Thursday, March 28, 2024

Opportunity On Deck

Three million dollars in grants have been awarded by the NAILBA Foundation since its inception. This past year there were several wonderful charities that were the recipients of grants due to the generosity of others and one of those organizations, Opportunity on Deck, is making a huge impact yet relies solely on grants provided to children’s charities.

While other teens were playing video games, Dylan DeClerck conceptualized the need for Opportunity on Deck and founded the organization when he was 16. Now in his twenties, Dylan is passing it forward, building up Central Iowa communities by getting kids off the couches and on to fields and courts with a variety of sports-based youth programs including athletic leagues, camps, college visits and leadership development programs.

“We don’t want to confuse anyone. Opportunity on Deck presents itself as a free sports league where all participants from kindergarten to eighth grade enjoy free programming, free sports equipment and where families are fed at every practice and game. However, it’s much more than that—we’re building up communities, teaching life-long values, embracing diversity, and preparing youth for their educational and employment future. The mentors and coaches who they get to hear from share their success stories and they inspire the kids in our programs to set goals and to reach higher,” stated DeClerck. “Iowa schools and parents are reporting on the difference our programs make and we are so proud of our kids.”

Opportunity on Deck also relies on financial and insurance companies to get involved with their own matching donations programs and by hosting the volunteers for two nights during any given clinic. Many also host equipment drives through RePlay—DeClerck’s other charitable venture that outfits kids with needed shoes, equipment and attire. All programming is always at no charge to every participant.

“Without the NAILBA grant we would not be in a position to provide our spring soccer programming, positive role models, life-long value instruction and community development to almost 500 youths in five different low-income communities. Look for our kids to make a difference themselves someday (and perhaps work for your financial company) and as for the volunteers, they get back as much as they give,” stated DeClerck.

To learn more about Opportunity on Deck or make a donation, visit www.opportunityondeck.org. Phone: 515-422-4123. Email: communication@opportunityon deck.org.

Postmortem Blues

“Everybody wanna know the reason…without even askin’ why.”
—Albert King, Everybody Wants To Go To Heaven, Lovejoy, (1971)

It should be more than a hindsight rationalization. It must be more than a justification of expense. Sometimes it just seems like a child has wandered into the room and picked up a telescope and peered into a new reality from the wrong end. Consider this column a formal complaint. What we cannot escape is a market where the number of new participants each year has remained relatively constant. Frankly, for more than a dozen years it has not been merely static—it is calcified and stagnant. We continue to fumble with after-the-purchase analysis. In the last six years we have gone from 90 percent individual health insurance to 90 percent individual life insurance driving the sales bus. If we are ever going to get this sale off of dead center we must do a better job of asking the right questions about what has happened and what needs to be reformed.

Obviously our industry has engaged in trying to determine why someone might actually buy. The companies do engage focus groups to try to analyze potential buying behavior. Traditionally asking some version of, “What type of product or benefit would convince you to buy?” A cursory attempt is also made to determine what primary factors might influence a prospective buying decision. And the most obvious predisposition/glass ceiling: Cost is universally “sized” up. Price does matter and understanding the relationship between a known risk, a proposed value proposition and a commitment to buy lies at the heart of any possibility of ever getting sales to provide more protection to more prospective consumers.

What we do most times, however, is conduct a sales post mortem after the fact. This is always seriously contaminated by cognitive dissonance. Frankly, asking someone why they bought, or for that matter did not buy, is frequently an exercise in a self- fulfilling prophecy. For example, consumer research begins with the obvious why: “Did you make a wise financial decision?” Who among us would not come to attention and proudly proclaim their personal brilliance in that regard? Unfortunately, formal analysis then usually begins to justify its own predispositions. We had created a product to respond to perceived market need and it was purchased. Certainly it must have been because of the beauty and wisdom of its structure and intent. Let’s just consider our historical review of the obvious. “What was the number one reason (by survey) that someone bought?”

Beginning over 15 years ago the number one reason gleaned from consumer survey analysis was financial wisdom taking specific and definitive action to protect assets and legacies. Slowly but surely the truth just under the surface has begun the bleed-through. The sale most frequently comes from a personal and experiential confrontation with the real burden of caregiving. Forgive me for suggesting it could never have been revealed from any source other than those who actually make the sales. It is specifically the fear and recognition that the unpleasantness that they have witnessed in their own extended family could happen to them.

Could we possibly be asking the wrong folks about what happened or, more importantly, what needs to happen? We know that the largest billboard on the busiest highway will not sell long term care risk abrogation. This remains the toughest consumer sale to make and it continues to require personal effort and expertise. We have seen a very dramatic shift in the location of this sale. What we have not seen is any analysis of how, by whom, and under what circumstances these new sales are taking place. The so called LTCI specialist is on the endangered species list. Those financial advisors only very recently in opposition to traditional sales now seem to be leading the sales parade. Frankly troops, we need to know what the hell is really happening out there. How is the conversation now begun? How are potential product directions determined? Where is the most significant sales emphasis being placed? Is it a primary, contingent, incidental or supplemental sale? Not only is the product landscape changing, the vendor response is in major upheaval. Nursing homes and assisted living facilities continue to have falling occupancy. Not only is the public boarding up their front doors to remain at home, it may end up being customized versions of ALEXA and SIRI that become primary caregivers in that home. Even suggesting that technology would be our greatest weapon in this struggle would not have been on any one’s radar in the recent past. Home care has the only real opportunity to hold down cost and coincidentally it is what everyone would prefer. How is this new reality embedded into the sales transaction? In other words, please do not tell me once again how to count my chickens after they have hatched—particularly when you can’t even tell me the location of the hatchery!

