Chicago Laborers Trusteship transcripts 09-16-1997

 
	1        OFFICE OF THE INDEPENDENT HEARING OFFICER
	2      LABORERS' INTERNATIONAL UNION OF NORTH AMERICA
	3 
	4   IN RE:		     )
	5   TRUSTEESHIP PROCEEDINGS        ) No. 97-30T
	6   CHICAGO DISTRICT COUNCIL       )
	7 
	8 
	9 
	10	    TRANSCRIPT OF PROCEEDINGS had in the
	11   above-entitled cause at the Days Inn, 644 North
	12   Lake Shore Drive, Chicago, Illinois, on the 16th
	13   day of September, A.D. 1997, at 9:04 a.m.
	14 
	15 
	16   BEFORE:  MR. PETER F. VAIRA, Hearing Officer
	17 
	18 
	19 
	20 
	21 
	22 
	23 
	24

 
	1   PRESENT:
	2        COMEY, BOYD & LUSKIN,
	3        (1025 Thomas Jefferson Street, N.W.,
	4        Washington, D.C. 20007-5243), by:
	5        MR. ROBERT M. THOMAS, JR.,
	6        MR. DWIGHT P. BOSTWICK,
	7	    appeared on behalf of the GEB Attorney;
	8        CARMELL, CHARONE, WIDMER, MATHEWS & MOSS,
	9        LTD.,
	10        (225 West Washington Street, Suite 1000,
	11        Chicago, Illinois  60606), by:
	12        MR. SHERMAN CARMELL,
	13        MS. SUZANNE M. LAW,
	14	    appeared on behalf of the Chicago
	15	    District Council of Laborers;

	16        FARACI & FARACI, P.A.,
	17        (111 West Washington Street, Suite 1720,
	18        Chicago, Illinois 60602), by:
	19        MR. PETER S. FARACI,
	20	    appeared on behalf of
	21	    John A. Matassa, Jr.
	22   ALSO PRESENT:  MS. LORI HARTMAN
	23   REPORTED BY:  MARY KAY BELCOLORE, CSR No. 84-1813
	24	       DONNA PAPPAS CSR, No. 84-2194.

 
	1        THE HEARING OFFICER:  Let me call the meeting
	2   to order.  Gentlemen, calling the hearing to
	3   order.
	4	    This is the continuation of the trustee
	5   hearing involving the Chicago District Council.  I
	6   believe that we're in the midst of the case by the
	7   District Council.
	8	    Mr. Carmell, I believe that the GEB
	9   Attorney has finished cross-examining Mr. Hugh
	10   Arnold and he has departed and you may continue.
	11        MR. CARMELL:  Steve Glowiak is our next
	12   witness.
	13        THE HEARING OFFICER:  Either this is a
	14   professional witness or a good marketer or both.
	15   He gives the cards right out so no one has any
	16   doubt about where he's coming from.
	17        MR. CARMELL:  Would you state your name and
	18   spell your last name, please.
	19        THE WITNESS:  Steven Glowiak, G-l-o-w-i-a-k.
	20        MR. CARMELL:  And would you spell the first
	21   name, please.
	22        THE WITNESS:  S-t-e-v-e-n.
	23        MR. CARMELL:  And who are you employed by?
	24        THE WITNESS:  I'm employed by the Segal

 
	1   Company, an actuarial consulting firm.
	2        MR. CARMELL:  Mr. Glowiak, I want to show you
	3   what has been marked as CDC Exhibit 16, which is
	4   entitled The Presentation of the, for short, The
	5   Chicago Laborers' Pension Fund and the Chicago
	6   Laborers' Welfare Fund, dated September 15, 1997,
	7   and ask you whether you supervised the preparation
	8   of this document.
	9        THE WITNESS:  Yes, I did.
	10        MR. CARMELL:  All right.  I'd like to go
	11   through with you, at the beginning, the material
	12   which is behind Tab 1 of Exhibit 16, which is an
	13   overview of the Segal Company, and would you tell
	14   the Hearing Officer some of the background of what
	15   is now known as the Segal Company, its history and
	16   development.
	17        THE WITNESS:  The Segal Company was
	18   established in 1939.  It was established very much
	19   at the forefront of the creation of benefits
	20   consulting as we know it today.  The Segal
	21   Company's primary line of business at the
	22   inception and presently is serving as consulting
	23   to multi-employer pension and welfare plans.
	24        MR. CARMELL:  How many offices does the

 
	1   company have in the United States and Canada?
	2        THE WITNESS:  The company currently has 19
	3   offices in the United States and Canada.
	4        MR. CARMELL:  And in what professional or --
	5   strike that.  In what types of employee benefits
	6   groups or association does the Segal Company
	7   participate in?
	8        THE WITNESS:  In terms of employee benefit

	9   consulting, there are a number of different
	10   professional groups and associations.
	11        THE HEARING OFFICER:  The court reporter
	12   would want to know if you would like to swear the
	13   gentleman in.  Fine.
	14	    Would you administer the oath, Ma'am.
	15	        (WHEREUPON, the witness was duly
	16	        sworn.)
	17        THE HEARING OFFICER:  Very good.  Thank you,
	18   Ma'am.
	19	        STEVEN GLOWIAK,
	20   called as a witness herein, having been first duly
	21   sworn, was examined and testified as follows:
	22	        DIRECT EXAMINATION
	23   BY MR. CARMELL:
	24        Q.    All right.  We were into professional

 
	1   associations.
	2        A.    Mr. Carmell, may I get my glasses?
	3        Q.    Sure.
	4        A.    Thank you.
	5        Q.    Okay.  Professional associations.
	6        A.    The Segal Company participates actively
	7   in the Association of Private Pension and Welfare
	8   Plans, the National Coordinating Committee for
	9   Multi-Employer Plans, the International Foundation
	10   of Employee Benefit Plans, the Employee Benefit
	11   Research Institute, the American Compensation
	12   Association, the Profit Sharing Council of
	13   America, the Society of Professional
	14   Administrators and Record Keepers, WEB, a
	15   professional organization for people working on
	16   employee benefits.
	17        Q.    Was there a predecessor name to the
	18   Segal Company?  Was it Martin E. Segal Company at
	19   one time?
	20        A.    That's correct.  It was originally the
	21   Martin E. Segal Company named after the founder.
	22        Q.    And is the Segal Company involved in
	23   any international actuarial benefit programs?
	24        A.    In 1991, the Segal Company joined a

 
	1   leading group of European actuarial and benefit
	2   consulting firms called the Multi-National Group
	3   of Actuaries and Consultants.  They provide
	4   services to multi-national corporations with
	5   respect to benefits, mergers and things of that
	6   nature with respect to benefit plans.
	7        Q.    Approximately how many employee benefit
	8   plans does Segal consult?
	9        A.    Through all the offices of the Segal
	10   Company, the Segal Company consults to over 3,000
	11   employee benefit plans covering approximately 8
	12   million employees and their dependents.
	13        Q.    And what do the plans range in size, as
	14   far as employees go?
	15        A.    Anywhere from 100 employees to 100,000
	16   employees is the range that we operate in.
	17        Q.    Would you tell the Hearing Officer the
	18   industries of multi-employer plans to which the
	19   Segal Company is consultant.
	20        A.    The Segal Company serves as consultant
	21   in the following industries, air transportation,
	22   apparel, baking, chemicals, construction,
	23   electronics, entertainment, food, hotel and
	24   restaurant, iron and steel, lumber, machine tool,

 
	1   maritime, motion picture, oil, pipeline, printing
	2   and publishing, professional sports, radio and
	3   television and trucking.
	4        Q.    And is the Segal Company consultant to
	5   any state and local government plans?
	6        A.    Yes, the Segal Company also provides
	7   consulting to many state retirement and municipal
	8   systems, such as Delaware, Hawaii, Kansas,
	9   Michigan, Nevada, North Dakota, Pennsylvania,
	10   Texas, Wyoming, Puerto Rico and the Virgin
	11   Islands.
	12        THE HEARING OFFICER:  Do you have any plans
	13   for the teachers in Pennsylvania?
	14        THE WITNESS:  I believe the Pennsylvania
	15   teachers use us as actuaries from time to time.
	16        THE HEARING OFFICER:  PSERS, Pennsylvania
	17   public school employees, the largest pension fund
	18   in the state, $20 billion, and they get bigger by
	19   $1 billion a year.
	20   BY MR. CARMELL:
	21        Q.    Does the Segal Company serve as
	22   consultant to other than state and public employee
	23   health benefit plans?
	24        A.    Yes, we do.  Local government

 
	1   employees, teachers, school districts, and
	2   supplemental benefit plans.
	3        Q.    Although the focus of this hearing is
	4   on a multi-employer plan, does the Segal Company
	5   also consult to corporate plans?
	6        A.    Yes, we do.
	7        Q.    And what are those industries?
	8        A.    Banking and finance, communications,
	9   entertainment, law, manufacturing, publishing,
	10   retail services, transportation, utilities and
	11   energy.
	12        Q.    And in another category of nonprofit
	13   plans, what organizations is Segal a consultant?
	14        A.    The Segal Company is proud to serve
	15   many nonprofit plans, The American Cancer Society,
	16   the Arts Festival of Atlanta, the Boston Symphony,
	17   Brown University, Chicago Symphony Orchestra,
	18   Cleveland Symphony Orchestra, Lincoln Centre for
	19   the Performing Arts, the Metropolitan Opera, the
	20   Muscular Dystrophy Association, the National
	21   Council of Senior Citizens, the New York
	22   Shakespeare Society, the Sisters of Charity and
	23   the United States Olympic Committee.
	24        MR. THOMAS:  Mr. Vaira, if I could, this is,

