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ALLIED INDUSTRIES HEALTH CARE BENEFIT PLAN Allied Industries Health Care Benefit Plan Statements of Net Assets Available for Benefits December 31, 20X2 and 20X1
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Assets 20X2 20X1 \"Investments, at fair value (see note 3)\" U.S. government securities \" $5,000,000 \" \" $4,000,000 \" Corporate bonds and debentures \" 2,000,000 \" \" 1,600,000 \" Common stock \" 1,000,000 \" \" 600,000 \" Total investments \" 8,000,000 \" \" 6,200,000 \" Receivables: Participating employers' contributions \" 500,000 \" \" 430,000 \" Participants' contributions \" 100,000 \" \" 80,000 \" Accrued interest and dividends \" 50,000 \" \" 40,000 \" Total receivables \" 650,000 \" \" 550,000 \" Cash \" 140,000 \" \" 115,000 \" TOTAL ASSETS \" 8,790,000 \" \" 6,865,000 \" Liabilities Due to broker for securities purchased \" 250,000 \" \" 240,000 \" Accounts payable for administrative expenses \" 25,000 \" \" 25,000 \" TOTAL LIABILITIES \" 275,000 \" \" 265,000 \" NET ASSETS AVAILABLE FOR BENEFITS \" $8,515,000 \" \" $6,600,000 \"
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The accompanying notes are an integral part of the financial statements.
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Allied Industries Health Care Benefit Plan Statements of Changes in Net Assets Available for Benefits Years Ended December 31, 20X2 and 20X1
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20X2 20XI Contributions Participating employers \" $15,000,000 \" \" $14,500,000 \" Participants \" 3,000,000 \" \" 2,800,000 \" Total contributions \" 18,000,000 \" \" 17,300,000 \" Investment income Net appreciation in fair value of investments \" 300,000 \" \" 200,000 \" Interest \" 500,000 \" \" 450,000 \" Dividends \" 50,000 \" \" 50,000 \" \" 850,000 \" \" 700,000 \" Less investment expenses \" 15,000 \" \" 25,000 \" Net investment income \" 835,000 \" \" 675,000 \" TOTAL ADDITIONS \" 18,835,000 \" \" 17,975,000 \" Benefits paid to participants Health care \" 16,000,000 \" \" 15,750,000 \" Disability and death \" 770,000 \" \" 750,000 \" \" 16,770,000 \" \" 16,500,000 \" Administrative expenses \" 150,000 \" \" 175,000 \" TOTAL DEDUCTIONS \" 16,920,000 \" \" 16,675,000 \" NET INCREASE DURING YEAR \" 1,915,000 \" \" 1,300,000 \" Net assets available for benefits Beginning of year \" 6,600,000 \" \" 5,300,000 \" End of year \" $8,515,000 \" \" $6,600,000 \"
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The accompanying notes are an integral part of the financial statements.
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Allied Industries Health Care Benefit Plan Statements of Plan's Benefit Obligations December 31, 20X1, and 20X0
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20X1 20X0 Amounts currently payable \"Claims payable, claims incurred but not reported, and premiums due to insurers\" \" $1,200,000 \" \" $1,050,000 \" \"Postemployment benefit obligations, net of amounts currently payable\" Death and disability benefits for inactive participants \" 1,350,000 \" \" 1,000,000 \" \"Postretirement benefit obligations, net of amounts currently payable\" Retired participants \" 2,000,000 \" \" 1,900,000 \" Other participants fully eligible for benefits \" 4,000,000 \" \" 3,600,000 \" Participants not yet fully eligible for benefits \" 5,000,000 \" \" 4,165,000 \" \" 11,000,000 \" \" 9,665,000 \" PLAN'S TOTAL BENEFIT OBLIGATIONS \" $13,550,000 \" \" $11,715,000 \"
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The accompanying notes are an integral part of the financial statements.