Other than that, I have no opinion on the subject.

Numbers Don’t Lie

The need for individual disability insurance (IDI) is real. IDI is not a luxury item purchase—like an expensive pair of handmade Italian dress shoes or the latest smartphone.
Buying disability insurance is not on most people’s to-do list, but neither are the possible tragic results of not having disability insurance. Some of the horror stories people experienced have been, but not limited to: Going bankrupt; having a home foreclosed due to not being able to pay the mortgage; getting evicted from an office for not being able to afford the lease; or watching a car get repossessed. When someone unexpectedly becomes too sick or too injured to work, and does not have disability insurance, unpleasant consequences can occur.

Let’s look at the numbers. Numbers don’t lie. So, let’s first look at one important number, someone’s income. Typically, this is usually the most important number a lender wants to know when a client applies for a mortgage, a lease, or a loan. If a client is disabled and doesn’t have an income, it would be very challenging to obtain a mortgage, lease or loan.

So, let’s say a client is working and successfully secures a loan, but later becomes sick or injured and can no longer meet the contractual obligations on that loan. Now what? To our knowledge, most loans do not have a provision that would waive the obligation if someone becomes disabled. The mortgage is still due, the car payments are still due, the rent or lease would still be due as well. When a client has disability insurance, the policy can help to provide funds for these obligations that still need to be paid.

We all likely agree that having an emergency plan in case one of our clients, or even ourselves, becomes totally disabled is very important. Yet, it’s perplexing to see so many financial planners or advisors that haven’t addressed the issue, or even worse, have taken a client’s word that there is sufficient protection. Next time a client says that they have a disability plan, go down that path with them. Ask them how much coverage they have in force or to describe the exclusions or the taxability of the benefit, in which case you most likely will see a blank stare as a client tries to come up with an answer or even an understanding of what you are asking. Which adviser are you? One that asks questions and has your client give you the DI policy to review, or one that checks a box and hopes your client really understands the importance of the issues? Could you imagine having a doctor ask you for the diagnosis of a medical condition? Even worse, could you imagine a cancer surgeon who refuses to discuss performing life-saving operations on patients because the surgery is “strenuous” or perhaps not as “interesting” to the surgeon as perhaps another type of surgery. As advisors, it’s important to see the plan and discuss with your client the best way to protect himself in case a disability was to prevent him from working.

As you initiate a conversation about IDI with your client, you may ask questions to help your client see the need. You may ask, “What is the longest number of vacation days you’ve ever taken?” Most clients will say two weeks or possibly slightly longer. When you ask the reason they didn’t continue on vacation, the answer typically is that they had to get back to work.

The statistics are staggering and should give any advisor or client important reasons that disability insurance should be at the forefront of any plan. In addition, the plan and products should be reviewed in detail every few years. Too many clients and unfortunately too many advisors do not take these statistics to heart:

Just over one in four of today’s 20 year-olds will become disabled before they retire. (Disabilitycanhappen.org Council For Disability Awareness)

Approximately 90 percent of disabilities are caused by illnesses, not accidents. (Council for Disability Awareness 2013 Long-Term Disability Claims Review)

The Top five causes of disability claims that last longer than six months (Council for Disability Awareness 2015 Long Term Disability Claims Review):

  • Muscle/bone disorders (28.6 percent)
  • Cancer (15.1 percent)
  • Accidents (10.3 percent)
  • Cardiovascular (8.7 percent)
  • Mental Disorders (8.3 percent)

A 2014 study of consumer bankruptcy filings identified the following as primary reasons (Disabilitycanhappen.org Council For Disability Awareness):

  • Medical bills (26 percent)
  • Lost Job (20 percent)
  • Illness or injury on part of self or family member (15 percent)

The average Social Security Disability Income (SSDI) benefit as of January 2018 was $1,197 per month. (Disabilitycanhappen.org Council For Disability Awareness: Social Security Administration, Monthly Statistical Snapshot, February 2018)

That $1,197 above equates to $14,364 annually – barely above the poverty guideline of $12,140 for a one-person household, and below the guideline of $16,640 for a two-person household. (Disabilitycanhappen.org Council For Disability Awareness: ASPE, Poverty Guidelines 2018)

Only 48 percent of American adults indicate they have enough savings to cover three months of living expenses in the event they’re not earning income. (Disabilitycanhappen.org Council For Disability Awareness: Federal Reserve, Report on the Economic Well-Being of U.S. Households in 2016 (PDF), page 26.)

Numbers don’t lie. The more you talk about disability planning, the more clients will want to have a plan. Most plans involve disability insurance, but even if your client was unable to obtain the insurance due to various medical or financial reasons, at least the planning process took place and you have the opportunity to create alternative plans. How many clients have you discussed IDI with over the years? The training and opportunity is there, you just need to reach out to an IMO agency like ours or a few of the companies that specialize in offering training for disability insurance.

