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A new Executive Benefit that can help protect future retirement income.
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Executive Long Term CareExecutive Long Term Care
and and
Corporate Financial IncentivesCorporate Financial Incentives
Preserving and Protecting Executives’
Retirement Assets
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Keeping up with the “New Executive”
Attracting, rewarding and retaining key executives is critical
to the success of any company
Supplemental benefits are KEY management tools
Owners, Executives, and Key Employees need retirement
assets protection
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Who’s offering what?
A 2001 survey of Fortune 1000 companies showed which
Supplemental Benefits were offered to key executives:
* Benefit Program % of Companies Offering Benefit
Non-Qualified Deferred Compensation 86%
Supplemental Executive Retirement Plan 75%
Supplemental Death Benefits 47%
Excess Disability Benefits 31%
Long Term Care 17%
*Clark Bardes Consulting, Compensation Resource Group, 2001 Executive Benefit Survey
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Preserving and Protecting Retirement Assets
Today’s Americans are living longer and healthier lives thanks to better diets,
better medical care and safer living and working environments.
Advances in medical science, increasing life expectancies, and numerous
societal changes are causing more and more attention to be given to the —
NEED AND COST OF LONG TERM CARENEED AND COST OF LONG TERM CARE
“A study by the U.S. Department of Health and Human Services indicates that
people of age 65 face at least a 40% lifetime risk of entering a nursing home. About
10% will stay there 5 years or longer.”
-HIAA LTC Guide 1996/1997
“A study by the U.S. Department of Health and Human Services indicates that
people of age 65 face at least a 40% lifetime risk of entering a nursing home. About
10% will stay there 5 years or longer.”
-HIAA LTC Guide 1996/1997
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
As for older workers, the “graying” of the U.S. workforce is
causing many companies – especially large employers – to
change the way they do business.
One third (33%) of all employers – and 51% of those with 25,000 or
more employees – believe that the aging population will have a big
impact on their company.
Currently, 19% of all employers offer products and services
geared specifically to an aging workforce, such as long-
term care referral services, caregiver guides and eldercare
support groups
Aging Work ForceAging Work Force
Source: The MetLife Study of Employee Benefits Trends, November 2004
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Consequently, these employers predict that the demand for
certain employee benefits products will rise.
More than one-third (35%) of all employers (and 51% of companies
with 25,000 or more employees) expect worker participation in long-
term care insurance programs to increase over the next 18 months.
One in four (25%) foresees an up-tick in both disability and life
insurance enrollment.
Aging Work ForceAging Work Force
Source: The MetLife Study of Employee Benefits Trends, November 2004
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
What does Long Term Care mean?
Long Term Care (LTC) is the assistance you need when a serious illness or disability renders you unable – physically or cognitively – to perform one or more of the activities of daily living (ADLs) for a lengthy period of time.
LTC can range from help with day-to-day activities in the home - such as bathing, dressing, preparing meals - to more sophisticated services like skilled nursing care.
Long Term Care can be given in a variety of settings:Nursing Home (NH)Assisted Living Facility (ALF)Adult Day-Care (ADC)Community Care CentersYour Own Home (HHC) or elsewhere
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
What does Long Term Care mean?
Long Term Care (LTC) is the assistance you need when a serious illness
or disability renders you unable – physically or cognitively – to perform one or
more of the activities of daily living (ADLs) for a lengthy period of time.
LTC can range from help with day-to-day activities in the home - such as
bathing, dressing, preparing meals - to more sophisticated services like skilled
nursing care.
Long Term Care can be given in a variety of settings:Nursing Home (NH)
Assisted Living Facility (ALF)
Adult Day-Care (ADC)
Community Care Centers
Your Own Home (HHC) or elsewhere
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Today’s Americans are living longer and healthier lives thanks to better diets,
better medical care and safer living and working environments. Advances in
medical science, increasing life expectancies, and numerous societal changes
are causing more and more attention to be given to the —
NEED AND COST OF LONG TERM CARENEED AND COST OF LONG TERM CARE
“A study by the U.S. Department of Health and Human Services indicates that
people of age 65 face at least a 40% lifetime risk of entering a nursing home.
About 10% will stay there 5 years or longer.”
-HIAA LTC Guide 1996/1997
“A study by the U.S. Department of Health and Human Services indicates that
people of age 65 face at least a 40% lifetime risk of entering a nursing home.
About 10% will stay there 5 years or longer.”
-HIAA LTC Guide 1996/1997
Preserving and Protecting Retirement Assets
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Executive Retirement Assets
It does not take a long time for an executive’s retirement fund to
disappear.
Nursing homes can cost as much as $100,000 a year for a private room in a
quality institution, and Home Health Care can also be significant.
In some cases, especially when live-in care is desired, Home Health Care
can exceed the cost of a Nursing Home.
Changes in Federal policy continue to shift the burden of long term care cost from
the Government to the individual, at the same time life expectancy for a healthy
retiree has extended well into the 80’s & 90’s, thus increasing the probability of a
Long Term Care need.
