Benefits May 18, 2005

US House Bill Allows Federal Retirees to Pay Health Bills Pre-Tax

May 18, 2005 (PLANSPONSOR.com) - The US House of Representatives federal workforce subcommittee has okayed a bill that would permit federal workers to keep paying health insurance premiums on a pretax basis.
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Sponsored by Representative Thomas Davis III (R-Virginia) and 33 other House members, the retiree health-care bill is now pending before the House Ways and Means Committee, according to a Washington Post report.

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Subcommittee Chairman Jon Porter (R-Nevada) noted that federal premiums have gone up more than 9% a year since 1999 and said the Davis proposal would help ease such costs by giving back to retirees more than $400, on average, in tax savings per year.

Since 2000, federal employees have paid their health insurance premiums with pretax dollars through a program called premium conversion. The tax code, however, does not allow the tax deduction to be extended to retirees. The legislation also would permit active-duty military personnel to apply a pretax rebate when purchasing Tricare supplemental insurance, the Post report said.

Compliance May 17, 2005

Court Throws Out Workforce-Wide COLI Purchase

May 17, 2005 (PLANSPONSOR.com) - A federal appeals court has ruled that corporations cannot buy corporate-owned life insurance policies (COLIs) for all of their full-time workers because they don't have an insurable interest in their whole workforce.
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>In overturning the decision of a lower court, the US 10 th Circuit Court of Appeals said that an employer has to have a “substantial economic interest” in the employee in order to be an insurance beneficiary. While companies can have an insurable interest in key employees, they don’t have the same interest in all their workers, the appeals judges said.

>Circuit Judge Monroe McKay, writing for the appeals court, said that “considerable expenditures in relation to the company’s overall budget” constituted substantial economic interest. In that vein, “human resources’ monies spent to attract and keep employees is a general cost of doing business and is not sufficient alone to support a finding of substantial interest in a specific employee’s continued life.”

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>According to McKay’s decision, Camelot purchased approximately 1,400 COLI policies in 1990 to insure the lives of all its full-time employees to ease its tax burden. This included employee Filipe Tillman who died in 1992. The music retailer filed for bankruptcy protection in 1996 after receiving $340,000 from its COLI policy on Tillman. The court said Camelot had “actively concealed the existence of the COLI policies from the insured employees.”

>When the personal representative of Tillman’s estate learned about the policy and the proceeds, the representative filed suit, arguing that Camelot did not have an insurable interest in Tillman’s life and that Camelot had been unjustly enriched by the COLI policy proceeds. A judge in the US District Court for Northern District of Oklahoma threw out the suit, ruling that Camelot did have an insurable interest in Tillman’s life and was not unjustly enriched by the proceeds of the COLI proceeds. The appeals court threw out that ruling in the latest decision.

>The opinion in Tillman v. Camelot Music Inc. 10th Cir, No. 03-5172, 5/11/05 is here . 

>Congressional lawmakers recently resurrected several previous attempts to restrict companies from taking out COLI policies to top executives and highly compensated workers (See  US House Bill Reins in COLI Policies ).  

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