Changing Elections After The Beginning Of A Benefit Plan Year

Happy New Year! Benefit plans have started their new plan years and questions are already coming in about how and when participants may change their plan elections. So, it’s a perfect opportunity to review the change in election rules for the most popular benefits plans such as flexible spending accounts (FSAs) (cafeteria) plans, Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs), and parking and transit plans.

Cafeteria Plans
The IRS 1.125-4 Regulations outline a two-pronged approach to determining when a change may be made to an existing cafeteria plan election: (1) a change in status or a change in cost or coverage occurs, and (2) the election change satisfies the consistency rules. We’ll first look at the conditions necessary for a change and then discuss the consistency rule.

Although changes to current elections are not required in the plan document, most flexible benefit plan documents allow for election changes throughout the plan year. Please check your plan documents for specific rules surrounding allowable election changes.

Conditions for Change
Seven circumstances allow for changes to accident or health plans (including healthcare FSAs within a cafeteria plan), disability, group term life insurance plans, dependent care assistance, and adoption plans:

1) Special enrollment rights under HIPAA (Health Insurance Portability and Accountability Act). Allows for election changes on a prospective basis in the event of marriage (a HIPAA event). Election changes on a retroactive basis can be made for the HIPAA events of birth, adoption, or placement for adoption if the change is requested within 30 days of the event.

Also, the gain or loss of Medicaid or state children’s health insurance program (SCHIP) coverage in the cafeteria plan can be retroactive if elected within 60 days of the event.

2) Changes in status events.

  • Change in legal marital status, such as marriage, death of spouse, divorce, legal separation, and annulment.
  • Change in number of dependents which includes birth, death, adoption, and placement for adoption.
  • Change in employment status, for example any of the following events that change the employment status of the employee, the employee’s spouse, or the employee’s dependent: A termination or commencement of employment, a strike or lockout, commencement of or return from an unpaid leave of absence, or a change in worksite. In addition, if the employee, spouse, or dependent becomes (or ceases to be) eligible under the cafeteria plan or other benefit plan of the employer of the employee, spouse, or dependent, that event is considered a change in employment status. For example, if a plan only applies to salaried employees and an employee switches from salaried to hourly-paid with the consequence that the employee ceases to be eligible for the plan, then that change constitutes a change in employment status.
  • Dependent satisfies or ceases to satisfy eligibility requirements. This change can occur because of attainment of age, student status, or similar circumstance.
  • Change in residence whereby an employee, spouse, or dependent moves in or out of a healthcare insurance network coverage area.
  • For an adoption assistance program. The commencement or termination of an adoption proceeding.

3) Judgements, decrees, or orders. A conforming election change can be made that results from a divorce, legal separation, annulment, or change in legal custody (including a qualified medical child support order). Such a change would allow an increase to the election if the order was to provide coverage or it would allow the participant to cancel coverage if the order required another to provide coverage and if it was, in fact, provided by another.

4) Entitlement or loss of eligibility to Medicare or Medicaid. Allows participants to decrease or increase an election under an accident or health plan.

5) Significant cost or coverage changes: There are four events that apply to accident or health plans (not including healthcare FSAs), disability plans, group term life insurance plans, dependent care assistance plans, and adoption assistance plans.

Cost changes such as automatic increases or decreases in a qualified plan or significant cost changes. If the cost charged to an employee significantly increases, the employee may revoke an election and change to coverage under another benefit package option or drop coverage under the accident and health plan if no other benefit package option is offered. On the other hand, if the cost charged to an employee decreases significantly, an employee may commence participation in the cafeteria plan for the option with a decrease in cost.

This applies whether the increase or decrease results from an action taken by the employee (switching between full-time to part-time status) or from an employer increasing or reducing the amount of employer contributions for a class of employees.

Coverage changes such as a significant curtailment of coverage under a plan allow participants to revoke their election and, on a prospective basis, receive coverage under another benefit package option that provides similar coverage. A loss of coverage permits participants to revoke their election and elect coverage under another benefit package option or drop coverage under the accident and health plan if no other benefit package is offered. (A loss of coverage means a complete loss of coverage including the elimination of a benefits package option, a network ceasing to be available in the area, by reaching an overall lifetime or annual limitation, a substantial decrease in the availability of medical care providers, a reduction in benefits for a specific type of medical condition or treatment, or any other similar fundamental loss of coverage.)

A coverage change that adds to or improves an existing benefit package option allows eligible employees to revoke their election under the cafeteria plan and elect coverage under the new or improved benefit package. This includes employees who had made no previous election under the cafeteria plan.

A coverage change is made under another employer plan. This includes changes made during an open enrollment period or a valid change of status of spouse or dependent.

A loss of coverage for the employee, spouse, or dependent under any group health coverage sponsored by a governmental or educational institution, including a state’s children’s health insurance program (SCHIP), a medical care program of an Indian Tribal government, the Indian Health Service, a tribal organization, a state health benefits risk pool, or a foreign government group health plan.

These cost or coverage events would include situations in which an employee switches between full-time and part-time employment, an employer changes the percentage of premium that an employee must pay, or a new benefit option is added. The cost charged to an employee is the key factor in determining whether a cost change has occurred.

