Advantages
Benefit Trusts...Their Existence and Use
The concept of Trust, in relationship to the sponsorship and management of benefit programs, means that a person or an organization has assumed the responsibility for receiving other peoples’ money, and for spending that money, prudently, on their behalf.
In English common law, the concept is called “The Prudent-Man Theory”. This theory pertains to whether the arrangement is formally documented or not.
In the absence of formal documentation, the arrangement -- which is known as deemed trust -- lacks the protection afforded by specified rules and guidelines. The Deemed Trustees, or the officers of the student association, are left at great risk should legal action ensue against them.
A trust agreement, used to formalize a benefit trust, mitigates those risks, substantially. It may, facilitate other good things as well.
Inherently Good Things About Benefit Trusts
- Formal protection for trustees / plan sponsors (officers of the student association)
- Formal protection for beneficiaries (students)
- Combined operations, for numerous plans, without loss of autonomy · Enhanced flexibility, longevity and credibility
- Stabilized management and control
- Financial strength
- Legal accountability
- Cost savings
Formal Protection for Trustees, or Plan Sponsors
(The Officers Of The Student Association)
- Specification of powers, duties and responsibilities
- Specification of limits on authority
- Recognition of liabilities, and indemnification for same
Formal Protection for Beneficiaries (Students)
- Application of contributions only for the provision of benefits
- Use of surplus funds only for benefit improvements
- Evenhanded construction and interpretation of plan rules and entitlements
- Prudent purchasing
Combined Operations for Numerous Plans, without Loss of Autonomy
- Authority for plan design and contributions retained by participating student association.
- Acceptances of sponsorship (trusteeship) obligations, transferred to Board Of Trustees.
- Financial gains realized by participating student associations.
- Participating student associations retain the right to withdraw from the trust.
Enhanced Flexibility
- Greater size enhances the options for coverage types and limits, and for variable delivery systems.
Enhanced Longevity
- The life of the trust is not limited by the existence of any of the plans it sponsors.
Enhanced Credibility
- Recognition and surveillance by government regulations.
Stabilized Management and Control
- Staggered rotation of trustees
- Involvement of several organizations
- Exploitation of varied skills and experience
Legal Accountability
- Required disclosure of assets and expenditures
- Detailed reporting of claims experience
- Annual audits, and federal tax returns
- Prudent use of all trust funds
Financial Strength
- Professional investment management
- Expanded opportunities due to larger asset base (commingling)
- Prescribed regulatory guidelines
- Contingency reserves, held by trust
Cost Savings Through Economies of Scale
- Reduced insurance premiums
- Lower reserve requirements, due to greater spread of risk
- Wholesale purchase of services and supplies (drug and eye wear)
- Ownership of health-care facilities, and expansions to serve larger constituencies
- Elimination of provider markups … through self funding
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