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account employees who might recover from their disability or die
in the interim and stop receiving payments.
Petitioner’s benefits department forwarded the fiscal 1986
reserve amount that was calculated by Mercer to Dorn. After Dorn
reviewed how employees went on and came off long-term disability,
which he felt was infrequently, Dorn determined that the 1986
reserve adjusted by some factor would be acceptable as a 1987
reserve. Dorn increased the reserve by 6 percent and arrived at
$2.5 million. Mercer confirmed that 6 percent was a conservative
factor to use in the adjustment. Dorn used the $2.5 million that
he calculated for long-term disability reserves in calculating
the 1987 contribution.
Actual Expenditures
The cost of benefits and administrative fees actually paid
by Provident, on behalf of petitioner, for long-term disability
claims of its employees during its 1986 year was $338,486. The
cost of benefits and administrative fees actually paid by
Provident, on behalf of petitioner, for long-term disability
claims of its employees during its 1987 year was $442,198. The
amount of long-term disability benefits and administrative fees
actually paid by Provident, on behalf of the VEBA Trust, through
August 31, 1988, with respect to employees who were disabled as
of June 30, 1987, was $487,651. The VEBA Trust reimbursed
Provident for such payments, and, thus, there is a slight timing
difference.
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