6) Family and Medical Leave Act (FMLA). Employees may revoke an existing election for group health plan coverage and make another election for the remaining portion of the period of coverage as provided under the FMLA.

7) 401(k) plans. Elections may be modified or revoked in accordance with 401(k) plan documents. Generally, most plan documents allow for changes on any pay period.

Consistency Rule for Accident or Health Coverage
The second part of the equation deals with whether the election change satisfies the consistency rule. The consistency rule applies to each employee, spouse, or dependent separately and basically requires that the election change be on account of and correspond with a change in status that affects eligibility for coverage under an employer’s plan. This includes an increase or decrease in the number of an employee’s family members or dependents who may benefit from coverage under the plan.

One exception to the consistency rule allows a plan to permit the employee to increase payments under the employer’s cafeteria plan if the employee, spouse, or dependent becomes eligible for COBRA under the group health plan of the employee’s employer.

Keep in mind that, under these rules, the change occurs when an employee, spouse, or dependent gains or loses coverage eligibility for accident or health coverage and group term life insurance. Therefore, a spouse that goes on an unpaid leave of absence, where no eligibility change takes place, would not constitute a reason for the participant to change their coverage elections.

When a participant gains coverage under another employer’s plan and revokes his or her election, a certification that coverage was actually obtained should be sought from the employee.

Regulations do allow a participant to revoke their election and receive, on a prospective basis, coverage under another benefit package option that provides similar coverage by another employer, such as a spouse’s or dependent’s employer.

Note, however, that the “Significant cost or coverage changes” section of the regulations do not apply to healthcare FSAs. Employees may only change their election to a healthcare FSA if any of the other five “Conditions for Change” occur and the resulting election change satisfies the consistency rule.

Additional changes allowed for Marketplace enrollment: A change is allowed for employees to prospectively revoke or change an election with respect to an employer’s accident or health plan if the employee wants to begin participation during open enrollment or a Special Enrollment Period, such as marriage or addition of dependent, to a Marketplace Qualified Health Plan (QHP). The new coverage in the QHP must be effective no later than the day immediately following the last day of the original coverage that is revoked.

HRAs, HSAs, Parking and Transportation Accounts, and 401(k) Plans
HRAs: Employees do not elect into HRA plans. Their eligibility for the HRA is based on the criteria outlined in the plan document. For example, the eligible group may be all those that selected a particular employer-sponsored group health plan. However, under certain conditions, participants in the HRA may suspend their participation in the HRA before the HRA coverage period begins and forgo payment or reimbursement by the HRA to perhaps participate in an HSA or to seek Premium Tax Credits for marketplace insurance coverage. Employees may also switch from single to family insurance coverage, or vise/versa. Employers may make changes to their HRA plans at any time during or at the beginning of the plan year.

HSAs and Parking and Transit Plans: It’s a lot less complicated for participants that have an HSA or are enrolled in parking and/or transit plans. Basically, an election in any of these types of accounts may be increased or decreased for any reason on a prospective basis.

401(k) Plans—inside and outside of a cafeteria plan: Election, generally, can be changed on a per payroll basis without any sort of status change. The selection of the types of investment options for HSAs or 401(k) plans can be changed at any time from the plans’ portals.

Lastly, there may be one more avenue for changing an election to a cafeteria plan—when a mistaken election occurs. This would require clear and convincing evidence that a change is needed. For example, if a participant signed up for the dependent care benefit, thinking it was for healthcare expenses of a dependent, although no child under the age of 13 resides in their home.

Of course, plan documents must be consulted to see when and how changes to elections may be made for any particular benefit plan.

The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Beyond Psoriasis

Back in 1963, the first commercials on television came out for a coal tar product named Tegrin. It was a coal tar preparation made to combat “the heartbreak of psoriasis.” The commercials have graduated to include stars (singer Cyndi Lauper among them) and biological treatments that go far beyond topical use. While psoriasis is generally a benign (if not inconveniencing and troubling) skin condition that has little mortality complications, both an extension of the disease into a systemic component and the use of medication that has significant potential side effects have to be evaluated and monitored aside from the skin component of the disease itself.

Psoriasis is a common inflammatory skin condition that is characterized by bright red plaques, generally looking like silver scales, and most often present on elbows, knees and scalp. Its major symptoms are itching and sometimes bleeding from the lesions if scratching is too intense. Psoriasis may take several forms, from the common plaque type to the eruptive type (called guttate psoriasis) to actual life threatening forms (generalized pustular psoriasis, fortunately rare). The diagnosis is generally a simple one made by a trained dermatologist.

Treatments of limited disease were with coal tar preparations, topical corticosteroids, or ointments which contain Vitamin D analogs. More moderate disease was often amenable to Ultraviolet light phototherapy. Generalized disease (more the “heartbreak” type) was treated with photochemotherapy and drugs originally used in the diagnosis of cancer or neoplastic disease (like methotrexate) which helped reduce skin turnover and the severity of scaling. The drugs however had significant side effects (long term methotrexate for instance was associated with the development of liver cirrhosis) and this mode of therapy is now rarely used.

