposits and sundry receivables. 30,062 Furniture, fixtures and equipment and leasehold improvements (at 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). Reserve for welfare benefits for pensioners and their dependents..... 2,344,600 136,300 Contingency reserves for future benefits. 2,241,200 - nes and unassigned funds. 2 SURANCE COMPANY EXPERIENCE he experience accounting submitted by the Equitable he second policy year ended December 31, 1977. see that the fund earned a dividend of $337,707 and that remium (the fund actually received $347,075 since interest earned dividend). act that the incurred claims experience in that policy year ercent of premium and that the insurance company bercem of earned premium for combined total charges of 46.9 at dental claims were $352,843 and that this is a much aums shown in table 7. Table 4 shows paid claims and aus Essentially incurred claims are paid claims plus the As pending and unrevealed at the end of a contract year. enract year, Equitable had established such a reserve which ercent of premium. This was based on a standard ortor run-out" experience for this case. At the end of YES TOW based on the actual run-out of claims and the st year reserve should be reduced by $101,282. Accordacted from paid claims to produce the incurred claims. percent of premium was somewhat higher as a ran the 7.2 percent in the first year. But the dollar ower than the $59,753 in the first year. All of this is sees vejection when it bid on this business and with the eums and incurred claims in the second policy surace Laperence, the premium rates charged by Equitable 98 have been reduced by a further 20 percent. sis; aowances were substantially improved and as a Youngir sud 4ere increased about 68 percent. it back de outer overed for full benefits will be slightly less Ne smer à samen covered for partial benefits will be Nader Tyd we toe so that in 1978 there will be 9,500 seamen New at eade or partial benefits. On the other hand, the Mustape ghy lo che te sien decline and in 1978 we are assumAAA 18.50 pensaders eligible for benefits. On these bases, you will see that in table & the total annual dollar payment is projected for each category of benefit Overall, table 8 projects aggregate annual benefits of $5,810,700. Table 9 is a projection of income and expense for 1978 (all figures in this table are given in thousands of dollars). The projection of employer contributions in table 9 is a function of the number of man-days for which contributions will be made, the contribution rates applicable and the proportion of contributions paid by the various segments of the industry. In 1978, we are projecting that contributions will be paid for 2.1 million man-days. The following table shows the contribution rates that apply in 1978: The second column, of course, represents the increase of $1.60 per man-day effective June 1, 1978. We project that of the total man-days of contributions, 52.0 percent will be paid by tanker and container employers, 45.5 percent by dry cargo and 2.5 percent by diesel tanker. On this basis, the projected composite average rate for 1978 is $3.327 per man-day. This produces employer contributions of $6,986,700. The investment income in table 9 assumes average invested assets of about $5,70,000 and a continuation of the 7.82 percent yield which developed in 1977. The benefit expenses in table 9 are based upon table 8. (The medical department and optometric unit expenses assume a continuation of last year's experience.) The administration and professional expenses are projected at the 1977 levels. As you can see in table 9, the result is a projected operating deficit of 28.3 cents per man-day and this is $594,000. So that the effect of the increase in contribution rates can be seen, we have prepared table 10 which shows a budget for the fund as of July 1, 1978. This differs from table 9 in two significant respects. Employer contributions reflect the full $1.60 per man-day increase in the contribution rate which became effective June 16, 1978. And the cash benefits includes the higher dental premiums reflecting the dental benefit improvement effective June 16, 1978. In this table 10 you can see that an operating surplus of 37.8 cents per man-day is projected and that this is $794,000 on an annualized basis. NOTE.-Reference is made to the accompanying accountants' letter related to data contained in these schedules. NOTE.-Reference is made to the accompanying accountants' letter related to data contained in these schedules. NMU PENSION AND WELFare Plan, WELFARE PLAN REPORT FOR THE YEAR ENDED DECEMBER 31, 1977 MARTIN E. SEGAL Co., New York, N. Y., July 26, 1978. Board of Trustees, National Maritime Union Pension and Welfare Plan, New York, N.Y. GENTLEMAN: Here is our Annual Report for the year ended December 31, 1977. This Report reviews the experience of the Welfare Plan in 1977 and projects the expected experience in 1978. For the third consecutive year the Plan experienced an operating deficit. Man-days of contributions continued to decline as did the number of covered seamen but benefits paid increased substantially. The prospects for 1978 are for an operating deficit. But as you will see, that's because the increased contributions called for by the new Memorandum of Understanding are effective only for a little more than half the year. On a full year basis, beginning July 1, 1978 the projection shows an operating surplus, including the dental plan improvement. Sincerely, The following are some of the highlights of 1977: Employer contributions decreased 2 percent as compared to 1976. Man-days of contributions declined from 2.2 million in 1976 to 2.1 million in 1977. Unassigned net assets and reserves decreased by $2,257,500. Total benefit payments were $6,137,000 and this was $443,700 (8 percent) greater than benefit payments in 1976. The number of seamen covered for the full benefit program declined from 10,100 in 1976 to 9,900 in 1977. Total annual employer contributions in 1978 are projected at about $6.99 million and investment income is projected at $0.44 million for total income of about $7.43 million. Total expenses are projected at $8.03 million. Matched against the expected total income an operating deficit of $0.60 million is projected for 1978. On the basis of 2.1 million man-days, this is equivalent to an operating deficit of 28¢ per man-day. |