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Allied Industries Health Care Benefit Plan Statements of Changes in Plan's Benefit Obligations Year Ended December 31, 20X1
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20X1 Amounts currently payable Balance at beginning of year \" $1,050,000 \" \"Claims reported and approved for payment, including benefits reclassified from benefit obligations\" \" 16,920,000 \" Claims paid \" (16,770,000)\" Balance at end of year \" 1,200,000 \" \"Postemployment benefit obligations, net of amounts currently payable\" Balance at beginning of year \" 1,000,000 \" Increase (decrease) in postemployment benefits attributable to: Benefits earned \" 600,000 \" Benefits reclassified to amounts currently payable \" (450,000)\" Interest \" 90,000 \" Changes in actuarial assumptions and other actuarial gains and losses \" 110,000 \" Balance at end of year \" 1,350,000 \" \"Postretirement benefit obligations, net of amounts currently payable\" Balance at beginning of year \" 9,665,000 \" Increase (decrease) in postretirement benefits attributable to: Benefits earned \" 1,150,000 \" Benefits reclassified to amounts currently payable \" (650,000)\" Interest \" 750,000 \" Plan amendment \" (175,000)\" Changes in actuarial assumptions and other actuarial gains and losses \" 260,000 \" Balance at end of year \" 11,000,000 \" \"PLAN'S TOTAL BENEFIT OBLIGATIONS AT END OF YEAR\" \" $13,550,000 \"
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The accompanying notes are an integral part of the financial statements.
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Allied Industries Health Care Benefit Plan Notes to Financial Statements
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NOTE 1: DESCRIPTION OF PLAN
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The following description of the Allied Industries Benefit Plan (the Plan) provides only general information. Participants should refer to the Plan agreement for a complete description of the Plan's provisions.
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General. The Plan provides health and other benefits covering all participants in the widgets industry in the Greater Metropolis area. The Plan and related trust were established on May 8, 1966, pursuant to a collective bargaining agreement between the Allied Employers' Trade Association and the Allied Union, Local 802. It is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended.
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Benefits. The Plan provides health benefits (medical, hospital, surgical, major medical, and dental), permanent disability benefits, and death benefits to full-time participants (with at least 450 hours of work in the industry during a consecutive3-month period) and to their beneficiaries and covered dependents. Retired employees are entitled to similar health benefits (in excess of Medicare coverage) provided they have attained at least age 62 and have 15 years of service with participating employers before retirement.
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The Plan also provides health benefits to participants during periods of unemployment, provided they have accumulated in the current year or in prior years credit amounts (expressed in hours) in excess of the hours required for current coverage. Accumulated eligibility credits equal to one year's coverage may be carried forward.
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Health, disability, and death claims of active and retired participants, dependents, and beneficiaries are processed by the Administrator Group, but the responsibility for payments to participants and providers is retained by the Plan.
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In 20X2 the board of trustees amended the Plan to increase the deductible under major medical coverage from $100 to $300 and to extend dental coverage to employees retiring after December 31, 20X2. The amendment will not affect participating employers' contributions to the Plan in 20X3 under the current collective bargaining agreement.
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Contributions. Participating employers contribute 5.5 percent of wages pursuant to the current collective bargaining agreement between employers and the union (expiring February 19, 20X5). Employees may contribute specified amounts, determined periodically by the Plan's actuary, to extend coverage to eligible dependents. The costs of the postretirement benefit plan are shared by the Plan's participating employers and retirees. In addition to deductibles and copayments, participant contributions in the current (and prior, if applicable) year were as follows.
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Participants Retiring 20X1 Retiree Contribution 20X0 Retiree Contribution (1) Pre-1990 (1) None (1) None (2) 1990-1994 (2) Retirees contribute 20% of estimated cost of providing their postretirement benefits (a) (2) Retirees contribute 20% of estimated cost of providing their postretirement benefits (3) 1995-1999 (3) Retirees pay the cost of providing their postretirement benefits in excess of $200 per month cap (approximately 60% of the estimated cost) (3) Retirees pay the cost of providing their postretirement benefits in excess of $200 per month cap (approximately 50% of the estimated cost) (4) 2000 and after (4 ) Retirees pay 100% of estimated cost of providing their postretirement benefits (4) Retirees pay 100% of estimated cost of providing their postretirement benefits (a)\t\"Excluding $15 per month per capita increase in 20X1 due to adverse claims experience in 20X0. \"
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Other. The Plan's board of trustees, as Sponsor, has the right under the Plan to modify the benefits provided to active employees. The Plan may be terminated only by joint agreement between industry and union, subject to the provisions set forth in the Employee Retirement Income Security Act.