At times psoriasis is accompanied by systemic symptoms. Psoriatic arthritis is a symmetric polyarthritis that mimics the more severe rheumatoid arthritis. Fewer joints are involved with psoriatic arthritis, but joint destruction can occur in both conditions. Psoriasis generally proceeds the arthritis in most cases, and the severity of the skin disease mirrors the severity of the arthritis. Joint pain is a common finding, and lab tests aren’t always specific for the disease. Severe cases may be accompanied by anemia and spinal involvement.

Newer medications have come out to treat psoriasis and belong to a class of drugs known as tumor necrosis factors (TNF). They include medication known more commonly by their trade names of Humira, Enbrel and Remicade. The medications have significant side effects and have to be monitored carefully. Newer medications such as Otezla and Stelara are often being used even for what are characterized as “resistant” cases of psoriasis even when there is no systemic involvement, and in effect they are cosmetic treatments.

Additionally, older patients who take the medications have a high prevalence of polypharmacy effects, with medications being used for different conditions interacting with the ones given for psoriasis. The medications are directly advertised via television and journal advertisements directly to the consumers, and many now ask their doctors for the drugs at the first sign of a persistent skin condition. While they have a good degree of effectiveness, the side effects of even the newer medications must be watched for closely.

Most cases of psoriasis are not ratable. When psoriatic arthritis and other systemic conditions coexist, the disease is underwritten for the underlying condition. Those under treatment with biologics must be followed regularly for potential side effects from their medication.

Intimate Relationships

It is impossible to imagine a more personal or intrinsic relationship than the historical and demographic reality of the Baby Boomer generation and the sale of insurance. Those born between 1946 and 1964 have dominated our sales thinking and defined our sales success. Stephen Moses vividly described the Boomer phenomena 20 years ago as a social and economic pig passing through a python. We have built our products and our careers on first the frequent cry of “the Boomers are coming!” to an almost complacent acceptance of their presence providing the natural and normal source of almost all sales conversations. Time marches on and we are beginning to experience a serious buying shift in insurance acquisition style and the utilization of available technology.

The question must now become what does that mean to those grappling with long term care/chronic illness risk abrogation? What can still be accomplished for those who wish to help apply the available financial planning finishing touches to those Boomers beginning to exit, stage right? What new and improved planning strategies can be utilized for those Gen Xers (born between 1965 and 1980) beginning to assume a firm position at center stage? How can we prepare for those Millennials (born between 1981 and 1997) beginning to enter the insurance acquisition market from stage left that are almost exclusively immersed in the evaluation and acquisition of insurance via non-personal technology?

The one immutable truth that we all agree upon that lies at the heart of successful sales is personal experience with caregiving. I have no interest in joining the argument of whether altruism or self interest makes more sales. I would be remiss however in not suggesting that buying decisions reviewed after the fact may reflect more classic cognitive dissonance about making wise financial decisions and less open admission about personal contact with the financial and emotional cost of caregiving.

We would all now acknowledge that the shortest distance between a conversation about the need for extended custodial care and completing an application is a direct and personal experience with the problem itself. In one of my first columns I declared that if you find the caregiving story you find the sale. Fifteen years ago I worked with the SOA and LIMRA to conduct a producer survey asking very experienced producers what they thought controlled sales success. Their number one choice was personal experience with caregiving. At that same time the AHIP Buyer—Non Buyer Survey was reporting that those who bought said their number one reason was to protect personal assets. You may have noticed over the course of that extremely valuable ongoing longitudinal study that the truth about caregiving has also begun the bleed through in the data. The point is that a buyer after the fact may say they did so because they, of course, make wise financial decisions, while the more accurate truth may be based on their involvement in the care of the Greatest/Silent generation (born between 1923 and 1945).

As has been frequently suggested in this column, the most universal and prevalent conundrum that faces all Americans is the certainty that most of us will require some level of remedial care assistance and that the great and vast majority are unprepared for that eventuality. What must concern us is where those caregiving responsibilities by generation will fall most heavily. The current situation finds the primary recipients of care among the Silent Generation with informal care being provided by Baby Boomers and formal care being provided by Gen X. The inevitable progression of time is however beginning to reveal a new and perhaps even more challenging future. Frankly, as that proverbial pig begins to exit the snake, we must be able to accommodate and hopefully more successfully address a dramatic shifting of roles. The primary care recipients will become those same Boomers we have tried so hard to protect for the last 20 years. (Me!) No one can argue that those who did acquire some form of insurance, even if flawed, imperfect or inadequate, are far better off than those we were unable to reach. The brave new world that is emerging shifts the Gen X to the role of informal caregiver (my children) and the millennials into the mushrooming formal care provider market (my grandchildren).

No one can deny that we are at a pivotal time in our market. If ever there was a time to reflect on what we have learned it is now—praying we do not repeat our past mistakes while attempting to accommodate and embrace a growing plethora of product choices. The fuel for future sales success is and always has been our understanding of caregiving and it’s direct impact on the progression of evolving caregiving roles and responsibilities. The burden of caregiving does not fall evenly or fairly across the generations. Empathy and compassion for that truth should continue to guide our future.
Other than that I have no opinion on the subject.