 
	1   it's clear now what we are doing here is
	2   essentially reading this document.
	3	    I have no -- GEB Attorney has no
	4   objection to this document being admitted, if we
	5   could just move forward to the substance of it; we
	6   all have what the background is here.
	7        THE HEARING OFFICER:  I think Mr. Carmell
	8   wants to lay a sort of broad foundation.  It's a
	9   little bit more of I think qualifying an expert, a
	10   little bit more than that.  He wants to lay the
	11   breadth of the company's experience, in depth.
	12        MR. THOMAS:  If we could just, we are just
	13   reading the document.  It seems --
	14        MR. CARMELL:  I believe though that the
	15   practice has been, while the GEB Attorney's case
	16   was on, that there were areas which he wanted to
	17   make part of the record, since the Hearing Officer
	18   and others basically read the record.  It may not
	19   get into all the parts of the document.  It is
	20   important to the foundation of the case to know
	21   fully the type of services, the type of
	22   organization that is consulting to this firm.
	23        THE HEARING OFFICER:  I think he is entitled
	24   to do that.  He has a different -- one facet of

 
	1   his case he wants to be more in more detail than
	2   others.  That's fine.  Go right ahead.
	3   BY MR. CARMELL:
	4        Q.    What are the services that the Segal
	5   Company performs with respect to its clients?
	6        A.    The services include planning, design,
	7   qualification, implementation and operation and
	8   communication of pension and profit sharing plans,
	9   life survivor and common disability programs,
	10   health insurance programs, long-term care
	11   programs, flexible benefit programs, thrift
	12   savings and 401-K plans, ESOPs and other stock,
	13   employee stock ownership arrangements, annuity
	14   plans, executive compensation plans, wage and
	15   salary programs, apprenticeship and training
	16   plans, vacation earned time and flexible time
	17   programs.
	18        Q.    What group benefits services does the
	19   Segal Company provide?
	20        A.    Segal Company provides a very wide
	21   array of group benefit services, including the
	22   design of conventional and triple option plans,
	23   selection of insurers, third-party administrators,
	24   and other providers of administrative and cost

 
	1   management services, projections of reserve
	2   requirements in future benefit costs, claim
	3   audits, evaluation and formulation of systems of
	4   provider reimbursements, design of retiree health
	5   benefit programs.
	6	    We assist and counsel in drafting plan
	7   documents, assist in achieving compliance with
	8   benefit law regulation.  Our analysts are experts
	9   in healthcare cost management techniques.
	10        Q.    In the area of health services, what
	11   services are performed?
	12        A.    Evaluation and selection of alternative
	13   delivery systems, screening and selection of
	14   health providers, design and implementation of
	15   health promotion, employee assistance programs,
	16   long-term care studies, cost and utilization data
	17   collection and analysis, recommendations for
	18   financial and administrative procedures to assure
	19   effective cost management.
	20        Q.    Does the Segal Company provide
	21   actuarial services?
	22        A.    Segal Company also provides actuarial
	23   service valuation of retiree health benefit plan
	24   liabilities, long-term disability plans and other

 
	1   health programs, as well as the design of benefit,
	2   pension and defined contribution plans, and the
	3   preparation of and review of actuarial valuations.
	4        Q.    Now, briefly, we are not going to go
	5   into the services that are provided, but does the
	6   Segal Company also provide computer and management
	7   consulting services?
	8        A.    Yes, they do.
	9        Q.    Do they provide defined contribution
	10   services?
	11        A.    Yes, they do.
	12        Q.    They provide employee communications
	13   services?
	14        A.    Yes.
	15        Q.    In the area, would you explain what is
	16   subsumed under the title of flexible benefits
	17   services?
	18        A.    Many plans today offer the opportunity
	19   in essence to purchase different types of
	20   healthcare by the employee at the outset at the
	21   beginning of the year.
	22	    And with benefit dollars, you can in
	23   essence pick the medical or dental benefit program
	24   that you would like.

 
	1	    We are in the business of assisting
	2   people in selecting the systems to do that, and
	3   the providers that can provide that.
	4        Q.    With respect to investment performance
	5   services, are those provided to clients?
	6        A.    Those are provided through Segal
	7   Advisers, Inc., which is a subsidiary of the Segal
	8   Company.  And they assist in evaluation of
	9   investment performance, assist in setting
	10   investment policy guidelines, objectives, manager
	11   selection, and a wide variety of other services to
	12   assist plan sponsors in the efficient organization
	13   and implementation of the investment programs.
	14        Q.    With respect to the Laborers' Pension
	15   Fund, and the Laborers' Welfare Fund, is Segal,
	16   Segal Company a consultant to both of those funds?
	17        A.    Yes.
	18        Q.    And at one time, Segal Advisers, Inc.
	19   performed investment performance services for
	20   which funds, if either?
	21        A.    Segal Company, Segal Advisers did
	22   perform investment services for both the welfare
	23   and some limited services to the pension fund.
	24        Q.    And have the services that the Segal

 
	1   Company performed basically been out of the
	2   Chicago office?
	3        A.    The benefits consulting services were
	4   out of the Chicago office, the actuarial work.
	5	    The Segal Advisers work was done from
	6   New York.
	7        Q.    Would you describe basically somewhat
	8   the structure of the Chicago office, which is the
	9   one that services the Laborers' Pension Fund and
	10   Health and Welfare Fund?
	11        THE HEARING OFFICER:  This is the investment
	12   adviser office, right?
	13        MR. CARMELL:  No.  This is the benefits
	14   office.  Segal Advisers was in the New York, if I
	15   recall.
	16        THE WITNESS:  That's correct.
	17   BY THE WITNESS:
	18        A.    The Chicago Segal office was
	19   established in 1954.  Presently, it has 92
	20   employees, with eight practice areas.  Practice
	21   areas include consulting, actuarial.
	22	    The Chicago office has the second
	23   largest actuarial department in the company,
	24   across the country, administrative compliance,

 
	1   health benefit advisers, communications, benefit
	2   calculations, technology and computer services and
	3   office services, as practice areas.
	4   BY MR. CARMELL:
	5        Q.    Now, with respect to the Laborers'
	6   funds, who are the professionals that are assigned
	7   to, basically assigned to these clients?
	8        A.    I'm assigned as the consultant to the
	9   Laborers' Pension Fund, and I have been assigned
	10   to that role since mid 1990.
	11        Q.    Could you describe your education and
	12   experience in the fields?
	13        A.    My education is, I have an
	14   undergraduate degree in business administration
	15   from Marquette University.  And I have a graduate
	16   degree from, in business administration, from the
	17   Keller Graduate School of Management.
	18	    I have 19 years of experience in
	19   evaluating, designing and implementing various
	20   benefit programs, first with two major insurance
	21   companies, then for the last 17 years I've been a
	22   professional with Segal Company; presently I'm a
	23   senior vice-president.
	24        Q.    And what is your relationship between

 
	1   the Segal Company, yourself, and the Laborers'
	2   Pension Fund, Laborers' Health and Welfare Fund?
	3        A.    I'm their benefits consultant.
	4        Q.    And is there an actuary that is
	5   assigned to the funds?
	6        A.    Yes.  Allen Ehrhardt, who is a senior
	7   vice-president and actuary, is assigned to the
	8   fund.
	9        Q.    We are going to be hearing from Mr.
	10   Ehrhardt, so we will go into his credentials
	11   then.
	12	    In addition to your being assigned to
	13   the Laborers' fund, what other responsibilities do
	14   you have with respect to the Segal Company?
	15        A.    I'm responsible for handling twelve
	16   client accounts, that cover about 100,000
	17   employees nationally.  I also have managerial
	18   responsibilities in the Chicago office.
	19	    The consulting staff is under my
	20   direction, and they report to me, as well as two
	21   other officers.  And I'm also what is called the
	22   Midwest regional multi-employer practice leader,
	23   which means for four offices, I serve as the
	24   responsible party in charge of our multi-employer

 
	1   practice clients.
	2        Q.    For what period of time have you had
	3   responsibility with respect to the Chicago
	4   Laborers' funds?
	5        A.    I became involved in mid 1990 with the
	6   Chicago Laborers' funds.
	7        Q.    Other than the, what I'll refer to as
	8   the Chicago Laborers' funds, what other Laborers'
	9   funds does the Segal Company serve as consultant?
	10        A.    Locally, in our region, Segal Company
	11   serves as consultant to the Central Laborers'
	12   Pension Fund, the Central Laborers' Welfare Fund,
	13   the Construction Industry Laborers' Pension Fund,
	14   which is in Jefferson City, Missouri, the
	15   Construction Laborers' Pension Fund of Greater
	16   St. Louis, the Fox Valley and Vicinity Laborers'
	17   Pension Fund, Fox Valley and Vicinity Laborers'
	18   Welfare Fund.
	19        MR. THOMAS:  Excuse me, Mr. Vaira.  We will
	20   stipulate to pages 11 through 16, the five pages
	21   of funds listed there.
	22        MR. CARMELL:  I think it's important to list
	23   them.
	24        THE HEARING OFFICER:  Go ahead.  You may

 
	1   proceed.
	2   BY MR. CARMELL:
	3        Q.    Those are in Geneva, Illinois?
	4        A.    Yes.  Fox Valley funds are in Geneva,
	5   Illinois now.
	6	    Laborers' International Union of North
	7   America, Local No. 231 Pension Fund in Pekin,
	8   Laborers' International Union of North America,
	9   Local 231 Welfare Fund in Pekin, Greater Kansas
	10   City Laborers Pension Fund, Kansas City, Greater
	11   Kansas City Laborers' Welfare Fund, Minnesota
	12   Laborers' Pension Fund, Minnesota Laborers' Health
	13   and Welfare Fund, Wisconsin Laborers' Pension
	14   Fund, Wisconsin Laborers' Health and Welfare Fund.
	15        Q.    Those two are in Madison, Wisconsin?
	16        A.    Yes, they are.
	17        Q.    In addition to the Laborers', give us,
	18   the Hearing Officer, an example of other
	19   multi-employer plans to which Segal is a
	20   consultant.
	21        A.    Segal Company is consultant to the
	22   following plans across the country:  The Hotel and
	23   Restaurant Employees International Union Welfare
	24   Fund; Bakery and Confection --

