Senate Banking, Housing and Urban Affairs Committee

Subcommittee on Securtities


Oversight Hearing on Social Security Investments in the Securities Markets


Prepared Testimony of Mr. K. D. Kebodeaux
Chairman of the Board
First Financial Capital Corporation

10:00 a.m., Wednesday, April 30, 1997


The Alternative Plan for
Galveston County, Texas

PART I - POLITICAL PROCESS FOR ADOPTION OF PLAN

The Commissioners Court of Galveston County is an elected body of the county consisting of a County Judge and four Commissioners.

The Commissioners Court contracted with First Financial Capital of Houston to present an alternate proposal to the county, should the employees elect to change from the United States Government program to a full private plan.

Public hearings were held with employees to compare the alternate plan with the existing Social Security program, both plans were presented in detail by the private company (First Financial) and representatives from Social Security.

The employees voted 77% in favor of the private plans - Commission Court then authorized First Financial private company to proceed to implement the program and for the county to finalize the withdrawal from Social Security.

PART II - PLAN DESIGN - FIRST FINANCIAL CAPITAL CORPORATION

First Financial Capital Corporation was commissioned to replace an existing plan sponsored by the Federal Government. We were to offer the same type of benefit using the same contributions but with better results.

The Alternate Plan consists of Disability, Survivorship and Retirement Benefits. The plan is based on contributions made by the participating employee and the employer (County of Galveston).

The employee's contribution to the plan is 6.13% of eligible gross annual compensation. The employer (County) will contribute 7.785% of compensation.

ELIGIBIILITY FOR ENROLLMENT

An employee is eligible for enrollment in TheAltemate Plan when the employee is actively at work, and scheduled to work 20 or more hours per week on a permanent basis (unless otherwise noted for individual benefits).

PLAN CONTRIBUTIONS

A - Disability and Survivorship Benefits

The Plan's disability and survivorship benefits are provided to the eligible employee at no cost to the employee. The premium cost of this coverage will be paid by the employer.

Disability and Life Insurance coverage for the eligible employee will begin on the first day the employee is actively at work. Accumulations of the retirement benefits under THE ALTERNATE PLAN BEGIN with the first deposit to the Deferred Compensation Plan Account.

B - Deferred Compensation Retirement Benefits

The Plan's retirement benefit is funded through tax-deferred contributions made by the employee and the employer. The required employee's contribution is 6.13% of eligible gross annual compensation which is deposited into the employee's Retirement Annuity Account. The employer also contributes an amount to the Retirement Annuity Account. The amount of the employer's contribution will be 7.785%, less the cost of the employee's Life and Disability Insurance premiums. (Approximately 3% to the retirement plan from the employer)

BENEFITS

A - Survivorship Benefits

The Group Term Life and Accidental Death and Dismemberment Policy provides benefits under the following programs:

Schedule of Life Insurance and Members regularly scheduled to work 40 hours each week:

Under Age 70 300% of employee's ANNUAL EARNINGS with a minimum
benefit of $50,000 and a maximum benefit of $150,000.
Age 70 - 74 200% of employee's ANNUAL EARNINGS with a minimum
benefit of $33,330* and a maximum benefit of $100,000.
Age 75 or older 130% of employee's ANNUAL EARNINGS with a minimum
benefit of $21,665* and a maximum benefit of $65,000.

* If a FULL-TIME MEMBER who has 10 years service prior to attaining age 70, the LIEFE INSURANCE will be a minimum of $50,000. If a FULL-TIME MEMBER who attains 10 years of service after age 70, the LIFE INSURANCE will have no further reduction.

Schedule of LIFE INSURANCE for MEMBERS regularly scheduled to work 20 but less than 40 hours each week:

Under Age 70 150% of employee's ANNUAL EARNINGS with a minimum
benefit of $25,000 and a maximum benefit of $75,000.
Age 70 - 74 100% of employee's ANNUAL EARNINGS with a minimum
benefit of $16,665 and a maximum benefit of $50,000.
Age 75 or older 65% of employee's ANNUAL EARNINGS with a minimum
benefit of $10,832and a maximum benefit of $65,000.

B - DISABILITY (Monthly Income Benefit)

After a 180-Day elimination period, the totally disabled insured will receive 60% of base pay up to a maximum benefit of $5,000 per month. There is a minimum benefit payable of $100 per month.

C - Schedule of RETIRED LIFE RESERVE, (RLR) BENEFITS for full-time members with eight years of service to employer:

Post Retirement Death Benefit for Active, Full-time Employees (2080 hours per year), who have accrued a minimum of eight years of service to the employer.

The Plan provides a Paid-up Death Benefit to employees who retire after reaching the earlier of:

  1. Rule of 75 where Age plus Years of Credited Service total 75;
  2. Age 60 with eight Years of Credited Service; or
  3. Accumulate at least 30 Years of Credited Service.
BENEFIT
Age 55 and Younger $25,000
Age 56 $27,500
Age 57 $30,000
Age 58 $32,500
Age 59 $35,000
Age 60 $37,500
Age 61 $40,000
Age 62 $42,500
Age 63 $45,000
Age 64 $47,500
Age 65 or Older $50,000
D - RETIREMENT INCOME BENEFITS

Employees retiring at normal, late or early retirement will receive their retirement income from their Deferred Compensation Plan Account. All contributions, plus interest earned, will accumulate to provide this retirement benefit.

Retirement Benefit

25 years old, working 40 years, retiring at age 65
Average Annual Income $20,000 $30,000 $40,000 $50,000
Accumulated value at Retirement $383,032 $573,782 $765,042 $956,303
Lifetime Monthly Benefit at Retirement $ 2,740 $ 4,106 $ 5,474 $ 6,843

*Above assumed interest rate of 6.50% (no Equity Investment)

(Note: Social Security maximum is $1,280 per month)

The employee who is retiring from service or terminating employment may choose from several payment options available. These include, but are not limited to, monthly distributions of lifetime payout. The departing employee should consult with the Plan Administrator prior to electing any distribution option.

PART III CONCLUSION

Social Security consists of Retirement, Disability, and Death (Survivors) benefits. The Alternate Plan also offers the same benefits but is superior in each category.

Comparison - Maximum Benefit

Social Security Alternate Plan
Death $253.00 Lump Sum $50,000 Minimum
$150,000 Maximum
$75,000 Average
Disability $1,240 Per Month $2,749 Average
(If Qualified)
Retirement $1,280 (1996) $4790 Average
Subject to Cost of Living
Adjustment
* Additional Benefits May Be Alternate Program
Paid to Spouse & Children Vested Each Employee's
(If Qualified) Spouse & Children





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