Masonry Magazine September 1963 Page. 5
indent aspect of trusteeship.
This is not to say that areas such as benefits, employer and employee attitudes should not be sampled. However, the final decision should rest with the trustees.
Before execution of the final trust agreement, prospective trustees often perform functions in the role of representatives, not as individuals or as representatives of either labor or management, in carrying out obligations under the negotiated agreement.
Establishing Reserves
There is a natural tendency to want benefits provided by the plan to begin as soon as possible. However, it is necessary to accumulate enough money to make the first payment from the fund. Without adequate reserves, the plan might be in severe financial difficulties within a short time. It is suggested that the following goals be considered in determining the initial size of reserves and establishing targets for future buildup of reserves:
Reserves should provide protection against severe economic decline, allowing for extended continuation of coverage during such period.
Reserves should provide a cushion for increases in the costs of medical care for a reasonable period in the future.
If retiree coverage is provided, reserves should be accumulated during active years to provide protection during retirement years.
Reserves should provide protection against adverse experience to assure that benefits will never have to be reduced.
Initial accumulation of adequate reserves will generally take six months or more. Also, a part of future contributions will probably be directed to reserves in a properly-timed program. The careful study of this area of responsibility by the trustees will pay off in future financial stability.
Setting Up the Administration System
A bank usually is designated as the depository for contributions, but trustees give over to an administrative staff many routine functions. The plan may be administered by employees of the board of trustees, by a professional contract administrator and his staff, or, in some cases, by a bank. The term "self-administration" is usually used to describe a system operated by employees of the board of trustees. This term should not be confused with "self-insurance" which applies to financing the plan by paying a part or all of the benefits paid directly from the fund, thus assuming the risk of coverage.
It is well for the trustees to pay close attention to the administration system. Inefficient administration increases the costs of a plan and thereby decreases funds available for benefits.
Some of the functions of the administrative staff are:
Recording employers who make contributions to the trust.
Distributing remittance reports and instruction letters.
Receiving the remittance reports and verifying their accuracy.
Sending reminder notices to delinquent employers and informing trustees of delinquents.
Keeping current employer contribution and participant eligibility records.
Verifying eligibility.
Assisting participants in the completion and filing of claim forms.
Processing and paying claims (sometimes done by insurance company or service organization).
Computing and paying insurance premiums where applicable.
Maintaining the bookkeeping records of all receipts and disbursements and preparing periodic financial statements for the trustees.
Distributing insurance certificates, booklets, and other communication materials to participants.
The record-keeping functions of the fund provide an area for considerable trustee study, particularly where a plan is administered directly by the trustees. Record-keeping might employ anything from a hand-posted accounting system to high-speed data processing equipment. Decisions in this area are based on such considerations as:
Cost of equipment.
Number of employers and participants.
Whether there are companion funds that could share equipment costs.
Assumed annual contribution.
These and other administration questions will take considerable time. But they cannot be ignored. It is not only a matter of saving fund dollars when possible; both employers and unions are interested in having participants pleased with the plan. Inefficient administration can result in serious dissatisfaction.
Designing the Health and Welfare Plan
As already indicated, contributions usually are accumulated for some time before any benefits are paid out. During this time the trustees will be deciding who will receive benefits and what the benefits will be. The "who" will be determined on the basis of eligibility rules, the "what benefits" by a schedule of benefits communicated to participants.
Eligibility is generally based on minimum hours worked for a given period such as 250 hours in the quarter preceding the quarter in which a claim arises. Sometimes the initial requirements are stricter than for continued eligibility. Also, an hours bank may be used which covers a considerably longer period than the basic requirement; thus a participant might be eligible if he worked 1000 hours in the four quarters preceding the quarter in which a claim arises. The more lenient the eligibility rules, the lower the level of benefits, and vice versa.
In deciding what the benefits will be, the trustees will have to determine how the fund money will best serve the participants. Because the contributions to the fund are fixed, a determination that one benefit should be paid at a relatively high level will mean that others will have to be proportionately lower.
Using actuarial techniques, the schedule of benefits is determined, based on the eligibility rules, ages of participants, and assumptions in such areas as:
Fund income.
Mortality
Rate of claims
Amount of claims
Rate of accumulation of reserves
Rate of return on invested reserves
Fund expenses