 
	1        Q.    Located where?
	2        A.    Chicago, Illinois.  This is the site of
	3   the fund office.  Many of these plans are national
	4   plans.  Hotel and restaurant employees, for
	5   example, covers approximately 100,000 employees
	6   across the country.  So I won't give --
	7        Q.    Excuse me.  This is the international
	8   plan, but its headquarter are in Chicago?
	9        A.    That's correct.
	10        Q.    Go ahead.
	11        A.    Most of the plans that I have following
	12   are national plans or large regional plans of
	13   approximately 5,000 employees or more.
	14	    Bakery and Confectionery Union and
	15   Industry International Fund in Washington, D.C.,
	16   International Association of Machinists,
	17   Labor-Management Pension Fund in Washington, D.C.,
	18   American Federation of Television and Radio
	19   Artists Pension Fund in, and Welfare Fund, in New
	20   York, Boilermaker-Blacksmith National Pension
	21   Trust and Welfare Fund in Kansas City, the
	22   National Maritime Union Pension and Welfare Funds
	23   in New York, American Federation of Musicians' and
	24   Employers' Pension Fund in New York, the Oil,

 
	1   Chemical and Atomic Workers National Pension Fund
	2   in Denver, the United Food and Commercial Workers
	3   International Union-Industry Pension Fund in
	4   Chicago, the Plumbers and Pipefitters National
	5   Pension Fund, Maryland, Laborers' International
	6   Union of North America National Industry Pension
	7   Fund in Washington, D.C., International
	8   Brotherhood of Firemen and Oilers National Pension
	9   Fund and Welfare Fund in Washington, D.C.,
	10   International Brotherhood of Painters and Allied
	11   Trades Industry National Pension Fund in
	12   Washington, D.C., Carpenters Labor-Management
	13   Pension Fund in Washington, D.C., Bricklayers and
	14   Trowel Trades International Pension Fund and
	15   Welfare Fund in Washington, D.C., Equity League
	16   Pension Fund and Welfare Fund in New York, Screen
	17   Actors Guild Pension Fund and Welfare Fund in Los
	18   Angeles City, Service Employees International
	19   Union National Pension Fund and Welfare Fund in
	20   Washington D.C., Molders and Allied Workers Union
	21   Industry National Pension Fund in St. Louis.
	22        Q.    All right.  Why don't we stop with
	23   those.
	24        THE HEARING OFFICER:  I think we've got the

 
	1   picture there.  I have one question.  Do the
	2   International Barbers still have a pension fund
	3   out of Indianapolis, Indiana?  Do you know that?
	4        MR. CARMELL:  I think they merged with the
	5   United Food and Commercial Workers a number of
	6   years ago.
	7        THE WITNESS:  That's correct.
	8        MR. CARMELL:  Thank you.  Thank you.  Don't
	9   be so surprised that I'm correct.
	10   BY MR. CARMELL:
	11        Q.    To your knowledge, for what period of
	12   time has the Segal Company or its predecessor in
	13   name been a consultant to the Chicago Laborers'
	14   Pension Fund, Health and Welfare Fund?
	15        A.    The Chicago Laborers' Pension Fund
	16   became a client of the company in 1963.
	17        Q.    And how about the Welfare Fund?
	18        A.    The Welfare Fund became a client in
	19   1965.
	20        Q.    I want you to describe for the Hearing
	21   Officer at present what services are rendered by
	22   Segal to the Pension Fund and then we'll move on
	23   to the Welfare Fund.  And if there's been any
	24   change over the years, that is, there were

 
	1   services that were rendered before which are not
	2   rendered now, are being rendered now, et cetera,
	3   would you explain that to us.  So let's start with
	4   the Pension Fund, the services that Segal renders
	5   to the Laborers' Pension Fund.
	6        A.    As the Pension Fund actuarial
	7   consultant, the Segal Company provides annually an
	8   actuarial valuation and withdrawal liability
	9   report.  This report is a detailed report which
	10   summarizes all of the activities from an actuarial
	11   standpoint of the Pension Fund.
	12	    Would you like me to go through the
	13   details of what's in an actuarial valuation.
	14        A.    Yes.  I notice that you're going to be
	15   looking at a document.  Would you describe the
	16   document that you're looking at?
	17        A.    It's at actuarial valuation and review
	18   as of June 1st, 1996.
	19        MR. CARMELL:  Is it all right, Mr. Thomas, if
	20   he looks at that to explain some of the services
	21   that are rendered in an actuarial report?
	22        MR. THOMAS:  I prefer that he testify without
	23   it and if he has trouble remembering the details,
	24   then it would be to refresh his recollection.  But

 
	1   why don't we first find out what he knows.
	2        THE HEARING OFFICER:  Okay.  Let's do that.
	3   He may have to refer to those, but from what he
	4   pulled out here, I can see that -- well, do the
	5   best you can.
	6        MR. THOMAS:  If he says he can't do it
	7   without the report, then fine.  I'd at least like
	8   to establish that.
	9        THE HEARING OFFICER:  It's a report that
	10   he -- it's not a mystery or anything like that.
	11   It's something that these pension funds paid for
	12   and got and it's available to -- I don't know if
	13   it's available to the members, but it's available
	14   to you gentlemen.
	15   BY THE WITNESS:
	16        A.    The actuarial report provides a summary
	17   of information of the fund and the costs for the
	18   plan and its participants at that point.  The
	19   first part of the report provides details of
	20   participant data.  It includes information about
	21   an individual's age and sex in cells, in other
	22   words, we break it into five-year periods and we
	23   include it based upon the individual's length of
	24   service and we cross-section that data so that the

 
	1   trustees of the fund or participants of the plan
	2   could get a very good sense of the dynamics of the
	3   plan at a particular point, what's the average age
	4   of the group, what are the dynamics of the group,
	5   where are the baby boomers at in this group and
	6   what is the cost of the baby boomers as they move
	7   toward retirement.
	8	    The information is broken out in such a
	9   way that it can be used by the trustees for any
	10   planning needs that they might have, and also
	11   assists them in potential benefits improvements or
	12   modifications that they may feel appropriate to
	13   give as finances permit.
	14	    The next section is basically the
	15   actuarial value of the assets.  And it's important
	16   to note that while market value of assets goes up
	17   and down daily, and we see that at this point in
	18   time in history very dramatically, the actuarial
	19   value of the assets is a different number which is
	20   used and created by the Segal Company with the
	21   assistance of the Board of Trustees through
	22   passing of policy.  The policy that this Board of
	23   Trustees has set is a very conservative policy.
	24   It is a policy that states that any gain or loss

 
	1   in a marketed security or bond is basically valued
	2   at 20 percent for that given year.
	3	    So that what you have here is a
	4   five-year smoothing period, so that as the market
	5   values go up and down, those gains or losses will
	6   trail at a 20 percent per year factor.  So that
	7   what happens is the actuarial value of the assets
	8   will increase or decrease moderately while the
	9   jagged edges of the market are up and down.  That
	10   is something that this Board of Trustees has
	11   decided to implement.  That is the basis for which
	12   any financial planning of benefit improvements are
	13   made.  It is based on the actuarial value of the
	14   assets.  The report gives a detailed summary, in
	15   essence, line by line, of the actuarial value of
	16   the assets in its calculation.
	17        Q.    Let me stop at that point.  Do the
	18   trustees establish an assumption of investment
	19   return, an actuarial assumption on the investment
	20   return?
	21        A.    An actuarial assumption of investment
	22   return is established by the trustees with the
	23   concurrence of the plan actuary.
	24        Q.    Do you know what the assumption is for

 
	1   the Laborers' Pension Fund?
	2        A.    Yes, it's 7 percent.
	3        Q.    And in your experience with the Segal
	4   Company and in your studies, would you rank that
	5   as -- how would you rank that, as conservative, as
	6   very liberal, or how?
	7        A.    First of all, the actuarial assumption
	8   has to be reasonable to pass IRS muster.  So first
	9   of all, we believe it's reasonable.  But we would
	10   also tell you that it's conservative.  It's
	11   conservative based upon the rate of return that
	12   this fund has received for the last 10-year
	13   period.
	14        Q.    I'm going to get into the actuary, what
	15   do you -- how you can play with the actuarial
	16   assumption to make gains without ever having to
	17   make contributions.  But I think that's more of a
	18   function of the actuary, which I'll deal with.
	19	    All right.  Would you go on with the
	20   actuarial report, the contents.
	21        A.    The next section is an important
	22   section from the standpoint of the Segal Company
	23   because it's the actuarial experience.  In this
	24   section, we review in detail things like the

 
	1   number of disabilities received in a particular
	2   year, and then annually backwards, and measure it
	3   against the assumption.
	4	    So, in essence, the actuarial
	5   experience is measured against the yardsticks.
	6   The plan has certain assumptions.  The assumptions
	7   are important because they represent a cost to the
	8   plan on a very long-term future planning basis.
	9   But because this is a multi-employer plan, in a
	10   given year, you may have double the retirements or
	11   half the retirements based upon things like work,
	12   or other things that are, in essence, beyond the
	13   control of the trustees.
	14	    So the actuarial experience section is
	15   basically on an annual basis going to go through
	16   and measure the actual experience in terms of the
	17   number of retirements, the number of disabilities,
	18   the number of deaths, the amount of turnover in
	19   the plan.
	20	    Laborers' plans traditionally have had
	21   more turnover than other plans.  Now we're seeing
	22   that that's somewhat of the case, but not as much
	23   as it used to be as wages get higher.  Sometimes
	24   people come into the Laborers' and they move into