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Effect of Long Term Care Cost on Retirement Assets
Assumptions: Number of years of care: 5 Care begins in 20 years Current Cost of care $190 per day Health Care Inflation Rate: 5.5% Current Retirement Asset balance of $1,500,000 Investment Opportunity Rate: 6.5% (after tax) Asset liquidation costs: 15% (income tax, capital
gain tax, market timing) Couple age 55, Spouse lives additional 6 years
LTC Insurance Plan Design: $220 per day Comprehensive Indemnity benefit 90 day deductible with a 5 year benefit period 5% Compound COLA $4,821 annual premium Includes coverage for spouse and waiver of
premium
Over half of all women
and about a third of all
men who live to age 65
will spend some time in a
nursing home 4.
The probability of either
the executive or spouse
needing some form of
care can be as high as
65% after age 65.4 “Long-Term Care Insurance: A special
Guide” Kiplinger’s Retirement Report, June 1999
Over half of all women
and about a third of all
men who live to age 65
will spend some time in a
nursing home 4.
The probability of either
the executive or spouse
needing some form of
care can be as high as
65% after age 65.4 “Long-Term Care Insurance: A special
Guide” Kiplinger’s Retirement Report, June 1999
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Effect of Long Term Care Cost on Retirement Assets
Year AgeNo insurance & no
LTC eventNo insurance with
LTC eventWith insurance & no
LTC eventWith insurance &
with LTC eventLTC Ins. Cost LTC Benefits LTC Expense
19 73 $4,962,880 $4,962,880 $4,807,418 $4,807,418 $154,632 $193,252 $181,799
20 74 $5,285,468 $5,050,563 $5,115,523 $5,131,740 $202,914 $191,798
21 75 $5,629,023 $5,131,026 $5,443,655 $5,476,712 $213,060 $202,346
22 76 $5,994,909 $5,203,089 $5,793,116 $5,843,601 $223,713 $213,476
23 77 $6,384,579 $5,265,455 $6,165,291 $6,233,746 $234,898 $225,21724 78 $6,799,576 $5,316,705 $6,561,658 $6,648,567 $246,643 $237,604
25 79 $7,241,549 $5,662,291 $6,983,788 $7,080,724
26 80 $7,712,249 $6,030,340 $7,433,358 $7,540,971
27 81 $8,213,546 $6,422,312 $7,912,149 $8,031,134
28 82 $8,747,426 $6,839,762 $8,422,061 $8,553,158
29 83 $9,316,009 $7,284,347 $8,965,118 $9,109,113
30 84 $9,921,549 $7,757,829 $9,543,474 $9,701,206
$9,921,549 $7,757,829 $9,543,474 $9,701,206 $154,632 $1,121,228 $1,070,440
$0 -$2,163,720 -$378,076 -$220,343
0% -21.81% -3.81% -2.22%
LTC Event Begins
LTC Event Ends
Estate Valuations LTC Valuations
Totals
% of Estate
Difference
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
The effect of long term care costs on retirement assets without an LTC
insurance plan can be significant, even for relatively short-term situations.
Planning involves making decisions based on known facts and unknown
assumptions regarding future events and circumstances.
Factors compounding the effect include:
Lost Investment Opportunity
Asset Liquidation Costs (i.e. taxes and market timing)
Rapidly escalating care cost and demand that could outpace investment returns
Effect of Long Term Care Cost on Retirement Assets
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Keeping up with the “New Executive”
More than ever, executives are viewing corporate sponsored LTC
plans as a viable and economically beneficial way to pre-fund this
type of need, and at the same time protect retirement assets and
income from shrinkage.
Many options are available to pre-fund this potential expense through pre-
tax corporate paid or deferral program dollars.
Limited-Pay plans and attractive Benefit Indexing riders are available to
assure growth of benefits well into the future.
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
HIPAA 1996 & Tax-Qualified LTC Insurance
The Federal Government has provided many tax incentives for the
establishment of these plans.
The one that has had the most impact on these trends is the Health Insurance
Portability and Accounting Act of 1996. This has made providing benefits for long-
term care through insurance much more attractive, especially for business
organizations providing Executive Benefits.
Now is the time for all of us to consider insuring this major risk. Recent incentives for
the private sector to foster long-term care coupled with the evolution of quality
products, Corporate Long Term Care Benefit Plans are fast becoming a desirable
option in today’s workplace.
“Choice has always been a luxury for those who could pay for it.”“Choice has always been a luxury for those who could pay for it.”
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Move Pre-Tax Corporate Dollars out of company by purchasing
Qualified LTC policies and deducting those dollars as a Usual
Business Expense
Provide A “Golden Parachute” as a reward for Key Employees or
Executives with Lifetime Protection against the devastating cost of
Long Term Care.
Keep Key Employees from leaving the company with “Golden
Handcuffs”
Pass premium dollars to the Beneficiaries, designated by the company
or your Key Executives!
