Coca-Cola Files to Fund Retiree Health Through Special Trust

In its official filing seeking regulatory approval, Coca-Cola Co. detailed a plan to fund retiree health care benefits through a special trust and its South Carolina-domiciled captive insurance company.

Under the proposal, which Coca-Cola filed last week with the Labor Department, the company would use $187 million in assets now held in a voluntary employee beneficiary association to purchase medical stop-loss policies from Prudential Insurance Co. of America to pay claims over the expected lifetimes of about 4,000 retirees and dependents. Coca-Cola established the VEBA in 2006.

The medical stop-loss policies would pay claims that fall between an attachment point and an upper limit. For retirees younger than 65, the attachment point would be $100 and the upper limit would be $5,800, with an attachment point of $100 and an upper limit of $3,500 for retirees 65 and older.

Prudential, in turn, would use the premium it receives from Coca-Cola to reinsure the risk with Red Re Inc., Coca-Cola’s 3-year-old South Carolina captive insurer.

Atlanta-based Coca-Cola, the world’s largest beverage company, now uses Red Re for a wide range of risks, including benefit coverages of employees outside the United States. Red Re’s 2007 gross written premium volume was $11.8 million.

Linking a VEBA to a captive to fund retiree health care benefits has several advantages, outside observers earlier said.

Under federal law, assets contributed to a VEBA must be used to pay benefits or purchase insurance policies that provide benefits. Employers cannot remove VEBA assets for other purposes, even when a benefit program is being wound down.

By contrast, using a captive to fund benefits gives a company greater financial flexibility. For example, investment gains on contributions made to the captive can be paid out as dividends to the parent.

Coca-Cola’s risk management and employee benefit executives briefly outlined the arrangement at the World Captive Forum in November and are asking the Labor Department for quick review of its application. The department has 45 days to act on the application.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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