 
	1   other crafts.
	2	    So all of those assumptions generate,
	3   in essence, the cost of the plan.  A plan that has
	4   higher turnover for the same dollar could provide
	5   a greater benefit than a plan that has lower
	6   turnover because some of the people don't stay in
	7   the plan.
	8	    I would point out and caution, however,
	9   that these things are sometimes changed by the
	10   workplace.  Sometimes they're changed by
	11   legislation.  For example, some of you may be
	12   aware that five-year vesting is going to become a
	13   requirement.  When five-year vesting becomes a
	14   requirement for this plan, what that will mean is
	15   there will be ultimately more people eligible for
	16   pensions now after five-year vesting than there
	17   were with 10-year vesting.  In essence, that will
	18   be a cost for the plan.
	19	    Now, the trustees don't necessarily
	20   have a vision that that would occur, but they have
	21   to be prepared for that contingency.  So based on
	22   the assumptions of the plan, based upon the
	23   investments, based upon all these things, the
	24   trustees plan for these kinds of changes which

 
	1   could either ultimately cost the plan more or
	2   less.
	3	    The tendency for the government in
	4   terms of their legislation has been to legislate
	5   things that cost the plan more, such as joint
	6   survivor options and requirements of that nature,
	7   that, in essence, have an actuarial cost to the
	8   plan.
	9        Q.    What else, if anything, is in the
	10   actuarial valuation report?
	11        A.    Well, the way that you pay for a
	12   pension plan over a period of time is the
	13   scheduled cost.  In essence, if you had a house,
	14   that would be similar to the monthly payment.  And
	15   monthly a certain amount of money has to come in
	16   and be added to the asset base.  You have a 7
	17   percent interest assumption to watch the plan
	18   grow.
	19	    The scheduled cost versus the
	20   contributions is an important thing because in the
	21   case of, for example, barbers, while they may have
	22   had a very healthy pension plan, what ultimately
	23   happened is they had a very -- a downturn in the
	24   industry, less unions and, therefore, the

 
	1   contribution base for any pension plans servicing
	2   that kind of an industry, pattern makers would be
	3   another, coal industry, drops, so an important
	4   section of the plan in addition to the actuarial
	5   experience of the people is what's going on with
	6   the income into the plan, that income based on the
	7   hourly contribution rate times the hours and the
	8   contributions.
	9        Q.    What other factors are in the actuarial
	10   valuation?
	11        A.    The next section is basically the
	12   maximum deductible contributions to the plan.
	13   That's an important section.  These plans are
	14   subject to IRS guidelines and requirements, and
	15   basically there are a number of corridors that the
	16   plan must operate in.  In other words, if the plan
	17   were to have too many assets, they would be, in
	18   essence, required to give a benefit improvement
	19   because they would be beyond full funding.  And
	20   there's a series of tests that we show in the
	21   valuation and where you're at in relation to each
	22   of those tests.
	23	    Lastly, the funding standard account
	24   and disclosure requirements, these are things that

 
	1   are necessary to comply with government
	2   requirements and we provide that, the credit
	3   balance, and other requirements for the government
	4   to basically be operating a pension plan on a
	5   tax-exempt basis.  Last --
	6        Q.    Go ahead.
	7        A.    The last thing attached is a
	8   certificate which basically is filed with the
	9   5500s.  It's called the Schedule B form.  And that
	10   basically is what the government collects and
	11   reviews.
	12        Q.    What is Schedule B?  You're saying this
	13   is a certificate?
	14        A.    Schedule B is the form that is filed
	15   with the 5500 and the actuarial certificate which
	16   is signed by an actuary which says, in essence,
	17   these are the assumptions of the plan, this is the
	18   plan.
	19        Q.    And an actuarial valuation is prepared
	20   by the Segal Company for the trustees yearly?
	21        A.    Yes.
	22        Q.    And is the Laborers' Pension Fund on a
	23   plan year that's different from a calendar year?
	24        A.    Yes, it's on a June 1st year.

 
	1        Q.    Now, are there any other services that
	2   the Segal Company presently provides the Laborers'
	3   Pension Fund?
	4        A.    Yes.  We attend the Board of Trustees
	5   meetings and we attend the committee meetings.  We
	6   attend the meetings at which the Trustees
	7   Committee reviews the pension applications and
	8   approves them.  Weekly we are providing assistance
	9   to the fund office in terms of administrative
	10   support for complex pensions or pensions which
	11   require special calculations.  Generally that's
	12   one that's a result of a
	13   QDRO --
	14        Q.    Is that a Qualified Domestic Relations
	15   Order?
	16        A.    Qualified Domestic Relations Order,
	17   which means that somebody has gotten a divorce, or
	18   has some personal activity which will affect their
	19   pension.  We also assist the trustees in drafting
	20   the plan.
	21        Q.    Let me break down your meetings with
	22   trustees and committees.  Would you describe
	23   the -- name the committee or committees which
	24   meet, the name of the committee and who is present

 
	1   at the committee meetings.
	2        A.    The Pension Committee is composed of
	3   labor and management trustees.  The labor trustees
	4   at the Pension Committee, I hope I get this right
	5   because there are a number of committees, on the
	6   Pension Committee, it is Mike Lazzaretto, and I
	7   can't recall the other one.  Sam Vinci is the
	8   employer trustee.
	9        Q.    Is there anybody from staff who attends
	10   that meeting?
	11        A.    Yes.  The staff that attends the
	12   meeting are Bill Kolkowski.
	13        Q.    Can you spell that name?
	14        A.    No.
	15        Q.    Okay.  We'll try to get it for you.
	16        A.    Cathy O'Malley-MaCarthy and Frank
	17   Caruso.
	18        Q.    All right.  Taking the first one,
	19   Kolkowski?
	20        A.    Yes.
	21        Q.    What is his position with the Pension
	22   Fund?
	23        A.    He is a supervisor of the Pension Fund
	24   and he processes and works with the members in

 
	1   terms of their applications for pension, makes
	2   sure that all the data is included and makes sure
	3   that all the service is included and is the first
	4   line in terms of preparing the calculation for the

	5   benefit.
	6        Q.    And Ms. O'Malley?
	7        A.    She holds the same position.
	8        Q.    And Mr. Caruso?
	9        A.    He's the director of the Pension Fund.
	10        Q.    And what occurs at that particular
	11   Benefits Committee meeting?
	12        A.    What occurs is that pension by pension,
	13   Jim Jorgensen, the plan administrator, is also
	14   there, reviews a summary of the man's work record.
	15        Q.    Or woman's?
	16        A.    Or woman's work record, reviews the
	17   length of service, any unusual circumstances, such
	18   as disability during the period or anything like
	19   that, potential breaks in service, if there is a
	20   period of time in which the employee is absent,
	21   then goes through the discussion of why they
	22   haven't had a break in service under the plan, and
	23   then the trustees vote on that individual pension,
	24   the committee does.

 
	1        Q.    Does the staff make any recommendations
	2   concerning whether in its opinion, their opinion,
	3   that the applicant does or does not -- is or is
	4   not eligible for pension?
	5        A.    Yes.
	6        Q.    And what is your role?
	7        A.    Our role is to generally review
	8   correspondence that we may have sent in requiring
	9   calculation.  For example, if someone is divorced
	10   and, let's say, they're divorced after 10 years of
	11   marriage, but have 15 years of service in the
	12   plan, our role would be to do the calculation and
	13   to make sure that the QDRO, the Qualified Domestic
	14   Relations Order, is followed in terms of the
	15   allocation.
	16	    Those are all very different.  There's
	17   no standard.  So very often the lawyers as part of
	18   an economic package work it out and our job is to
	19   make sure that the QDRO is properly interpreted to
	20   the extent that we can as the plan consultant and
	21   actuary, and also that, in essence, the QDRO
	22   doesn't push the plan to a benefit that it, in
	23   essence, doesn't have.  Sometimes lawyers get
	24   overly aggressive and if you were to pay out as

 
	1   written, you would end up paying out more than
	2   ultimately the value of the pension on a present
	3   value basis.
	4        Q.    How often does the Benefits Committee
	5   meet?
	6        A.    The Benefits Committee meets monthly.
	7        Q.    And how many applications, if I can
	8   call it that, are reviewed at a monthly meeting?
	9        A.    Well, I believe that there are
	10   approximately --
	11        THE WITNESS:  Could I check and see how many
	12   are in a year?
	13        THE HEARING OFFICER:  Go ahead.
	14        THE WITNESS:  Because I have that

	15   information.
	16        MR. THOMAS:  Just for the record, if the
	17   witness could identify what he's referring to.
	18        THE WITNESS:  I'm looking at the actuarial
	19   valuation.
	20        MR. THOMAS:  For what year?
	21        THE WITNESS:  June 1st, 1996.
	22        MR. THOMAS:  Thank you.
	23   BY THE WITNESS:
	24        A.    In the year ended May 31, 1996, there

 
	1   were 355 pensions awarded.
	2        Q.    And each one of those pensions would
	3   have been reviewed by the Benefits Committee?
	4        A.    Each one of the files of the
	5   individuals would have been gone through in detail
	6   by the benefits committee, yes.
	7        Q.    All right.  Between meetings of the
	8   Benefits Committee, do you or does the Segal
	9   Company have contact with any of the staff
	10   concerning the matters of the pension
	11   application's eligibility?
	12        A.    Yes.
	13        Q.    Go ahead.  Would you describe that for
	14   the Hearing Officer, please?
	15        A.    I get approximately anywhere from two
	16   to five letters a week from the fund office,
	17   regarding pensions or questions that come up.
	18	    Generally, they are questions of
	19   interpretation, and the individual's circumstances
	20   which result in that.
	21        Q.    Who would sign those letters?
	22        A.    Frank Caruso.
	23        Q.    And then what would be your procedure
	24   after receiving the letter?

