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Financial implications of employee transfers in Indonesia

Postemployment benefits need to be considered when employee transfers take place within large organizations. Several types of transfer agreements exist. In the article “Accounting impact of the movement of employees,” Milliman’s Danny Quant and Kumala Sanjaya relate details regarding several employee transfer agreements they have advised on in Indonesia.

Here is an excerpt:

In one case, where the agreement between the original company and the receiving company was for the transfer of benefits in relation to the entire working period (including the working period before transfer from the original company), the cost was borne by the receiving company. There was no cash transaction or recording of debt between the two companies. This type of transfer policy will directly impact on the profit and loss (P&L) of each company. With the release of the employees for the transfer, the original company will recognise income that is due to a release of reserves from the benefits it no longer needs to provide, while the receiving company will recognise an expense related to the recognition of the working periods prior to transfers in the original company.

In another case, the agreement between the two companies was that the liabilities of the employees before the transfer were still the responsibility of the original company. How are the obligations allocated between the two companies in this case? When in relation to postemployment benefits in accordance with Indonesian Labour Law No. 13/2003 (the amount of severance, gratuity, and compensation paid in Indonesia), the benefits granted rely heavily on years of service and the final salary when the benefits are due. This raised the question about the amount of salary that should be used for the calculation of the portion of liabilities to be borne by the original company. If the agreed policy is based on the original company only bearing the liability for postemployment remuneration related to years of service prior to transfer, and the liabilities are based on the calculation of the salary when the transfer occurs, there will be a cash transaction or recording of debt between the companies. The transactions that occur in the original company and the receiving company may be in the form of debt or receivables. The receiving company would record receivables, while the original company would record a debt in the financial statements in relation to the transfer.

Milliman’s top 10 publications of 2013

In 2013, Milliman again published a wide variety of articles and videos, including timely analysis related to issues such as sinkhole peril, improving claims analytics through text mining, predictive modeling and analytics, and Solvency II developments. In addition, we published extensively on ongoing challenges related to managing healthcare costs, healthcare reform, retirement planning, and insurance and risk management issues.

Here are this year’s ten most viewed articles and reports:

10. Fees: What everyone is NOT talking about!
By Douglas A. Conkel

How do plan sponsors ensure that actual fees paid by each participant are fair and reasonable when compared to other participants within the plan?

9. Planning for NAIC ORSA
By Chris Suchar, Joy A. Schwartzman, Matthew G. Killough, Wayne E. Blackburn

Sophisticated risk assessment will be key to complying with U.S. ORSA requirements.

8. Operational risk modelling framework
By Joshua Corrigan, Paola Luraschi

Current methods and emerging practices in operational risk across the world.

7. ACA: An act of unknown consequences for workers compensation
By Derek A. Jones

How will healthcare reform mandates for preexisting condition coverage and broader healthcare access affect workers’ compensation claims and costs?

6. President Obama’s transitional policy for canceled plans
By Hans K. Leida

The November 14, 2013 announcement that health insurance issuers would be permitted to renew certain canceled health insurance policies has raised new questions for the individual and small group marketplaces in 2014.

Continue reading

Top 10 Milliman blogs items for 2013

Milliman publishes blog content addressing complex issues with broad social importance. Our actuaries and consultants offer their perspective on healthcare, retirement plans, regulatory compliance, and more. The list below highlights Milliman’s top 10 blogs in 2013 based on total pageviews:

10. In their blog “Five keys to writing a successful qualified health plan application,” Maureen Tressel Lewis and Bonnie Benson highlight several best practices insurers should consider when submitting a qualified health plan application to the Health Insurance Marketplace.

9. “Understanding ACA’s subsidies and their effect on premiums” offers perspective into the relationship between healthcare premiums and federal subsidies for low-income individuals.

8. Funding for future Consumer Operated and Oriented Plans(CO-OPs) was eliminated as a result of the fiscal deal that was signed in December 2012. Tom Snook takes a look at how the deal affects CO-OPs in his blog “CO-OPs: An endangered species?

7. Robert Schmidt discusses why the methodology used to determine COBRA premium rates is essential in his blog “The growing importance of COBRA rate methodologies.”

6. A second blog by Maureen Tressel Lewis and Mary Schlaphoff entitled “Five critical success factors for participation in exchange markets” highlights tactics that insurers offering qualified health plans may benefit from implementing.

