Welfare Benefit Funding

How Does LIFA Work?

LIFA is a convenient and flexible way for employers to prefund their post retirement life insurance liability. LIFA adds a simple amendment to an employer's MetLife group term life insurance plan to establish a reserve to prefund the cost of retiree life insurance. The LIFA program combines an analysis of an employer’s current and emerging liability, with funding schedules based on each employer’s specific liability situation. Interest crediting rates are declared in advance by MetLife and the employer makes contributions to this reserve based on the funding schedule. The reserve grows tax-free¹ and the assets in the reserve are used to pay retiree term life insurance premiums.

Why Prefund a Liability?

Employers that offer benefits continuing into retirement are faced with a challenge — to provide programs that help employees meet their retirement goals within the practical constraints of the company, year after year. Funding retiree life insurance liabilities helps you plan for future costs on a tax-advantaged¹ basis.

How Does Guaranteed LIFA Work?

Guaranteed LIFA (GLIFA) offers a way for an employer to effectively transfer its liability on a named group of retirees to MetLife. Through the GLIFA, which is a simple amendment to the employer’s group term life insurance policy, MetLife guarantees that the employer will not have to pay any additional out-of-pocket amounts beyond the premium paid for the amendment.² The GLIFA provides a way for employers to finance their retiree life insurance obligation in a tax effective manner, cap out-of-pocket costs and transfer the liability and the plan administration to MetLife.¹ In addition to these advantages, GLIFA has beneficial accounting effects, reducing the employer's expenses and establishing an asset to offset the retiree life insurance liability on the financial statements.

Why Transfer a Liability?

For some companies, the many changes in the corporate marketplace — business combinations, merger and acquisition activity and corporate downsizings — often leave in their wake more complex retiree benefit plans to manage and administer. For others, providing retiree benefits is essential, but the risk and administration associated with these benefits are becoming greater burdens. Still others have growing concern about the effect of shifting workforce demographics on their future benefit cash flows and the related earnings-per-share impact. For a company in any of these situations, it may make sense to effectively transfer the accounting liabilities and risk associated with its retiree life insurance plan. In doing so, employers would be able to limit their exposure to mortality, expense and investment risks and cap their out-of-pocket costs.

How Does A Funding Agreement Work?

Under MetLife’s Funding Agreement, an agreed-upon amount is paid to MetLife in a lump sum or in installments. MetLife will hold these funds at a specified interest crediting rate for a specified amount of time. Principle is always guaranteed, and MetLife credits guaranteed interest at one or more specified rates, depending on the terms selected, with interest earnings reported annually and paid at maturity.² To satisfy current cash flow needs, a portion of the funds can be kept liquid. Amounts can be held for a variety of purposes — to pay future premiums for insurance products, to fund various liabilities associated with self-insured and limited liability long-term disability plans or as an investment allocation for welfare benefit funding programs.