 
	1        A.    I review the letter, and I have a staff
	2   person that I work with that reviews the letter,
	3   and coordinates the production of a response
	4   between our administrative compliance department
	5   and our actuarial department.
	6        Q.    Without getting into names, obviously,
	7   and if it's possible, could you describe for the
	8   Hearing Officer the type of questions that Mr.
	9   Caruso would be submitting to you?
	10        A.    Generally, it's someone who may have
	11   left employment for some period of time.  There is
	12   generally a question about what benefit they would
	13   be entitled to.
	14	    Often, it would involve a collections
	15   matter, in which possibly money came in after the
	16   fact, and is added to the file.
	17	    It also can involve a question of, for
	18   example, the plan has a minor child benefit, so
	19   that if a man dies, and he has children but no
	20   spouse, a benefit is paid, his pension benefit is
	21   paid as he would have been entitled to under that
	22   death benefit monthly to his children, until they
	23   reach the age of 21.
	24	    Those are not calculations that are

 
	1   necessarily easily done.  We have to qualify the
	2   children.  We have to make sure that everything is
	3   in order.  So it is the more complex calculations
	4   and often those which require actuarial
	5   adjustments of some sort that we see.
	6        Q.    Do you respond by telephone, in
	7   writing, or both to the inquiries from Mr. Caruso?
	8        A.    I sometimes respond by telephone; if
	9   there is something I don't understand in the file,
	10   or something is missing and I need it, I'll pick
	11   up the phone, and I'll call.
	12	    In the event that we can process it,
	13   then we always respond in writing.
	14        Q.    Now, what other committees of the Board
	15   of Trustees do you work with or attend?
	16        A.    Following the Pension Committee, is the
	17   Welfare Claim Committee.
	18        Q.    That is in the welfare fund?  Is that
	19   part of the pension fund?
	20        A.    That is the welfare fund.
	21        Q.    Let's stay with the pension fund for a
	22   moment.  Any other committee from the pension
	23   side?
	24        A.    None that I recall.

 
	1        THE HEARING OFFICER:  Do you, does the Segal
	2   Company do the pension fund for the Laborers' in
	3   the St. Louis area?
	4        THE WITNESS:  Yes, yes, we do.  My colleague
	5   does.
	6   BY MR. CARMELL:
	7        Q.    At one time, did Segal Advisers perform
	8   investment consulting services to the Laborers'
	9   Pension Fund?
	10        A.    Yes, we did.
	11        Q.    When did that relationship terminate?
	12        A.    I can't recall the date; approximately
	13   two years ago.
	14        Q.    And was there a successor?
	15        A.    Yes, Marco Consulting.
	16        Q.    Is that M-A-R-C-O?
	17        A.    M-A-R-C-O, Marco Consulting.
	18        Q.    What services did -- what period of
	19   time did Segal Advisers perform investment
	20   consulting services?
	21        A.    I believe it was a long period of
	22   time.  I'm not sure of the length of that,
	23   Sherman.
	24        THE HEARING OFFICER:  One second.  You are on

 
	1   the consulting services now?
	2        MR. CARMELL:  Of Segal Advisers, the
	3   investment consulting services.
	4        THE HEARING OFFICER:  Okay.  Am I correct,
	5   you are still advising the pension fund?
	6        MR. CARMELL:  No.
	7        THE HEARING OFFICER:  You are not.
	8        MR. CARMELL:  No.
	9        THE WITNESS:  Marco Consulting replaced Segal
	10   Advisers approximately two years ago.
	11        THE HEARING OFFICER:  Who does the, when you
	12   had the, you were the investment advisers, what
	13   brokerage house did you use to make the trades?
	14        THE WITNESS:  I couldn't tell you that.  The
	15   investment consultant would be able to tell you
	16   that.  That is not something that is under my area
	17   of responsibility as a benefits consultant.
	18        MR. CARMELL:  I think it will be shown they
	19   don't use any brokers.  There is no directed
	20   brokerage.  But we will get to that.
	21        THE HEARING OFFICER:  No directed broker?
	22        MR. CARMELL:  No directed broker.
	23        THE HEARING OFFICER:  My question is, does
	24   the pension fund, when you had it, does the

 
	1   Pension Board have the discretion to tell you,
	2   tell Segal which brokers to use?
	3        THE WITNESS:  Segal Company didn't use
	4   brokers.  They, actually, the investment managers
	5   are responsible for that area.  That is beyond my
	6   area of --
	7   BY MR. CARMELL:
	8        Q.    Let me try and describe.  Segal
	9   Advisers was a consultant to the trustees
	10   concerning investment managers who in fact
	11   invested the money, is that correct?
	12        A.    That's correct.
	13        Q.    So they would participate, they
	14   participated in the, with the trustees in the
	15   selection of the investment managers, and whether
	16   they were to be a balanced or an equity or a fixed
	17   income manager, is that correct?  Is that right?
	18        A.    That's correct.
	19        MR. CARMELL:  We are going to have
	20   testimony.  And we will be describing it in this
	21   exhibit, the investment managers at present; and
	22   then the investment managers will be on, and they
	23   will discuss that.
	24        THE HEARING OFFICER:  Okay.  My question,

 
	1   just going back to the pension fund, how much
	2   control does the Pension Committee have if they
	3   want to make some extraordinary distributions?
	4	    I'll give you an example.  Assume that
	5   one year that the pension fund, the Pension
	6   Committee wants to make a distribution of a 13th
	7   check.  How much control over the pension fund
	8   does the committee have over that?
	9        THE WITNESS:  The committee is the trustees.
	10        THE HEARING OFFICER:  Right.  I'll use the
	11   term trustee.
	12        THE WITNESS:  The trustees of the committee
	13   would have to make that -- they would have no
	14   control over that.  They would have to make that
	15   recommendation to the full Board of Trustees, and
	16   the full Board of Trustees would have to vote on
	17   that.
	18	    They only have the authority to review
	19   the applications; in the level of detail, that
	20   would be probably too long, two to three hours,
	21   monthly, with very focused reviews.  Having twelve
	22   people around the table doing that is just not
	23   efficient for a fund of this size.  We have no
	24   clients that would do that.

 
	1	    In this fund, unlike other funds,
	2   trustees actually do go through the record of each
	3   individual and approve that pension; that is a
	4   greater standard than we would normally expect.
	5        THE HEARING OFFICER:  13th check, pension
	6   fund, I'm talking about.
	7        THE WITNESS:  That would be the Board of
	8   Trustees.
	9        THE HEARING OFFICER:  Board of Trustees?
	10        THE WITNESS:  Yes.
	11        THE HEARING OFFICER:  Is that unusual for a
	12   fund to give a 13th check?
	13        THE WITNESS:  Is it unusual?  The Government

	14   has made it more difficult, because in essence, if
	15   you do three in a row, then it's a benefit that
	16   you have to give every year.  So that our clients
	17   were more likely to give 13th checks before the
	18   Government in essence required that.
	19        THE HEARING OFFICER:  How about every --
	20        THE WITNESS:  Every second year, could you
	21   give a 13th check?  Yes.  Then in the years you
	22   don't, the trust -- the clients or the
	23   participants wonder, what is wrong with the plan.
	24        THE HEARING OFFICER:  How about every third

 
	1   year?
	2        THE WITNESS:  You can do it every third
	3   year --
	4        THE HEARING OFFICER:  Every election year?
	5        THE WITNESS:  -- then just forget --
	6   generally, I haven't seen it done in an election
	7   year.  Generally, it's done based on the finances
	8   of the plan.
	9        THE HEARING OFFICER:  It's done in St. Louis
	10   every third year and the election year.  Okay.  Go
	11   ahead.
	12   BY MR. CARMELL:
	13        Q.    Have we basically spanned the services
	14   that the Segal Company provides to the pension
	15   fund, or are there any others?
	16        A.    Work on the plan documents, summary
	17   plan description, communications materials, would
	18   be the other services; we would provide any
	19   special studies regarding the actuarial services.
	20        Q.    Now, let's turn now to the Laborers'
	21   Health and Welfare Fund.  And would you describe
	22   the services that the Segal Company performs for
	23   that entity?
	24        A.    Annually, the Segal Company reviews the

 
	1   financial condition of the funds, and makes
	2   recommendations with respect to a projection of
	3   cost for the fund, in terms of an appropriate
	4   contribution rate.
	5	    We also monitor the service providers
	6   for the fund.
	7        Q.    Would you stop there, and describe what
	8   you mean by monitor the service providers, and if
	9   you can, either through your recollection or
	10   documents, what service providers you monitor?
	11        A.    The service providers that are
	12   monitored -- I'll just take them in the order that
	13   I think of them -- are the Preferred Provider
	14   Organization.
	15	    Every two months the welfare fund
	16   meets, and reports are given for each of the two
	17   months.
	18        Q.    Stop just for a moment.  Would you
	19   describe what is the PPO, the Preferred Provider
	20   Organization, whether it is an individual, group,
	21   whether it is an entity that runs it, how it goes,
	22   and in as much detail as you can, the nature and
	23   operation of the PPO?
	24        A.    Board of Trustees in 1995 commissioned

 
	1   us to solicit competitive bids for a Preferred
	2   Provider Organization.
	3	    Preferred Provider Organizations in
	4   general terms provide a list of hospitals and a
	5   list of doctors that they have under contract,
	6   that in essence can provide services under a
	7   discount arrangement.
	8	    In 1995, we did a comprehensive review
	9   of the Chicago marketplace and the counties where
	10   the Laborers' operate, solicited bids from vendors
	11   that we thought could provide those services
	12   adequately to the Laborers'.
	13        Q.    I want to use the term, do you use what
	14   is called the RIF?  What is the term when you send
	15   out a bid, a spec, RIF?
	16        A.    A request for information.
	17        Q.    Yeah, which I have an anachronism, is
	18   an RIF, R-I-F.
	19        A.    Is one way of doing it.  What I would
	20   actually call it would be a request for detailed
	21   proposal.
	22        Q.    Okay.
	23        A.    Our requests, request for information
	24   is generally less detailed.

