State of California M E M O R A N D U M REFERENCE CODE: 99-063 DATE: December 1, 1999 TO: Personnel Officers Personnel Transactions Supervisors Personnel Transactions Staff FROM: Department of Personnel Administration Benefits Division SUBJECT: Basic Group Term Life, Supplemental Life Insurance Rate Changes and Long-Term Disability Plan Annual Age Updates CONTACT: Desi Rodrigues, Program Management Technician (916) 324-0533, CALNET 454-0533 FAX: (916) 322-3769 OFFICE VISION: DPA(DesiRodrigues) INTERNET: DESIRODRIGUES@DPA.CA.GOV This memorandum is to advise you of premium changes that will be implemented effective January 1, 2000 in the Basic Group Term Life Insurance, Supplemental Life Insurance and Long-Term Disability (LTD) Programs for excluded employees. These changes will impact the premiums for certain employees enrolled in these programs. Basic Group Term Life Insurance The Basic Group Term Life Insurance policy for excluded employees states that once an active employee reaches age 70, his/her employer-paid life insurance benefit and premium will be reduced by 50 percent on January 1 of the following year. Therefore, effective January 1, 2000 (i.e., December 1999 pay period), the employer-paid premium will be reduced by 50 percent for those employees who experienced an age change (from age 69 to 70) during the 1999 calendar year. In addition, the basic life insurance benefit will be reduced from $50,000 to $25,000 for applicable managerial employees and from $25,000 to $12,500 for applicable confidential and supervisory employees. Supplemental Life Insurance Effective January 1, 2000, the rates used to calculate the Supplemental Life Insurance premiums will be changed for covered employees who are less than 50 years of age. These changes are necessary in order to make the supplemental rates compatible with a regulation change that was implemented by the Internal Revenue Service (IRS) on July 1, 1999. Specifically, the IRS changed the uniform premium rates (known as Table I rates) under Section 79(a) of the Internal Revenue Code. Table I rates are used to calculate the cost, for tax purposes, of employee group term life insurance coverage. When the life insurance rates of one age group of employees are less than the Table I rates, while the insurance rates of another group of employees are equal to or greater than the Table I rates, "straddling" occurs and can result in potential negative tax implications. A review of the State's current supplemental insurance rates in comparison with the IRS' revised Table I rates indicated that there is "straddling" occurring. The rates for the Under 30 and 30-39 age groups are lower than the Table I rates, while the supplemental rates for the remaining age groups are higher than the Table I rates. Therefore, it is necessary to realign the supplemental insurance rates to prevent a future tax liability for employees in the impacted age groups. The following is a summary of the supplemental insurance rate changes that will be implemented: There will be a slight premium increase for employees in the age category of 25-29. The new rate per $10,000 of coverage will be 85 cents rather than 83 cents. There will be a premium increase for the age group of 30- 34. The new rate per $10,000 of coverage will be $1.05 rather than $.98. There will be a premium increase for the 35-39 age group. The new rate per $10,000 of coverage will be $1.15 rather than $.98. There will be a premium reduction for the age group of 40-44. The new rate per $10,000 of coverage will be $1.48 rather than $1.84. There will be a premium reduction for the age group of 45-49. The new rate per $10,000 of coverage will be $3.24 rather than $3.69. There will be no change in the premiums for covered employees in the various age groups of 50 and over (i.e., 50-54, 55-59, 60-64, etc.). In addition to the premium changes noted above, the annual age update will be initiated by Metropolitan Life Insurance Company (MetLife) for employees enrolled in the Supplemental Life Insurance plan. Because the supplemental insurance monthly premium is based on the employee's age, an annual audit is conducted by MetLife to determine whether a premium change is necessary due to the employee's age change. MetLife will notify each employee and the State Controller's Office (SCO) of premium changes that will become effective January 1, 2000 (i.e., December 1999 pay period). If your employees have questions regarding the changes to be implemented in the Supplemental Life Insurance Program, they can call a MetLife representative at 1-800-252-8524. Long-Term Disability (LTD) The formula for calculating the premium for the LTD program is based on several factors, including the employee's base salary, age and retirement category (i.e., Miscellaneous or Safety). Any changes in these factors can impact the amount of premiums paid for LTD coverage. Therefore, on January 1 of each year, an annual age/salary update is conducted for all employees enrolled in the LTD plan. The State controller's Office will audit the payroll history files of enrollees to identify any employees who have experienced salary/age changes during the current year (1999) that would impact their premiums. Those employees who have moved to the next higher age factor (i.e., from age 39 to 40, 49 to 50, etc.) will have their premiums increased effective January 1, 2000 (on the December 1999 pay period warrant). If you have any questions regarding this memo, please contact Desi Rodrigues at (916) 324-0533 or Calnet 454- 0533. Kathie Vaughn, Chief Benefits Division