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Coca-Cola Gets Final OK for Retiree Health Funding Plan

The Coca-Cola Co. has received final authorization from the Labor Department for its groundbreaking approach to funding retiree health care benefits through a special trust and Coca-Cola’s captive insurance company.

April 5, 2010
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The Coca-Cola Co. has received final authorization from the Labor Department for its groundbreaking approach to funding retiree health care benefits through a special trust and Coca-Cola’s captive insurance company.

The final authorization was published in the Federal Register on Friday, April 2.

Under its plan, Atlanta-based Coca-Cola will use assets in a voluntary employee beneficiary association to purchase medical stop-loss policies from Prudential Insurance Co. of America to pay claims over the expected lifetimes of roughly 4,000 retirees and dependents. Coca-Cola established the VEBA in 2006 and contributed $216 million to the trust.

The medical stop-loss coverage will pay claims that fall between an attachment point and an upper limit.

In its application with the Labor Department, Coca-Cola said the attachment point for all retirees would be $100. For those younger than 65, the upper limit would be $5,800; for retirees 65 and older, the upper limit would be $3,500. Those figures may change slightly when the stop-loss program is put in place.

Prudential in turn will use the premium it receives from Coca-Cola to reinsure the risk with Red Re, a South Carolina-domiciled captive insurer and one of three captives owned by Coca-Cola.

Benefit experts say that there are significant financial advantages to Coca-Cola’s funding approach and that other employers are likely to follow Coca-Cola’s lead.

“There is interest in the market in this approach,” said Kathleen Waslov, an associate with Towers Watson & Co., a consultant to Coca-Cola on the project.

Coca-Cola still is waiting for a private-letter ruling from the Internal Revenue Service involving tax issues related to the transaction.

“We are pleased that the Department of Labor has authorized our VEBA retiree health care benefits funding proposal. We will await the private letter ruling from the IRS before we begin implementing the new plan,” Coca-Cola said in a statement.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

 

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