 
	1        Q.    All right.
	2        A.    The Chicago Laborers' generally have a
	3   policy of soliciting bids in a very detailed way.
	4   It is a thick specification letter.  I didn't
	5   bring one today.  Generally, it includes 15 or
	6   more pages of questions about the organization.
	7	    We, in the situation of the Preferred
	8   Provider Organization, we provide approximately
	9   150 actual claims from the fund.  We have them
	10   re-price those claims and send them to us, so that
	11   we can measure the value of their discounts.
	12	    It also gives us the ability to, down
	13   the road, measure the amount of the discount and
	14   the bid versus the amount of discount that we are
	15   actually getting at the fund, which we will do
	16   about a year and a half into the program, just to
	17   make sure that what was bid in essence was what
	18   was received.
	19	    The PPO marketplace is a dynamic
	20   marketplace.  So the PPO should, if it's growing,
	21   and we hope that it is, if it's an entity that has
	22   a good product, should be getting significant or
	23   should be getting either significant discounts,
	24   because they are at a threshold of the discount,

 
	1   best discount available, or moving toward that
	2   threshold.
	3	    Now, Segal Company solicits many
	4   competitive bids out of the Chicago office, so
	5   that we have ability in our database to compare
	6   this to other bids of other clients; so we have a
	7   very good handle on the marketplace.
	8        Q.    When you sent out the bid in 1995, do
	9   you recall how many entities you sent to?
	10        A.    I don't, but it would be generally
	11   about eight.
	12        Q.    And what was the source of those
	13   eight?  How did you get to those eight?
	14        A.    They are different companies that we
	15   have experience with as able to provide services
	16   to multi-employer benefit plan.
	17	    Generally, they are PPO that other
	18   clients -- we have approximately 250 health and
	19   welfare funds in the Chicago office -- are using.
	20   So they are familiar to us.
	21        Q.    All right.  Now, you have received back
	22   your request for bids, and what does the Segal
	23   Company do then?
	24        A.    The Segal Company prepared a

 
	1   preliminary report for the trustees.  And in
	2   essence what we did is, we narrowed the field.
	3   And as I recall, we narrowed the field to four
	4   providers; I would call them finalists.
	5	    Those four entities came and
	6   interviewed with the Board of Trustees, and went
	7   through the process of meeting with the client,
	8   meeting with us, to determine who would make the
	9   next cut.
	10        Q.    Do you recall how long -- was that one
	11   meeting or several meetings?
	12        A.    That was a special meeting.  Actually,
	13   I believe there were two special meetings.
	14        Q.    And how long did those meetings take,
	15   do you recall?
	16        A.    In terms of time?
	17        Q.    Yes.

	18        A.    Oh, they were about four hours about,
	19   about four hours each.  We go through basically
	20   the entire proposal, and talk to them about what
	21   services they can provide.
	22	    And a very important aspect of this is
	23   the technology blend; how does this entity,
	24   regardless of all the discounts, regardless of

 
	1   what they can do, match up with our computer
	2   system at the fund?  Because you can have the best
	3   organization in the world, but if you can't blend
	4   the technology, then what will happen in the fund
	5   of over 10,000 participants is, in essence, you
	6   will create an immediate backlog and disaster.
	7	    So that it's a very important aspect of
	8   the plan in the healthcare area that the
	9   technology aspects of this thing run flawlessly.
	10        Q.    I neglected to ask you with respect to
	11   the welfare fund, approximately how many
	12   participants are there?  Let's call it lives, as
	13   opposed to just employees.
	14        A.    There's in our actuarial valuation --
	15   may I just take a look?
	16        MR. THOMAS:  Sure.
	17   BY THE WITNESS:
	18        A.    We show 12,364 people in this
	19   valuation.  That excludes people who don't have
	20   one year of service as of this date, because we
	21   viewed them in essence as new employees, for which
	22   we are not going to calculate an actuarial cost
	23   for.  The actuarial valuation actually takes each
	24   individual and projects their life expectancy and

 
	1   the costs.  So we take out the short service
	2   people.
	3	    In the plan in total, I would imagine
	4   there is about 14,000 people.
	5        THE HEARING OFFICER:  What services are you
	6   talking about here now?  Are you talking about
	7   general, general health?  What, eyeglass?
	8        THE WITNESS:  Oh, no.  Right now I'm just
	9   talking about a hospital and doctor, Preferred
	10   Provider Organization.
	11        MR. CARMELL:  We are going to get to the
	12   benefits.
	13        THE HEARING OFFICER:  Okay.
	14        MR. CARMELL:  In this exhibit.
	15        THE HEARING OFFICER:  This is just general
	16   health?
	17        THE WITNESS:  This is just the general.
	18   BY MR. CARMELL:
	19        Q.    General health, okay.  And you are
	20   soliciting for both hospitals and physicians in
	21   these bids, is that right?
	22        A.    That's correct.
	23        Q.    Now, the trustees have now met with the
	24   finalists over a two-day period, and what occurs

 
	1   next?
	2        A.    What occurs next is that we go back and
	3   negotiate on the finer points of the proposal.
	4	    While all the proposals may have been
	5   adequate, what we will seek to do is obtain the
	6   best bid possible from the two, in essence the
	7   last two to win.
	8        Q.    How was it determined who are the last
	9   two?  Who makes that decision?
	10        A.    The Board of Trustees, with the
	11   assistance of the Segal Company, will carefully
	12   look at the access to the plan as the determining
	13   fact, as well as the amount of discounts to be
	14   received.
	15	    In other words, in Preferred Provider
	16   Organizations, generally, you can get a deeper
	17   discount with a smaller panel.  So that would mean
	18   that as you have fewer doctors, that PPO is
	19   directing more volume into that.
	20	    And you've got to balance in essence
	21   access to the plan participants, how many doctors
	22   are on the list, versus the discounts.
	23	    So ideally what you do, in looking at
	24   the marketplace, all these companies, these PPO

 
	1   companies have very different client bases, so if
	2   you could find someone that has a large number of
	3   physicians, so that there is adequate access, a
	4   large number of hospitals -- if you can't get
	5   someone with all the hospitals -- that is what you
	6   desire, is to have the most hospitals and doctors,
	7   and then look carefully at the fees that they are
	8   charging.
	9	    And we also look at the subcontracts of
	10   the PPO, with the hospitals and physicians.
	11        Q.    So that the Segal Company went back and
	12   negotiated with the two finalists, is that
	13   correct?
	14        A.    Um-hmm.
	15        Q.    And that was with respect to their
	16   fees?
	17        A.    Actually, yes, their fees and their
	18   networks, in essence.
	19        Q.    What happened next?
	20        A.    In terms of this PPO?
	21        Q.    Yes.
	22        A.    There were two finalists.  One of the
	23   finalists then decided to withdraw their
	24   proposal.

 
	1        Q.    Why, if you know?
	2        A.    I don't know why he decided to
	3   withdraw, but he decided to withdraw.  It was a
	4   rigorous bid process.
	5        Q.    Who was the remaining finalist?
	6        A.    HFN.
	7        Q.    Had Segal Company any experience with
	8   HFN before?
	9        A.    Yes.  They had provided a number of
	10   competitive bids.  And we talked to them a number
	11   of times.
	12        Q.    And was HFN selected by the Welfare
	13   Fund?
	14        A.    Yes.
	15        Q.    Now, what other services that you were
	16   talking about -- now, we've talked about PPO,
	17   physicians and hospitals for what we call medical
	18   care, is that correct?
	19        A.    Yes.
	20        Q.    And now we have, what other services
	21   are there?  Because there are other programs that
	22   are provided by the -- programs of benefits
	23   provided by the Welfare Fund.  Would you describe
	24   what services Segal performs.

 
	1        A.    The dental program.
	2        Q.    Would you describe for the Hearing
	3   Officer what services Segal performs with respect
	4   to the dental program.
	5        A.    The Segal Company monitors the dental
	6   program in terms of the claims experience versus
	7   the premiums paid.  It is a contract in which it
	8   is an insured arrangement.  It's underwritten by
	9   Delta Dental Plan.  I believe they came in to
	10   effect around 1989 through a competitive bid
	11   process.
	12        THE HEARING OFFICER:  Why is that different
	13   than the general health?
	14        THE WITNESS:  I'm sorry.  The general health
	15   contract is not a risk contract.  You would do a
	16   different type of monitoring for the PPO.  The
	17   monitoring for a PPO is to see if you're getting
	18   the value of the discount.  Okay.  There's no risk
	19   there.  No one is taking any liability.  You pay a
	20   fee for the access.
	21	    In the dental program that the
	22   Laborers' have --
	23   BY MR. CARMELL:
	24        Q.    Let me go back to this for a minute.  I

 
	1   obviously didn't make clear what a PPO is.  That's
	2   an organization of hospitals, is that
	3   it --
	4        A.    Yes.
	5        Q.    -- under an umbrella?
	6	    And the purpose of a PPO is to obtain
	7   the services at a discounted rate, is that
	8   correct?
	9        A.    Yes.
	10        Q.    And it's the old idea, the more bodies
	11   you can send to a particular hospital or doctor,
	12   theoretically, that entity or individual is
	13   willing to give a greater discount on the
	14   services, is that correct?
	15        A.    That's correct.
	16        Q.    That's the old volume/price.  So that a
	17   network of the PPO is hospitals that have already
	18   been established and physicians already in place
	19   who are part of this PPO, in this case, HFN's
	20   network?
	21        MR. THOMAS:  Objection to the leading.
	22        MR. CARMELL:  Well, I'm just trying to sum it
	23   up.  Okay.
	24   BY MR. CARMELL:

 
	1        Q.    And you want --
	2        THE HEARING OFFICER:  I'll allow that if you
	3   understand the question.
	4   BY MR. CARMELL:
	5        Q.    Okay.  Why don't you describe what HFN
	6   is and what it does.
	7        A.    Sure.  I can.  A preferred provider
	8   organization goes out and signs contracts between
	9   themselves and physicians individually or groups
	10   of physicians and -- between themselves and
	11   hospitals, and what they do is, in essence, obtain
	12   a discount.  The discount could either be based
	13   upon a discount off their retail charge, which
	14   moves around, or it could be based on a fee
	15   schedule.  That's all carefully looked at in the
	16   bid process.
	17	    In the instance of the Laborers', HFN
	18   has a fee schedule for their doctors which is
	19   based upon RBRVS, which is the Resource Based
	20   Relative Value System that Medicare uses.
	21   Basically, what we're doing is we're tying our
	22   reimbursement, although at a higher level, to the
	23   same schedule or parity of Medicare, and what we
	24   do in the bid process by sending them the claims

