State of California

  M E M O R A N D U M

  REFERENCE CODE:
  2004-017

  DATE:
  May 24, 2004

  TO:
  Employee Benefit Officers
  Personnel Officers
  Personnel Transactions Supervisors
  Personnel Transactions Staff

  FROM:
  Department of Personnel Administration
  Benefits Division

  SUBJECT:
  Long-Term Disability Plan for Non-represented employee - 
  Demutualization Funds Premium Holiday Information

  CONTACT:
  Desi Rodrigues, Benefits Analyst
  (916) 324-9400, CALNET 454-9400
  FAX: (916) 322-3769
  Email: DesiRodrigues@dpa.ca.gov


  
  This memorandum is to provide you important information 
  regarding the "Demutualization Funds Premium Holiday" that 
  will be implemented effective July 1, 2004 (June pay 
  period) for eligible employees currently enrolled in the 
  Long-Term Disability (LTD) Plan.
  
  What are Demutualization Funds? 
  
  In recent years, a growing number of large insurance 
  companies have converted from mutual insurance companies 
  (owned by policyholders) to publicly held and traded stock 
  companies through a process known as demutualization.  In 
  1999, Metropolitan Life Insurance Company's (MetLife) Board 
  of Directors adopted a demutualization plan.  The 
  demutualization plan was approved in 2000, and subsequently 
  approved by the New York State Superintendent of Insurance. 
  
  As a result of the approved demutualization, eligible group 
  insurance policyholders became eligible to receive 
  compensation in exchange for their extinguished mutual 
  "ownership" interest in MetLife.  
   
  
  When an insurer demutualizes, its policyholders, including 
  employers and employees, receive a pro rata distribution of 
  the new insurance company's stock and/or cash.  
  
  As a result of this action, certain employees are entitled 
  to a distribution.  The actual entitlement is determined by 
  MetLife based upon the premiums paid by the employees 
  participating in the LTD Plan under DPA's group "umbrella" 
  policy with MetLife.
  
  On April 17, 2000, DPA received cash from MetLife for 
  premiums paid by DPA and enrolled employees.  The 
  demutualization proceeds have been held in a special 
  demutualization fund account by the State Treasurer's 
  Office until the funds could be distributed accordingly.  
  After researching several options available under IRS 
  rules, DPA elected to refund premiums through the Premium 
  Holiday process.
  
  What is a Premium Holiday? 
  
  A Premium Holiday is a period of time that the employee 
  does not have to make a payment for a covered benefit.  In 
  this case, a Premium Holiday will be given to all employees 
  currently enrolled in the LTD plan, until the funds 
  provided by the demutualization are exhausted.  It is 
  estimated that premiums will not be deducted for the months 
  of July (June pay period), August (July pay period), and 
  September (August pay period).  
  
  DPA has been working closely with the State Controller's 
  Office and other State agencies to initiate this Premium 
  Holiday.  The employee-paid premium deduction will resume 
  effective October 1, 2004 (September pay period).
  
  What happens to newly eligible employees? 
  
  Employees who become newly eligible to enroll in the LTD 
  Plan will not be eligible for the Premium Holiday.  
  Enrollment forms received by SCO or MetLife from June 12, 
  2004 through September 10, 2004 will be effective October 
  1, 2004 (September pay period).
  
  Will DPA communicate information about the Premium Holiday 
  to eligible employees? 
  
  Yes.  DPA and MetLife will be sending notices to the home 
  addresses of eligible/enrolled employees on May 28, 2004.  
  We also encourage departments to communicate this 
  information to eligible/enrolled employees.
   
  
  If you have any questions regarding this information, 
  please contact Desi Rodrigues, Benefits Program Analyst, at 
  (916) 324-9400, or CALNET 454-9400.
  
  Sincerely,
  
  
  
  Debbie Endsley, Chief 
  Benefits Division