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NASFA
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Termination
Payments/Extended Termination Payments
"Funded or Unfunded
..." That is the Question
by Gabriel A. Nazziola, CLU,
LUTCF
With all the
notoriety appearing in the press lately
surrounding questionable accounting procedures
by major companies, with management executives
being charged civilly and criminally, it seems
that just about everyone you talk to is
concerned about the security of their pension
plans and post retirement benefits.
It should be no surprise then for State Farm
Independent Contractor agents who have recently
retired, or are about to retire, to be
concerned, and to be asking questions about the
security of their post retirement benefits,
namely, Termination Payments and Extended
Termination Payments. More specifically, about the
funding of such payments.
We are currently hearing from Home Office management
types that these payments are “un-funded” and that State
Farm independent contractor agents who expect to receive
these stipulated monies that the Company has a
contractual liability to pay, are merely “creditors” for
such payments, and we stand in line behind monies due
policyholders and claimants against the general revenues
of the Company.
Well, we have a problem with that current response by
management!
We are reminded of the distinction made in the AA3/4
Contractual Schedule of Payments between “personally
produced” policies and “assigned” policies. “Personally
produced” automobile policies pay the agent who produced
them, 10% service compensation. And, “assigned” policies
pay only a 7% service compensation for a ten (10) year
period before reverting to the 10% “personally produced”
level of service compensation.
Likewise, on fire policies the difference between
“personally produced” policies and “assigned” policies
commissions is 15% and 10% respectively, but forever,
not just for ten (10) years.
Perhaps you, like us, remember the explanation; or
better yet, the“justification”, (that favorite word so
frequently used by Earle Johnson in those days) for the
difference in service compensation and/or commissions
between “personally produced” policies and “assigned”
policies.
It was explained back then, that the difference was due
to the fact that the missing 3% on the “assigned” auto
policies, and the missing 5% on the “assigned” fire
policies was being used to pay Termination Payments to
the retired agent who had “personally produced” those
policies and in whose account those policies were left
when he or she retired.
So, unless the agent personally, or through others,
raids his or her entire book of business, or every
policyholder in the retiring agent’s agency decided to
take their policies away from State Farm, there is
provision for the funding of your Termination payments
and Extended Termination Payments for at least ten (10)
years. |
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