A New Year, A New Resolution: Talk To More Clients About Disability Insurance

Happy New Year! Welcome to 2020 and a clean slate of new resolutions. If you are not talking to your clients every week about disability insurance, this is a great time to make it part of your new year planning. To start, you’ll need to make a list of clients who are good candidates for various types of disability insurance. To make it easier for you, we’ve given you a few scenarios that should be on your radar. Remember, everyone who needs to work usually needs some type of disability insurance. So, our number one request for illustrations is for individual disability insurance clients who work full time. The following list was designed to help you recognize opportunities that are sometimes not recognized and should be part of your 2020 planning.

Client: Business owner
Product: Business Overhead Expense Disability Insurance (BOE)
Think small business, usually a professional, such as a dentist, attorney, engineer, physician, architect, CPA, or any small business in which the firm is supported by an individual owner or two. You most likely have these clients in your database. When someone owns a business, they usually will have fixed expenses that they’ve obligated themselves to pay, regardless of whether they have the ability to work or not. The rent or mortgage still needs to be paid, the support staff still need their incomes, business equipment leases still need to be paid, the utilities, business loans, and other monthly obligations still need to be paid. Every business owner should look into BOE insurance. Be resolved to talk to your business owner clients about BOE coverage.

Client: Firms with multiple partners and a business operating agreement
Product: Disability Buy Out
Think about the firms you insure in which you have put in a life insurance policy to help fund a buy/sell agreement. I’m sure you can think of many cases in which you’ve put in life insurance, but didn’t even discuss the disability insurance aspect. Most operating agreements or buy/sell agreements have some type of disability provision…and if not, then there should be a provision to address what will occur if a partner is disabled.

Client: Business owner or individual client
Product: Loan Protection
If you have been selling life insurance for more than a few years, you most likely have been asked for life insurance to cover a loan or mortgage. This is a great entre to discuss disability insurance. Since most clients are more likely to suffer a disability than pass away before the end of a loan period, a plan should be in place in case of a disability. For a business, without some type of disability loan protection, even if the business owner survives, the business may not survive without disability coverage. For the individual who has a mortgage, having disability insurance is a must as well. For many people, full recovery from a disability may never happen and a permanent disability may become reality. If so, how will the mortgage be paid? In addition, most people have many other expenses that still must be paid regardless of whether they work or not.

Client: Dual income, no kids yet
Product: Personal Disability Insurance
These tend to be your younger clients who may be first time home buyers or clients requesting rental insurance or car insurance. You may have talked to them about some life insurance and perhaps they took your advice and bought a policy. Most people don’t realize that the risk of becoming disabled before age 65 is greater than that of passing. If one member of the couple gets disabled, the couple will have two financial pressures: First, the couple will naturally feel stress due to a decrease or total loss of income. The couple was relying on this income to pay their expenses and maintain their lifestyle. Second, due to the disability, many individuals will experience a sudden increase in unanticipated expenses. These include home and car modifications to accommodate the disabled partner, and extra medical bills for expenses not covered by insurance. An individual disability plan on one or both spouses will sometimes resonate better than some other types of insurance that may have been suggested.

This is not an all-inclusive list, as there are Key-Person DI policies, Retirement Security DI products, Guaranteed Standard Issue products, and Surplus Lines products that can fill many different needs. It’s essential to keep disability insurance on the top of your list of products to present.

If it hasn’t happened yet, there will most likely come a day when a client becomes disabled and wants to know the type of disability coverage they have with you. What will be your answer? Work with your manager, MGA, mentor, or just sit down and create a plan to review your book of business for disability insurance opportunities. It could be the best holiday gift you give your clients and their loved ones.

May you and your family have a happy and healthy New Year and a great 2020!

Family And Medical Leave Act (FMLA) And Flexible Benefits Plans

This article examines the rules for participants going on an unpaid Family and Medical Leave Act (FMLA) leave. Internal Revenue Service (IRS) Regulation 1.125-3 summarizes employees’ rights to continue or revoke coverage and cease payment for healthcare flexible spending accounts (FSAs) when taking an unpaid FMLA leave and specifications for participants returning from leave. The leading principle outlined mandates employers offer coverage under the same conditions as would have been provided if the employee were continually working during the entire leave period.

Coverage Continuation
Employers may require an employee who chooses to continue coverage while on FMLA leave to be responsible for the share of premiums that would be allocable to the employee if the employee were working. FMLA requires the employer to continue to contribute their share of the cost of employees’ coverage.

Flexible benefits plans may offer one or more payment options to employees who continue coverage while on unpaid FMLA. These options are pre-pay, pay-as-you-go, and catch-up.

  • Pre-pay is paying for coverage in advance of the FMLA leave. This may be a difficult method of continuing coverage for a couple of reasons. The first consideration is if participants cannot afford to have extra funds taken from their paycheck and the second consideration is a timing issue. Most leaves involve an incident or circumstance that is not planned, making the pre-pay option impossible to deduct from participants’ paychecks. However, if planning in advance is feasible, the coverage can be paid on a pre-tax basis through the flexible benefits plan.
  • The Pay-as-you-go option means that participants pay their share of coverage payments on a schedule as if they were not on leave. This method would require the participant to write a check to the employer each month or pay period in order to continue coverage. Since no payroll is taking place, this payment is with after-tax dollars.
  • Catch-up contributions allow employees to continue coverage but suspend coverage payments during their leave. Contributions are made up upon their return. The advantage is that contributions can be taken out on a pre-tax basis through a flexible benefits plan. The downside for the employer is if the participant does not return from the leave, the employer may have reimbursed expenses in anticipation of the participant making up the coverage payments.

