Premium Reserve Accounting Best Practices

Joe
March 10, 2021
3 min read

Establish a core benefits package paid for by the H&W

  • A realistic estimate of expected hours (typically less than 40 hours/week)
  • Variations of expected H&W based on different H&W rates ($4.22, $4.48, $4.54, etc.)
  • Benefits package to include:
    • At least employee-only medical plan (meeting ACA MEC requirements)
    • Administrative expenses allowable towards H&W obligation
    • Combination of Basic Life, Basic AD&D, EAP, STD, LTD (as much as possible)
    • ‘Cushion’ for employees to gradually build PRA balance to the threshold point
  • Fixed payroll deductions for any coverages that exceed the expected fringe

PRA threshold set at 3 months of benefit expenses

  • The employer determines PRA threshold
  • PRA threshold can vary by contract
  • PRAs balances up to the threshold are retained to pay for benefits during periods when employees do not work expected hours and thus do not generate the expected H&W.
  • PRA balances above the threshold are allocated to an employer-designated surplus account (typically retirement plan)

PRA Contribution Adjustments (PRACA)

  • PRACA are employer contributions to the PRA, above the H&W requirement, to keep the PRA at a $0 balance and ensure the long-term financial viability of the trust
  • PRACA contributions are “paid back” to the employer in future periods when the employee accumulates a PRA balance (i.e. when PRA contributions exceed deductions)
  • PRACA balances are tracked per employee and can be deducted from employee’s paychecks with employee approval or a written policy.

Forfeitures

  • H&W plans allow for forfeitures wherein PRA balances for terminated employees are forfeited to the trust.
  • Forfeited PRA balances remain as trust assets (they cannot revert to the employer) and are used to subsidize future Trust expenses.
  • Forfeited PRA balances create additional trust assets to provide financial stability to the trust.

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