 
	1   is have them evaluate that.
	2	    So by paying the, I think it's $2.50
	3   per person per month, we are obtaining the
	4   discount from every doctor on that list, and that
	5   doctor has certain responsibilities not to
	6   balanced bill as a result of that contract that he
	7   has with the provider -- with the PPO.
	8        Q.    Tell us what a balanced bill is.
	9        A.    A balanced bill is basically, you go to
	10   the doctor and you're supposed to pay a $10 co-pay
	11   and you pay the $10 co-pay and the insurance
	12   company is supposed to provide and all of a sudden
	13   you get a bill for $90 in the mail, because you
	14   paid your 10, you took the 10 off and now he's
	15   charging $100 for the exam, that there was a
	16   guaranteed price of, say, 40 for.  The PPO, in
	17   essence, or the claim administrator paid the rest,
	18   but they're sending you the bill for the balance.
	19        Q.    And under the arrangement that the
	20   Laborers' Welfare Fund has, there is no balanced
	21   billing, is that correct?
	22        A.    That's correct.
	23        Q.    Go ahead.  Is there anything -- go
	24   ahead.

 
	1        A.    With respect to hospitals, one of the
	2   things you'll notice in the chart here is that the
	3   trustees put a incentive in.  It pays 85 percent
	4   instead of 80 percent.  The arrangement is such
	5   that if you go to a preferred provider hospital,
	6   then you get a greater reimbursement from the
	7   plan, the plan pays more of the bill.  Well, the
	8   reason the plan could afford to pay more is
	9   because they're getting a discount from the
	10   hospital.
	11	    So that, in essence, this coordinated
	12   direction, the discount from the provider, makes
	13   it more affordable for the plan to use that
	14   provider and the incentive for the plan
	15   participant to go there ultimately means that
	16   you're channeling people into that discounted
	17   arrangement.
	18	    And I want to point out, it's a
	19   self-funded arrangement.  In other words, there's
	20   no risk on anybody's part here.  Participants
	21   would have still had the charges, we're just
	22   securing a discount for an access fee, but it's
	23   not a premium payment to an insurance company,
	24   which is what we have with the dental plan.

 
	1        Q.    Are the medical and physician benefits
	2   paid directly out of fund assets or are they
	3   insured?
	4        A.    They're paid directly from the fund
	5   assets.
	6        MR. CARMELL:  Could we take a break at this
	7   time?
	8        THE HEARING OFFICER:  I was just going to
	9   suggest, it's about 10:00, 10:10, and we always
	10   stop about an hour.  How about a 10-minute break
	11   for the ladies.
	12	        (WHEREUPON, a recess was had.)
	13        THE HEARING OFFICER:  We're going back on the
	14   record.  Ready to go, gentlemen?
	15   BY MR. CARMELL:
	16        Q.    Mr. Glowiak, we discussed the services
	17   that Segal renders to the Welfare Fund concerning
	18   the medical plan and now what other services are
	19   rendered and with respect to what other plans of
	20   the fund?
	21        A.    The Segal Company also reviews and
	22   monitors the dental plan for the Chicago
	23   Laborers'.
	24        Q.    And you were describing that for a

 
	1   period of time, the plan was insured by Delta, is
	2   that correct?
	3        A.    That's correct.  I believe it was a
	4   little bit before my time.  I think it was 1989.
	5   I remember reading correspondence when I took the
	6   client responsibility over that it was a new
	7   provider.  It was awarded to Delta after
	8   terminating Travelers Insurance Company based upon
	9   a competitive bid.
	10        Q.    All right.  Since the Segal Company
	11   having come on board, what services have you
	12   rendered with respect to the dental plan?
	13        A.    The Segal Company annually meets with
	14   the dental provider and talks to them about a
	15   variety of things.  The key issue in the dental
	16   plan is access to plan participants that I focus
	17   on, that is to say that the members have a wide
	18   variety of choices.
	19	    Different healthcare delivery systems,
	20   as I call them, whether they're medical, dental or
	21   prescription drug, healthcare delivery systems
	22   have different models.  The model, in essence,
	23   helps drive the availability of the benefits.  In
	24   this instance, and generally for the Laborers',

 
	1   the model that's used is a broad-based model, a
	2   model that has much access.  Delta Dental has more
	3   dentists at the time they were awarded this
	4   contract than any other dental provider in the
	5   area, more than Prudential or Travelers.
	6        Q.    Excuse me.  Would you explain the
	7   difference between a closed panel dental provider
	8   and an open panel dental provider, and which the
	9   Laborers' uses.
	10        A.    You could go to any dentist you would
	11   like.  The difference is the level of
	12   reimbursement.  The dental plan that the Laborers'
	13   have, you can go to any dentist, and there are a
	14   lot of individual practitioners.  In essence, it's
	15   an open model.
	16	    A closed panel dental system is
	17   generally thought of like an HMO, like a medical
	18   HMO.  You have to go to that facility, you have to
	19   go to that clinic and you make your appointment
	20   and you go to that clinic.
	21	    The advantage to a closed panel, of
	22   course, is that you can get a capitated rate and
	23   you can have all of the work done in one place.
	24   It has to be properly monitored.  The advantage to

 
	1   an open panel for a plan like this is that it's in
	2   many counties and you have broad access and Delta
	3   is a household name to dentists.  And if you're
	4   going to a dentist and he's not a Delta provider,
	5   you could ask them and sometimes they will become
	6   Delta providers because it is so well-known.
	7	    It is also, though, probably the
	8   strongest in terms of peer review.  It is probably
	9   one of the lowest reimbursements.  And we look
	10   carefully at reimbursement as a criteria for
	11   awarding competitive bids.
	12        Q.    Would you explain that term,
	13   reimbursement.
	14        A.    Reimbursement is the amount of money
	15   that the provider is going to get for the services
	16   they provide.  What happens is Delta Dental, in
	17   essence, negotiates a schedule of reimbursements

	18   and the dentist is reimbursed based upon the
	19   services that he provides.  It's not a flat
	20   capitated amount.  It's for the services that's
	21   provided, so that he's taking a discount on
	22   fillings and bridges and all those kinds of
	23   things.
	24	    The Delta program that we have is, when

 
	1   we last checked, it was 1994 that we did the most
	2   recent bid, they were at the lowest end of what
	3   doctors would accept, so low that, in fact,
	4   annually, I do meet with them and talk about if
	5   they start to have a degeneration in the network;
	6   in other words, are you so low a level that as a
	7   dentist's business and his clinic improves that
	8   he's going to, in essence, terminate Delta Dental
	9   and replace them with higher-paying customers.
	10        Q.    What does the Welfare Fund pay to
	11   Delta, is that a premium or is it per capita?
	12        A.    This is a premium contract.  It is a
	13   risk contract.  The current rate, I believe, is
	14   33.20.  I believe it started out around $30.  I
	15   could get that information, if you'd like.
	16	    But with dental contracts of this
	17   nature, what I like to do, to avoid fluctuation in
	18   the premium rate and annual rate renewals, for a
	19   population that does change, the Laborers' has
	20   some turnover, is to negotiate a three-year
	21   arrangement, and what was negotiated with Delta
	22   Dental was a three-year arrangement.  And I just
	23   received the letter, in fact, earlier this week,
	24   or late last week, when I was out of the office,

 
	1   and the projected deficit under this contract for
	2   the end of this year is $1.2 million.
	3	    In essence, what's happened is that for
	4   -- it's about a -- a little over a $5 million a
	5   year contract and the projected deficit is $1.2
	6   million at the end of the year, and for this year,
	7   based upon the services that have been provided
	8   and projected to be provided under the contract,
	9   they think they will add another 800,000, so that
	10   it will be a total of 1.2 million.  In other
	11   words, this dental contract is operating very
	12   efficiently on behalf of the Laborers'.
	13	    Now, the trustees of the Welfare Fund
	14   are aware of this because we regularly report to
	15   them on this and they've heard this.  What will
	16   happen is I will meet with the dental provider, I
	17   will look at their numbers, I will talk to them
	18   about is it a question of you're paying your
	19   dentists more, have you raised, in essence, the
	20   amount that you're paying to these doctors, or is
	21   it that the utilization is up.  It could be one or
	22   the other.  Is it a matter of there are now people
	23   -- there are the same people buying more
	24   expensive service, crowns and bridges, rather than

 
	1   just fillings, or is it a matter of there are new
	2   people and they have bad pathology, because that
	3   could possibly happen.
	4	    But when they negotiate their rate
	5   renewal for this contract, we'll actually know
	6   where those dollars were spent by line of
	7   service.  And, in fact, I can get all sorts of
	8   data because they have a very good database.
	9        Q.    Does Segal monitor the Delta contract
	10   during its term rather than waiting to the end of
	11   it?
	12        A.    Oh, yes.  In fact, the Board of
	13   Trustees and the Segal Company get monthly claim
	14   information -- get monthly claim information every
	15   two months, so that we know what the claims
	16   experience is doing.
	17        Q.    And there is a vision plan, is that
	18   correct?
	19        A.    That's correct.
	20        Q.    And what services does Segal perform?
	21        A.    The vision plan is also an open plan,
	22   whether you go in or out of network.  We look at
	23   the utilization of services.  We look at the costs
	24   of the services.  The provider -- there's, in

 
	1   essence, a PPO.  The provider agrees that for the
	2   services, the amount shown in the plan, they will
	3   provide an examination, lenses, frames, and that's
	4   a guarantee.  If you want a better pair of frames,
	5   for example, you know, something made in Italy or
	6   something like that, then it's an additional
	7   co-payment.
	8        Q.    Is that a self-funded or insured
	9   benefit?
	10        A.    That is a self-funded benefit as well.
	11        Q.    Are there any other services which
	12   Segal performs for the Welfare Fund trustees?
	13        A.    Basically we'll do the projection of
	14   the cost for the plan so that they know what their
	15   hourly contribution rate needs are, we'll do plan
	16   cost analysis in terms of, you know, what the
	17   monthly costs are, and we'll do -- a large amount
	18   of our time is spent on compliance with laws.
	19   There have been a lot of laws that have passed
	20   that require different requirements, in addition
	21   to COBRA, we've got HIPPA and a number of other
	22   laws and they have different effective dates and
	23   we have to make sure the plan has all the proper
	24   forms for reporting and all those kinds of things.

