The Coca-Cola Co. will continue to seek regulatory approval of its innovative plan to fund retiree health care benefits through a special trust and its captive insurance company following a Labor Department ruling last week that the arrangement does not qualify for fast-track approval.
In a filing last month with the Labor Department, Coca-Cola requested expedited approval of a potentially groundbreaking approach to fund retiree health care benefits.
Under its plan, the company would use assets now held in a voluntary employees beneficiary association to purchase medical stop-loss policies from Prudential Insurance Co. of America to pay claims over the expected lifetimes of about 4,000 retirees and dependents. Coca-Cola established the VEBA, recently valued at $187 million, in 2006.
The medical stop-loss coverage would pay claims that fall between an attachment point and an upper limit. For all retirees, the attachment point 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.
In turn, Prudential would use the premium it receives from Coca-Cola to reinsure the risk with Red Re Inc., Coca-Cola’s 3-year-old South Carolina captive insurer. Atlanta-based Coca-Cola, the world’s largest beverage company with 2008 revenue of $31.9 billion, now uses Red Re for a wide range of risks, including benefit coverage of employees outside the United States. Red Re’s 2007 gross premium volume was $11.8 million.
Coca-Cola had asked the Labor Department for expedited consideration of its plan under a rapid-review procedure in which the department must make its initial decision within 45 days of the receipt of an application for a so-called prohibited transaction exemption.
To qualify for rapid consideration, an applicant has to cite two substantially similar exemptions the department has approved under its standard review process within the last five years. Alternatively, an applicant can cite one substantially similar exemption approved through the rapid-review process within the last five years and one exemption approved through its regular review process within the last 10 years.
While Coca-Cola cited several exemptions, the Labor Department said Coca-Cola did not demonstrate that its arrangement is substantially similar to the transactions the government had earlier approved.
A Coca-Cola spokeswoman said the company will seek a standard review of its application. That process can take several months to a year.