5. “Pension plans: Key dates and deadlines for 2013” offers Milliman’s three retirement plan calendars (defined benefit, defined contribution, and multiemployer) with key administrative dates and deadlines throughout the year.

4. In her blog “Fee leveling in DC plans: Disclosure is just the beginning,” Genny Sedgwick explains how investment expenses and revenue sharing affect the fees paid by defined contribution plan participants.

3. Maureen Tressel Lewis and Mary Schlaphoff’s blog “Five common gaps for exchange readiness” describes items issuers of qualified health plans have to resolve before their plans can be sold on the Health Insurance Marketplace.

2. In the lead up to implementation of the Patient Protection and Affordable Care Act (ACA), debate often centered on how the law would affect healthcare premiums. Our “ACA premium rate reading list” offers perspective on how rates may be affected.

1. In his blog “Retiring early under ACA: An unexpected outcome for employers?,” Jeff Bradley discusses the impact that the ACA could have on both early retirees and plan sponsors.

This article was first publish at Milliman Insight.

Retirement Town Hall rewind

News and views centered on defined benefit (DB) plans were the focus of our latest Retirement Town Hall discussions. If you weren’t able to read our posts as they were published, don’t fret, we have you covered.

Pension gains evaporate in May
June’s Pension Funding Index was released earlier this month, revealing that a $30 billion decline in assets and a $60 billion increase in liabilities in May combined to erase year-to-date gains in the pension funded status of the nation’s largest 100 defined benefit plans. Read the complete roundup of June’s pension funding index.

Locked in
Milliman’s John Ehrhardt spoke to the Wall Street Journal and offered his perspective on GM’s decision to lock in high pension obligations. The company will make a lump sum payment option available to about 42,000 salaried retirees and enroll the remainder of salaried retirees into a group annuity purchased from Prudential Insurance Co.

Milliman Protection Strategy
We also featured a new video highlighting the Milliman Managed Risk Strategy, a sophisticated futures-based portfolio hedging strategy. The video showcases the type of risk management that saved insurers $40 billion during the 2008 economic crisis.

2012 healthcare costs for American family exceed $20,000

Milliman today released the results of its 2012 Milliman Medical Index (MMI), which measures the average healthcare costs for a typical American family of four receiving healthcare through an employer-sponsored preferred provider organization (PPO) plan. The average cost of care for this typical family in 2012 is $20,728. While the 6.9% increase over 2011 is the lowest rate of increase in the 12 years tracked by the MMI, the $1,335 increase surpasses last year’s record of $1,319.   

“The average rate of increase this year dips below 7% for the first time since we began analyzing these costs, but the total dollar increase is still the highest we have seen,” said Lorraine Mayne, principal and consulting actuary with the Salt Lake City office of Milliman. “This helps illustrate the challenge of controlling healthcare costs. When the total cost is already so high, even a slower rate of growth has a serious impact on family budgets.”

The MMI’s release date falls during an uncertain time for American healthcare, with the nation awaiting the outcome of the U.S. Supreme Court’s decision on the future of the Patient Protection and Affordable Care Act (PPACA). To date, the PPACA has had only a limited effect on healthcare costs for families covered by an employer-sponsored PPO plan; longer term, the implications may be more pronounced, and will depend on a number of dynamic and interrelated factors.

“We face a number of different potential scenarios depending on the future of reform,” said Chris Girod, principal and consulting actuary with the San Diego office of Milliman. “With this year’s MMI we have tried to map out what those different scenarios may mean for consumers, employers, care providers, and the government.”

As has been the case in prior years, this year’s analysis examines several key medical cost components:

  • The MMI includes analysis of healthcare costs in 14 cities, thereby showcasing the role that geography plays in healthcare costs. This year, the average cost of care for the typical family in all but three of these cities exceeds $20,000. Of the 14 cities analyzed, Miami is the most expensive, at $24,965, while Phoenix is the least expensive at $18,365.
  • The MMI examines how employers and employees share the cost of healthcare. This year employers will on average contribute $12,144 of the $20,728 total while employees—through payroll deductions and out-of-pocket expenditures—will pay the remaining $8,584.

“Some families may be surprised to hear their total average healthcare costs are exceeding $20,000 this year,” said Scott Weltz, consulting actuary with the Milwaukee office of Milliman. “While everyone knows the cost of healthcare is increasing, most people who receive health insurance through their employer are insulated from the true costs associated with the care they receive.” 

To view the complete MMI, click here.