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NOTE 2: SUMMARY OF ACCOUNTING POLICIES
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A. Valuation of Investments. The Plan's investments are stated at fair value less costs to sell, if significant. Securities traded on the national securities exchange are valued at the last reported sales price on the last business day of the plan year. Investments traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the average of the last reported bid and asked prices. The Plan also holds certain corporate bonds that do not have an observable price. These bonds have maturities ranging from 5 to 7 years, and a weighted average coupon rate of 9 percent. The Plan's board of trustees has measured fair value for these bonds using an income approach that discounts contractual cash flows at a weighted average yield of 12 percent, which is based on yields currently available on comparable securities of issuers with similar credit ratings. -
B. Postretirement Benefits. The amount reported as the postretirement benefit obligation represents the actuarial present value of those estimated future benefits that are attributed by the terms of the plan to employees' service rendered to the date of the financial statements, reduced by the actuarial present value of contributions expected to be received in the future from current plan participants. Postretirement benefits include future benefits expected to be paid to or for both of the following:
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Currently retired or terminated employees and their beneficiaries and dependents
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Active employees and their beneficiaries and dependents after retirement from service with participating employers.
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The postretirement benefit obligation represents the amount that is to be funded by contributions from the plan's participating employers and from existing plan assets. Before an active employee's full eligibility date, the postretirement benefit obligation is the portion of the expected postretirement benefit obligation that is attributed to that employee's service in the industry rendered to the valuation date.
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The actuarial present value of the expected postretirement benefit obligation is determined by an actuary and is the amount that results from applying actuarial assumptions to historical claims-cost data to estimate future annual incurred claims costs per participant and to adjust such estimates for the time value of money (through discounts for interest) and the probability of payment (by means of decrements such as those for death, disability, withdrawal, or retirement) between the valuation date and the expected date of payment.
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For measurement purposes, a 9.5 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 20X3; the rate was assumed to decrease gradually to 8.0 percent for 20X8 and to remain at that level thereafter. These assumptions are consistent with those used to measure the benefit obligation at December 31, 20X1.
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The following were other significant assumptions used in the valuations as of December 31, 20X2 and 20X1.
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Weighted-average discount rate 8.0%—20X2; 8.25%—20X1 Average retirement age 60 Mortality 1971 Group Annuity Mortality Table
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The foregoing assumptions are based on the presumption that the Plan will continue. Were the Plan to terminate, different actuarial assumptions and other factors might be applicable in determining the actuarial present value of the postretirement benefit obligation.
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C. Other Plan Benefits. Plan obligations at December 31 for health claims incurred by active participants but not reported at that date, for accumulated eligibility of participants, and for future disability payments to members considered permanently disabled at December 31 are estimated by the Plan's actuary in accordance with accepted actuarial principles. Such estimated amounts are reported in the accompanying statement of the Plan's benefit obligations at present value, based on an 8.0 percent discount rate. Health claims incurred by retired participants but not reported at year end are included in the postretirement benefit obligation.
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NOTE 3: INVESTMENTS
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The Plan's investments are held by a bank-administered trust fund. (See paragraph 962-325-55-17 for a detailed Example of plan investment disclosures.) -
NOTE 4: BENEFIT OBLIGATIONS
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The Plan's deficiency of net assets over benefit obligations at December 31, 20X2, and 20X1, relates primarily to the postretirement benefit obligation, the funding of which is not covered by the contribution rate provided by the current bargaining agreement. It is expected that the deficiency will be funded through future increases in the collectively bargained contribution rates.
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The weighted-average health care cost-trend rate assumption (see note 2B) has a significant effect on the amounts reported in the accompanying financial statements. If the assumed rates increased by one percentage point in each year, it would increase the obligation as of December 31, 20X2, and 20X1, by $2,600,000 and $2,500,000, respectively.
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NOTE 5: OTHER MATTERS
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The trust established under the Plan to hold the Plan's assets is qualified pursuant to Section 501(c)9 of the Internal Revenue Code, and, accordingly, the trust's net investment income is exempt from income taxes. The Plan has obtained a favorable tax determination letter from the Internal Revenue Service (IRS), and the Plan sponsor believes that the Plan, as amended, continues to qualify and to operate as designed.
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