Funded or Unfunded?
Termination Payments / Extended Termination Payments - "Funded or Unfunded..."That is the Question"
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.