The flexible benefits plan may offer one or more of the payment options and may include the pre-pay option for employees on an FMLA leave even if this option is not offered to employees on a non-FMLA leave. However, the pre-pay option may not be the only option offered.

As long as employees continue healthcare FSA coverage, or employers continue it on their behalf, the full amount of the election for the healthcare FSA, less any prior reimbursements, must be available to the participant at all times, including the FMLA leave period.

Coverage Revocation
Prior to taking an unpaid leave, participants may revoke existing healthcare FSA coverage. Failure to make required payments during an FMLA leave may also result in lost coverage. Regardless of the reason for the loss of coverage under FMLA, plans must permit employees to be reinstated in the healthcare FSA upon their return.

Depending on the plan document language, returning employees may decide not to elect coverage into the healthcare FSA; or plans may require returning employees to be reinstated in healthcare coverage. If the employer requires reinstatement into the plan, they must also require those returning from an unpaid leave not covered by the FMLA to also resume participation upon return from leave.

The employer also has the right to recover payments for benefits when the employee revokes coverage.

If coverage under the healthcare FSA terminates while employees are on FMLA leave, employees are not entitled to receive reimbursement for claims incurred during leave. Even if employees wish to be reinstated upon return for the remainder of the plan year, employees may not retroactively elect healthcare FSA coverage for claims incurred during leave when coverage was terminated.

Employees have the right to reinstate coverage at the level before their FMLA leave and make up unpaid coverage payments, or they may resume coverage on a prorated basis at a level that is reduced for the period during FMLA leave for which no premiums were paid. This prorated level of coverage is further reduced by prior reimbursements and future coverage payments are due in the same monthly amounts payable before the leave.

Reinstate Coverage. Using the above facts, and upon the participant’s return from FMLA, the annual election will remain at $1,200. The election, or coverage amount, for the remainder of the year is as follows: Original annual election minus reimbursed to date ($1,200 minus $600) equals $600. The new per pay period contributions will increase to $80 per pay period. Remember, they are making up contributions from the three-month leave. The employee will contribute $1,200 [$400 contributed prior to the leave plus $800 ($80 times 10)]. The employer exposure is $1,200 ($600 disbursed prior to leave plus $600 available upon their return. Now let’s see what happens if employees choose to prorate coverage upon their return from FMLA leave.

Prorate Coverage. The calculation is different in this instance. A new annual election is determined. This is done by prorating the original annual election for the months participants were absent. Using the same facts as previously, the annual election amount minus six pay periods that were missed ($1,200 minus $300) equals $900. The new prorated annual election, reduced by prior reimbursements ($900 minus $600), equals $300. The per pay period contribution remains the same as before at $50 per pay period. In this instance the employee will contribute $900 ($400 plus $500) with an employer exposure of $900 ($600 plus $300).

In either scenario, employees are not covered for the time they are on FMLA if coverage is revoked. They may not turn in claims that were incurred during leave whether they choose reinstatement or prorated coverage upon their return.

Certain restrictions apply when an employee’s FMLA leave spans two flexible benefits plan years. A flexible benefits plan may not operate in a manner that enables employees on FMLA leave to defer compensation from one plan year to a subsequent flexible benefits plan year. In other words, employees may not pre-pay for coverage in one plan year that pays for coverage in the subsequent plan year.

If on paid FMLA leave, the employer may mandate that the employee’s share of premiums be paid by the method normally used while the employee was working.

And finally, employees on FMLA leave have all the rights to change their elections according to the change in status rules under IRS Regulation 1.125-4 when returning from an unpaid leave of absence. They may also enroll in benefits for new plan years or any benefits that may have been added by the employer while they were on leave. 

The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.

Bronchiectasis

Bronchiectasis is a disease that is characterized by chronic dilation and widening of the smaller bronchial tubes and bronchi and destruction of the bronchial walls. It can either be congenital (such as in cystic fibrosis, the cause of almost half the cases) or acquired via recurring inflammation or infection of the airways. It can be either a localized or diffuse disease and is more common in the lower dependent lobes. Bronchiectasis often coexists with chronic obstructive pulmonary disease.

Symptoms of bronchiectasis are dominated by a productive cough with large amounts of sputum production. About three quarters of those affected will have shortness of breath and wheezing. Chest pain upon taking a deep breath, weight loss, and anemia often accompany the condition. There aren’t a lot of physical signs on examination besides the wheezes and lung crackles. The large amount of generally foul smelling sputum produced is most characteristic. Lung function testing shows an obstructive pattern and lowered oxygen levels.

Chest x-rays are often diagnostic for bronchiectasis, but a high resolution CT scan shows the characteristic changes best. Bacteria are often cultured from the sputum, necessitating antibiotic therapy. As the disease progresses, the number of respiratory infections annually increase and progressive shortness of breath becomes very limiting for the affected individual.

Treatment of acute episodes of bronchiectasis are based on antibiotics from the results of cultures of the sputum that is produced. Hemophilus influenza is the most common organism, but virtually any pathogen can be an offender. Drainage may be necessary to allow better breathing, and surgery to remove a very affected area is still done in severe cases. Complications of the disease can be quite serious and include life threatening bleeding from the respiratory passages, heart and lung failure, collapsed lungs and the inability to breathe well enough to keep oxygen levels up in the body.

