COVER FOCUS
MBA Cuts Life and
Disability Rates
LIBOR Set for Elimination in 2021
Group Insurance Rates Announced
By Jack Marvin and Lara Page
Group Insurance Manager Stacy
Meyer has announced that the MBA
Employee Benefits Trust (EBT) has cut
rates for Group Basic Life and Long
Term Disability by five percent for 2018.
"MBA's banker group has very good
The London Interbank Offered Rate of the financial crisis, several banks were
(LIBOR), the interest rate tied to
discovered to have doctored estimates in
claims experience and is very desirable
trillions of dollars in loans and other
order to manipulate LIBOR, prompting
to carriers," Meyer explained. "We are
financial products, will be eliminated by the
a push for submissions based on actual
very excited to switch to Voya as our
end of 2021. British regulators announced
interbank loans. But according to the U.K.
carrier this year. Not only are we able to
the timeline on Thursday, July 27, to allow
Financial Conduct Authority (FCA), the
reduce rates, but Voya has made some
for the phase-in of new benchmark rates.
interbank lending market slowed in recent
innovations to make the claims process
U.S. and international regulators are
years, resulting in a lack of data on which
more seamless for the banks. Voya's
developing replacement benchmark rates
to base LIBOR estimates and therefore
employee benefits group is managed
and are expected to outline implementation
susceptible to further fraud. The FCA
in Minneapolis and we have known
plans later this year.
determined that without an active market
their service team for many years."
What does this mean for lenders?
to support estimates, LIBOR should not be
Meyer also announced that the rates for
used as a benchmark rate.
optional life, short term disability, and
· Loan originators and swap providers
dental will remain unchanged.
should evaluate non-LIBOR indexes
Replacement Rates
New Vision Product
for new loans maturing after 2021.
In anticipation of the elimination
of LIBOR, the U.S. Federal Reserve
The MBA has partnered directly
· For new LIBOR-based loans or swaps
established the Alternative Reference
with VSP for a low cost vision plan.
maturing prior to 2021, other reference
Rates Committee (ARRC) to select
What makes this plan unique is that
rates should be identified for use as a
a replacement index for U.S. Dollar
the MBA has secured substantially
substitute index.
LIBOR. ARRC, comprised of a group
discounted rates due to the size of our
· Personnel
responsible
for
loan
of large domestic banks and regulators,
group insurance plans. In addition,
administration and compliance should
voted to use a benchmark based on short-
we are able to offer direct support
closely
monitor
implementation
term loans backed by Treasury securities,
to banks enrolled in this plan on
an ongoing basis. There are no
guidelines produced by regulators.
known as repurchase agreements or "repo"
minimum enrollments so banks have
· Loan documents for new LIBOR-based
trades. ARRC is expected to announce a
full flexibility in offering this payroll
loans should specify an alternative
transition plan for the new rate later this
deducted plan to employees.
index or expressly permit the lender
year. The Bank of England has proposed
to select a comparable reference rate
replacing GBP LIBOR with an index
EBT Trustees
EBT is guided by a board of trustees
when LIBOR is eliminated. Procedures
based on short-term loans tied to the
comprised of Minnesota bankers
for implementing a new index for
pound, and the European Money Markets
who reviewed and approved Meyer's
LIBOR-based loans should be clearly
Institute will identify a replacement rate
recommendations.
Meyer
also
stated.
for the Euro LIBOR.
announced that Jill Amundson of
· Loan documentation for existing
Border State Bank in Baudette was
LIBOR-based loans should be reviewed
appointed by the MBA Board to be a
to determine the lender's ability to
Jack Marvin
trustee. She joins David Schlitter of
select an alternative index when
Partner
First State Bank of Fountain (Chair),
LIBOR is eliminated. If the documents
Stinson Leonard Street
Doug Schweim of Hometown Bank
fail to expressly state an alternative, an
316.268.7931
in Cleveland, Susan Lindmeier of
amendment may be necessary.
Bridgewater Bank in Bloomington,
Henry Schutz of The State Bank of
LIBOR Use and Reliability
Faribault, Mark Miedtke of Citizens
LIBOR is used to calculate interest rates
Lara Page
State Bank of Hayfield (MBA
for numerous types of debt obligations,
Partner
Treasurer), and Dan Melcher of MBA
including personal and commercial loans,
Stinson Leonard Street
as Trustees.
interest rate swaps and other derivative
612.335.1925
More detailed information will be
products, making it a primary metric in
distributed to the banks enrolled in
the global banking system. LIBOR is set
our plans. If you would like any more
every business day in numerous currencies
information, please feel free to contact
and maturities, based on estimates
any of our group insurance contacts.
submitted by major banks. In the wake
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MBA News | November/December 2017 | www.minnbankers.com

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