PERS TRS Dependent Eligibility Audit White Paper 032408

PERS TRS Dependent Eligibility Audit White Paper 032408

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STATE OF ALASKA SARAH PALIN, GOVERNOR DEPARTMENT OF ADMINISTRATION P.O. BOX 110200 JUNEAU, ALASKA 99811-0200 ANNETTE KREITZER, COMMISSIONER PHONE: (907) 465-2200 FAX: (907) 465-2135 PERS/TRS Dependent Eligibility Audit White Paper March 24, 2008 History/Background The issue of ineligible dependents arose in 2004 when it was discovered that the Division of Retirement and Benefits had not been enforcing the statutory school enrollment requirement for retiree dependents over the age of 19. As legislation was being drafted to create a Defined Contribution Retirement Plan, the Division realized no audits had ever been conducted of dependents in either the active or retiree plans. Members were notified that dependents on the active and retiree plans would have to prove eligibility and re-enrollment deadlines were set. Immediately after the re-enrollment deadlines (June 30, 2005 for active employees and June 30, 2006 for retirees,) it appeared that approximately 3,100 active employee dependents and 4,300 retiree dependents had been incorrectly covered. During the following 12 months, about half of these dependents were re-enrolled as eligible dependents. This often happened because a member failed to provide the evidence for dependent coverage until after a claim event. Also, some of those dependents may have become ineligible for coverage after the eligibility audit, but were eligible when a prior claim was paid. A good example ...

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STATE OF ALASKA  DEPARTMENTOF ADMINISTRATION ANNETTE KREITZER, COMMISSIONER
SARAH PALIN, GOVERNORP.O. BOX 110200 JUNEAU,ALASKA998110200 PHONE: (907) 4652200 FAX: (907)4652135
PERS/TRS Dependent Eligibility Audit White Paper March 24, 2008 History/Background The issue of ineligible dependents arose in 2004 when it was discovered that the Division of Retirement and Benefits had not been enforcing the statutory school enrollment requirement for retiree dependents over the age of 19.As legislation was being drafted to create a Defined Contribution Retirement Plan, the Division realized no audits had ever been conducted of dependents in either the active or retiree plans.Members were notified that dependents on the active and retiree plans would have to prove eligibility and re-enrollment deadlines were set. Immediately after the re-enrollment deadlines (June 30, 2005 for active employees and June 30, 2006 for retirees,) it appeared that approximately 3,100 active employee dependents and 4,300 retiree dependents had been incorrectly covered. Duringthe following 12 months, about half of these dependents were re-enrolled as eligible dependents.This often happened because a member failed to provide the evidence for dependent coverage until after a claim event.Also, some of those dependents may have become ineligible for coverage after the eligibility audit, but were eligible when a prior claim was paid.A good example would be a student who was 23 and eligible at the time of the claim, but who had th their 24birthday and became ineligible at the time the audit was conducted. The timing of ineligibility does not make the case for fraud.In other words, some dependents “dropped off” because they had no claims.As soon as a claim event happened, however, some of these dependents rightfully reappeared on the roles, having satisfied the eligibility criteria. Current Situation Attached is the August 2007 audit summary on the issue (State of Alaska Dependent Eligibility Verification Project Summary Analysis).The audit was conducted by Buck Consultants at the request of the Division of Retirement and Benefits (Division).
March 24, 2008Re: DependentEligibility Audit- 2 -The total number of active and retiree dependents that did not re-enroll during the period audited totaled 3,959, rather than 7,400 as first reported.In the year prior to the audit, 1,334 active and retiree dependents received medical benefits and 937 received pharmacy benefits.The total dollar amount of these benefits was $3,109,829.These figures show how much in claims were paid to those during the year prior to the audit who did not re-enroll.These claims may be useful in estimating how much might have been saved by the plan if the individuals who did not return were not entitled to the benefits paid.However, because these dependents did not re-enroll, we have no claims data for these missing individuals after the audit. Challenges Some have asked if the State should have pursued prosecution and if fraud could be proven in the coverage of dependents.The Department conferred with the Attorney General’s staff and the Division’s consultants on this matter. Documents signed by members in order to enroll for benefit coverage contain certifications and warnings about making false statements.However, the burden to prove intent rests with the State.The State would not know prior to conducting a significant amount of research whether or not there are any cases which warrant prosecution.Any fraud could not be proven until each file was pulled and audited.Additionally, the penalty for false statements is limited to $500. Thecost for the State to research each individual case combined with the cost to prosecute the warranted cases would exceed the amount the State could recoup from the penalties.It is for these reasons the DOA Commissioner considered it imprudent for the State to pursue prosecution where it would have to prove that plan members knowingly kept ineligible dependents on the roles. The Division has adopted an industry standard schedule for re-enrollment of all dependents once every five years, with the exception of students over the age of 18. Studentsup through age 23 must certify their student status at least annually if a claim is submitted on their behalf.If no claim is submitted, no re-certification will be required.Without such procedures in place previously the population of ineligible “dependents” was allowed to grow.Also, failure to certify eligibility, upon intake and periodically, could have resulted in loss of the tax qualified status of the State’s benefit plan.
Contact: PatShier, Director, Division of Retirement & Benefits, DOA (907) 465-4817