Keeping up with the “New Executive”
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Long Term Care is considered Health Insurance (IRC 7702 B(a)(2))
Company establishes criteria for plan participants
Purchases LTC Insurance on Key Employees/Executives
Premium Is Deductible To Company (IRC 162)
Premiums Paid for LTC is not Taxable to Executive (IRC 106(a))
Benefits are Tax Free (up to $250/day in 2006) (IRC 7702B d (4))
Executive’s estate is protected from high cost of Long Term Care
Estate or Corporation gets a “Refund of Premium” upon the death of insured(s)
(IRC 7702 B (b)(2)(c))
Keeping up with the “New Executive”
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Questions & Answers: Tax-Qualified LTC
Can I select who will or will not get this benefit?
Yes, the IRS has determined that Long Term Care as defined by HIPAA
1996 is to be treated as health insurance and does not have to follow
ERISA guidelines. This means there is flexibility when creating these plans
and deciding who will participate.
Can Plan design be flexible?
Yes, the plans can be structured to meet the desired outcome of the
corporation and employees. Some examples of available riders are:
Paid up Options (Single, Five, Ten and To Age 65 payment options are available)
Return Of Premium option (Returns 100% of Premiums at insured’s death)
Indemnity (Changes Benefits from a reimbursement to indemnity mode)
Daily Limits (Daily limits range from $40 to $500 per diem)
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Are premiums Taxable to the employee?
Premiums for Qualified LTC policies paid by an employer on behalf of an
employee will not be treated as income to that employee. Employers can
provide any benefit amount for employees as long as premiums are
“reasonable compensation” under Section 162 of the Internal Revenue
Code, even though the plan is discriminatory.
The premium may be higher than premiums associated with personally
purchased plans
Questions & Answers: Tax-Qualified LTC
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Qualified LTC policies have tax advantaged status that allows for
deduction of premiums to varying degrees. C-Corporations allow
maximum deduction, while the individual has the least
deductibility.
Following is a brief explanation of deductible amounts.
C Corporation – Can deduct 100% of premiums for employees
Sub S, LLC and Partnership –
> 2% Shareholders: deductibility subject to “eligible premiums” guidelines
Employees: premiums fully deductible
Sole Proprietors – Deductibility subject to “eligible premiums” guidelines
Individuals/Couples – Can deduct up to 100% of “eligible premium” to the extent it
exceeds 7.5% of AGI (Un-reimbursed Medical Expense Deduction)
Questions & Answers: Tax-Qualified LTC
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Are premiums paid for an LTC policy taxable to the employee?
No. The amount of premium paid for Qualified LTC policies is not taxable to
the employee.
Any LTC policy payments paid by reason of death of insured under IRC
Sec 101(g) and exceed the per diem limit is taxable.
Questions & Answers: Tax-Qualified LTC
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
What do you mean by a “Golden Parachute”?
The executive receives a “Paid Up” LTC policy that is generally designed to
cover the cost of care in a top quality facility. The benefits can be structured
to pay regardless of actual expenses incurred for the life of the insured.
Benefits can be inflated by a cost of living factor and can be received for
care in a wide variety of settings.
Are benefits received under an LTC policy taxable to the employee?
No, but there are limitations. The amount of reimbursement not taxable is
the greater of the actual cost or $250/day in 2006. (IRC Sec. 7702B (d)(2))
The per diem rate is adjusted annually for inflation.
Any LTC policy payments paid by reason of death of insured under IRC
Sec 101(g) and exceed the per diem limit is taxable.
Questions & Answers: Tax-Qualified LTC
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
What do you mean by “Golden Handcuffs”?
Once paid up, the policy would cover the Long Term Care needs whether
the employee was still with your company, retired, or went with a new
company.
Policies can be structured to control the “return of premium” or
“nonforfiture” rider. Through policy ownership and beneficiary designations,
your company could negotiate the value of the return of premium rider as
part of any termination settlement.
If an executive has met the criteria set forth by the organization, a “Return of
Premium” is paid to the executive’s beneficiary. If the employee chose to
leave prematurely, he/she would potentially forfeit this significant asset.
Questions & Answers: Tax-Qualified LTC
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Return Of Premium
What is the “Return of Premium” Rider?
The “Return of Premium” rider is exactly that, a rider. As such is not part
actual Long Term Care policy. Upon the death of the insured, it returns the
value of the premiums paid to the designated beneficiary.
Because the law will not allow cash value to accumulate, the maximum
amount that can pass through to the beneficiary is the amount paid for the
premium.
It should be noted if the LTC policy covers both the employee and his/her
spouse, both the employee and spouse must die before the “Return of
Premium” can be given to the beneficiary.
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Advantages for Key Executives
Corporate paid LTC premiums are not included or taxed as
income
LTC Benefits are received tax-free
Policy is portable
Using “paid up options” (where approved) could pre-pay
premiums for post retirement protection
Cutting Edge Benefit
Promotes productivity
Reduces stress
This information is subject to interpretation of the Health Insurance Portability and Accountability Act of 1996. Consult your tax advisor, accountant or financial advisor on tax issues.
Advantages for your firm
Corporate premiums deductible and plan is discriminatory –
Deduction also applies to the cost of coverage for spouse and dependents
of employee
Opportunity to provide cutting-edge benefits that can be:
employer-paid for owners, executives and key employees
employee-paid for the rank and file
Key tool to attract, retain, reward
Easy to adopt