SD43 - Review of the State's Group Life Insurance Program for Public Employees
Executive Summary: The Virginia group life insurance program provides benefits for natural and accidental death. Participation in the VRS program is a condition of employment. Approximately 338,000 active and retired employees are covered under the program which has a total of $16.2 billion of life insurance in force. Program benefits are generous compared to most other states. All employees pay the same rate regardless of age, gender, or health status. Virginia is one of only two states which prefund their life insurance benefit in advance of retirement. VRS contracts with the Life Insurance Company of Virginia to underwrite the coverage and to administer several aspects of the program. Senate Joint Resolution 251 of the 1993 Session directed JLARC to study the funding and rate structure of group life insurance program administered by the Virginia Retirement System. This report summary briefly references study findings and recommendations. Detailed explanations are contained in the text of the report. Prefunding Enhances Actuarial Soundness of the Program The degree of "actuarial soundness" is a measure of the probability that the program is likely to pay all benefits as promised. Several factors affect actuarial soundness. including the level of assets, contributions, and prefunding. Prefunding enhances the security of the program benefits. However, the current premium holiday has decreased the amount of prefunding, and reduced the actuarial soundness of the program. The following recommendations are made: • An independent evaluation should be performed prior to changing the program's funding methods or rates. • Study changes in benefits or rate structure prior to implementation. Funding Policy Requires Modification Virginia's group life program is better funded than the programs of most other states, but is not funded at an amount recommended to be actuarially sound. Moreover, the program's funding objective should not be based on a certain asset level or partial funding. The following recommendations are made: • VRS should adopt a formal funding policy for the program. • Prefunding of the program should continue. • VRS should fully fund the future benefits of all program participants. • Any funds taken from the program should be replaced to maintain actuarial soundness. Review of 1992 Actuarial Valuation The 1992 actuarial valuation performed by VRS' actuary was conducted accurately. However, the VRS actuary identified 21 ,000 non-VRS participants that had previously been excluded from actuarial valuations of the group life program. The following recommendations are made: • VRS should perform another actuarial valuation prior to July 1, 1994, to identify the effect of the premium holiday and to evaluation alternate funding approaches. • VRS should review the mortality assumption for active employees. Program Has Been Well Administered by Insurance Company Life of Virginia has been the insurer and administrator for the group life program since the program's inception. VRS has never placed the group life contract out for bid. Overall, Life of Virginia administers the program in a reasonable and effective manner. The following recommendation is made: • VRS should place the group life contract out for bid every five to seven years. Uniform Rate Structure A majority of states have uniform rate structures for their programs. This structure is generally consistent with a mandatory program, and with the VRS program's current objectives and benefit design. The uniform rate for the plan is also comparatively lower than other group rates in the market. The following recommendations are made: • VRS should continue using a uniform rate structure. • If benefit design changes are considered, a non-uniform rating structure should be studied. • When any plan changes are implemented, objectives and results should be carefully monitored. |
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