There are many underwriting considerations in bronchiectasis. When the disease occurs as part of a congenital syndrome, the accompanying problem often makes the case uninsurable. These include cystic fibrosis, Kartagener’s syndrome (when it is associated with heart abnormalities), alpha-1 antitrypsin deficiency, and many immunodeficiency states. In the absence of any of these (when the disease is acquired), the degree that the lungs are affected governs a rating. Mild disease will have a small rating, where the pulmonary function tests only show early or mild abnormalities. As the disease progresses, mortality increases, to the point where severe disease (when testing is quite abnormal and when there is shortness of breath on even minimal activity) makes ratings severe.

A few other points to mention: Continued smoking with bronchiectasis accelerates the process and is not looked on favorably. Even e-cigarette use or vaping has significant consequences. Bronchiectasis does worse when a systemic disease is combined in its outcome. When active diseases such as pulmonary tuberculosis, heart failure, immunodeficiency disease and the need for oxygen coexist, the prognosis becomes quite poor.

The Problem With Bonds Today

For the longest time it was conventional thinking that a “balanced” portfolio was a 50/50 portfolio. That is, in the securities world it was widely recommended that a “balanced portfolio” had 50 percent of the portfolio in stocks and 50 percent of the portfolio in bonds. This meant that many times when there were research pieces or sales pieces put together by money management firms that discussed “retirement portfolios,” it was the 50/50 portfolio that was used in the analysis. The use of the 50/50 portfolio was—at least partially—promulgated by the William Bengen four percent withdrawal rule study that took place in 1994 that most of us are familiar with. If you are not, email me and I will send it to you.

The 50/50 portfolio looked good for a good chunk of the last four decades because for those entire four decades bonds have not only been “safe,” but they have done quite well from a return standpoint. They have done well because prevailing interest rates have declined steadily and persistently over that 40 years. For instance, in September of 1981 the 10-Year Treasury Bond was yielding 15.84 percent and since then the yield has steadily declined to where it is today—at less than three percent. Because of the “inverse relationship” between bond values and interest rates, this period meant an almost 40-year bull market in bonds.

Furthermore, much of the historic research on retirement portfolios cite the lack of correlation (or negative correlation) that bonds have had to stocks over the last X years. When equities zigged, bonds zagged. Throughout a good chunk of history bonds not only contributed (past tense) a decent return to the overall portfolio but they also provided a hedge in recessionary times. It is no wonder that many consumers have grown accustomed to having bonds represent the “safe portion” of their retirement portfolios.

Then, some time over the last decade, the pundits started discussing 60/40 portfolios—as in 60 percent stocks and 40 percent bonds. Why the shift? Did the stock market get less risky over the last decade? Clearly I am being facetious here because although the last decade has been great in the stock market, we all know what happened the previous decade—it was chopped in half twice!

The reason for the shift to the 60/40 portfolio is because interest rates have gotten so low on bonds that a 50/50 portfolio looks very bad in the back-casting and the Monte Carlo models. So what did the pundits and money managers do in their sales literature and research pieces? They beefed up the stock side a little more to make up for the lousy yields consumers are receiving in the bond market today.

I understand that the conventional thinking of bonds representing the “safe part” of a portfolio is hard to buck, but if we know that bond yields are so lousy today that bonds seriously water down a portfolio, why aren’t the researchers looking at other options? Especially if we believe interest rates will increase eventually? Of course, I know the answer to that silly question as well. Because it is the money management firms that usually put out the research pieces! (Note: Folks like Roger Ibbotson have created great studies on bond alternatives.)

Let’s discuss the issue of rising interest rates for a second. Duration is a standard metric for bonds and bond mutual funds that measures the sensitivity of the price of the bond/bond fund to movements in interest rates. Typically, the duration of a bond/bond fund ranges from two years on short-term bond funds to 15 years on long-term bond funds. The chart above demonstrates the impact of rising rates given certain durations.

Example: If you are invested in a bond mutual fund with a duration of 10 and if rates increase by 1.5 percent, your fund will generally lose 15 percent of it’s value.

I am not the only one that questions the 60/40 rule. For example, I just got done reading an unnamed research piece by a very formidable bank that owns a very formidable wirehouse firm where they are stating that the “60/40 rule is dead.” One of the problems with the article is that they are suggesting the 40 percent bonds be replaced with vehicles like dividend stocks. Clearly, I agree with the fact that the bond math is getting very hard to justify, but ten years into a bull stock market and we are going to continue to suggest more equity exposure? Really?

It is interesting to me how today’s rules of thumb are tomorrow’s outdated misconceptions. When hindsight is 20/20, you have the tendency for “rules of thumb” and product development to revolve around how well that rule of thumb or product looks in hindsight. In other words, the rules of thumb and products many times are created as a result of the research on hindsight, instead of the other way around. This is flawed because the next crisis is always different than the last crisis that can make the previous assumptions and “rules of thumb” irrelevant.

I can think of a product that I would recommend for the fixed income side of the portfolio. Can you guess what it is?

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