Coca-Cola Proposes Retiree-Health Funding Plan

January 14, 2009 ( - Coca-Cola Inc. has asked for regulatory approval for a plan under which it will fund its retiree health benefits through an insurance arrangement involving its in-house insurer.

A Business Insurance news report said the arrangement was described in a regulatory filing with the U.S. Department of Labor (DoL).

According to the report, the beverage maker would use $187 million now held in avoluntary employee beneficiary association ( VEBA) to buy medical stop-loss policies from Prudential Insurance Co. of America that would pay health claims of about 4,000 retirees and dependents. Coca-Cola established the VEBA in 2006.

According to Business Insurance, the policies would pay claims between an attachment point and an upper limit. For retirees under age 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 age 65 and older.

The report said Prudential, in turn, would turn around and reinsure the risk with Red Re Inc., Coca-Cola’s three-year-old South Carolina insurer. Coca-Cola uses Red Re for a range of benefits including coverage of employees outside the United States.

Assets contributed to a VEBA must be used to pay benefits or purchase insurance policies to provide the benefits and that employers cannot remove VEBA assets for other purposes, even when a benefit program is being wound down.

However, Business Insurance said, a plan such as the one proposed by Coca-Cola gives a company greater financial flexibility. For example, investment gains on contributions made to the in-house insurer can be paid as dividends to the parent company.