 
	1        Q.    Now, I want to turn to Exhibit 16,
	2   which is the book, and I want to begin with the
	3   Welfare Fund which starts behind Tab 7.
	4	    Now, I've asked you, Segal, to take a
	5   10-year history of the fund, is that correct?
	6        A.    That's correct.
	7        MR. CARMELL:  So, Mr. Hearing Officer, from
	8   this point on, we're going to be using from the
	9   plan year June 1 of '87 through June 1 of '97 in
	10   all our discussions.
	11        THE HEARING OFFICER:  Okay.
	12   BY MR. CARMELL:
	13        Q.    Now, behind Tab 1 is a page numbered 1
	14   which is the history of the fund.  And would you
	15   describe -- before you describe what's in here,
	16   would you describe what you did and what is the
	17   source materials for these next two pages.
	18        A.    Well, the Segal Company has been the
	19   plan consultant and actuary for many years, and we
	20   have in our offices records, as well as the fund
	21   has good records of the different benefits that
	22   have been paid, and they go back even before
	23   this.  In fact, I didn't bring it, but I have a
	24   document that goes back to the inception of the

 
	1   plan with every single benefit improvement that's
	2   been made.  The reason that that's kept is because
	3   if you get an old claim, and even though there is
	4   a fixed period, that you'll go back, sometimes
	5   claims are presented, sometimes you might have to
	6   pay a claim that is some years old.  So this is
	7   information from the fund office and the Segal
	8   Company that we've used to put this together.
	9        Q.    And these two pages represent changes
	10   in the plan in the particular year, is that
	11   correct?
	12        A.    That's correct.
	13        Q.    And we will get to, following that,
	14   from Page 3 back are actually the schedule of
	15   benefits for the actives and the retirees, and the
	16   medical, dental and vision where applicable,
	17   smart?
	18        A.    That's correct.
	19        Q.    Well, let's review a bit the history of
	20   the fund of benefit increases, and see if we can
	21   understand those.  And would you begin with June 1
	22   of '87, and explain what that benefit is?
	23        A.    The diabetes instruction benefit we
	24   added because, one of the problems with diabetes

 
	1   is that people, it's a chronic illness, and people
	2   who have it sometimes after prolonged period of
	3   time don't take care of themselves.  And then it
	4   significantly affects their health, and they go
	5   into these really horrible periods.
	6	    And one of the things that we found,
	7   while a hundred dollars is perhaps not a lot of
	8   money to all, it's a lot of money to somebody that
	9   doesn't have it.
	10	    And what was happening is that I
	11   believe people were needing to get diabetes
	12   instruction.  And there was no plan benefit for
	13   it.  So they wouldn't get it.  Then we would have
	14   a bigger claim on our hands.
	15	    So a benefit was added to the plan in
	16   June of 1987, which basically said --
	17        Q.    What would they buy for this hundred
	18   dollars?
	19        A.    It's physician consultation.  The
	20   services are covered.  But they wouldn't go to the
	21   doctor.  This would cover the doctor's expenses
	22   for going to the doctor and talking to him.
	23        Q.    So if they wanted to go to find out how
	24   to monitor and take care of their diabetes, the

 
	1   fund would pay for that; that was the benefit that
	2   was added in June of '87?
	3        A.    That's correct.
	4        Q.    All right.
	5        A.    That's correct.  The reason that was a
	6   hundred dollars is basically removed the
	7   deductible.  There was a hundred dollars
	8   deductible.  Now you don't have to pay the
	9   deductible.  You just go to the doctor, and the
	10   doctor will -- you won't be out of pocket any
	11   money.
	12        Q.    Let's go to the next benefit
	13   improvement.
	14        A.    August 1, 1988, it's basically an
	15   alcohol and substance abuse benefit was installed,
	16   which included these limitations.
	17	    I wouldn't call this an improvement.
	18   What happened was the plan costs were
	19   significant.  And so what the trustees did is,
	20   they put this benefit in.  I believe before this
	21   point, a greater level of benefits was provided.
	22   So they in essence reduced the benefits, because
	23   it was an area of the plan that they thought the
	24   costs were running too high.

 
	1        Q.    Before this time, if you recall, was
	2   this a benefit which was just within the major
	3   medical, that people were using that?
	4        A.    It's before my time.
	5        Q.    Okay.
	6        A.    There may have been internal limit, but
	7   it was a greater benefit.
	8        Q.    So then in fact, they carved out a more
	9   restrictive --
	10        A.    That's right.
	11        Q.    -- benefit, with respect to alcohol and
	12   substance abuse.  And we can just review that very
	13   quickly.
	14        A.    The inpatient treatment was $150 per
	15   day maximum, 30 day maximum per confinement, two
	16   confinements per lifetime.
	17	    The outpatient treatment was 80
	18   percent, up to $50 per day, lifetime maximum of
	19   20,000.
	20        Q.    A year later, there was a change in the
	21   alcohol and substance abuse benefit.  Would you
	22   discuss that?
	23        A.    Yes.  This basically looks like it's
	24   somewhat of an improvement, probably was designed

 
	1   more to model the charges that were coming out of
	2   it.  Inpatient treatment, 80 percent up to $300
	3   per day, 30 day maximum per confinement, $9,000
	4   lifetime maximum.  So that the amount per day went
	5   up, but there was a dollar limit installed on the
	6   maximum, rather than a two confinements per
	7   lifetime.
	8	    And then on the outpatient treatment,
	9   was 80 percent up to $150 per day, again an
	10   improvement, $11,000 lifetime maximum.  And my
	11   sense of it is that was done to try and get closer
	12   to the cost of the treatment at the time.
	13        Q.    It looks like what occurred obviously
	14   is that the outpatient treatment which had been in
	15   effect had a $20,000 lifetime maximum, and that

	16   was reduced to 11,000, and the $9,000 was moved up
	17   to the inpatient treatment?
	18        A.    Um-hmm.
	19        Q.    Lifetime maximum?
	20        A.    Well, you could do that after a year of
	21   claim status.  Sometimes you put a benefit in.
	22   You look at what the dispersion is.  You look at
	23   the cost.  You look where it's allocated.
	24	    Then you basically alter the benefit to

 
	1   comply, so one isn't overcharging in one area and
	2   is short in another area.
	3        Q.    What is the next change?
	4        A.    January 1, 1990, calendar year
	5   deductible was increased to $200 per individual,
	6   $400 per family.  Again, that was a benefit
	7   reduction.
	8        MR. THOMAS:  Excuse me.  Again, we would
	9   stipulate to all the material contained in tab 7.
	10   It's extremely tightly prepared, clear,
	11   well-presented.  We just would like a continuing
	12   objection to the notion of reading it verbatim as
	13   we go.
	14        MR. CARMELL:  A lot of this leads into a, at
	15   a point, Mr. Vaira, when individuals who are named
	16   in the complaint come to testify, who are also
	17   trustees of the fund, are going to testify
	18   concerning certain occasions, their input into
	19   certain changes that had been made.
	20	    And so it's not going to take very long
	21   to go through these.  But I believe also it
	22   shows -- again, we didn't set this table.  This
	23   table was set by the GEB Attorney, who said that
	24   these trustees don't owe their allegiance to the

 
	1   beneficiaries.
	2	    And I want it on the record, and to be
	3   able to explain what these are.
	4        MR. THOMAS:  May I respond briefly?
	5	    I'm not objecting to the evidence
	6   coming in.  The evidence is in, in the form of the
	7   document.  I just think that if we spend the good,
	8   better part of the day reading what is essentially
	9   very well-prepared in the documents, that we could
	10   make a better use of our time.
	11        THE HEARING OFFICER:  You have some merit to
	12   your point.
	13	    Mr. Carmell, I'll give you as much
	14   leeway as you need.  I'm just saying, I know some
	15   individuals are going to go up and say, I was
	16   there for the January 1, 1995 change, I voted for
	17   it because -- probably that is the way some of the
	18   testimony will be.
	19	    With that comment in mind, you can
	20   proceed, but maybe we could, because this is, as
	21   Mr. Thomas said, this is well put together, it is
	22   very instructive and easy to read, and we can go
	23   right to it, if we have to find it.
	24	    I don't mean to cut you off.  You have

 
	1   to have time to put your thrust in.  If you as a
	2   trial man decided that the best way to demonstrate
	3   this is to have him do it, then you can go ahead,
	4   all right?
	5        MR. CARMELL:  I'd like to continue with the
	6   history of the fund.
	7	    The schedule of benefits I'm not going
	8   to go through, because those are now before you,
	9   and they are very detailed.  And you can go to any
	10   one of them.  But I do want to show on this record
	11   the progress, or whatever you might want to call
	12   it.  You can make a decision as to whether the
	13   trustees acted consistent with their fiduciary
	14   responsibility.
	15        THE HEARING OFFICER:  To the benefit of
	16   the --
	17        MR. CARMELL:  For the beneficiaries, yes.
	18   BY MR. CARMELL:
	19        Q.    Do you know why the calendar year
	20   deductible was increased to $200 per individual
	21   and $400 per family in January of '90?
	22        A.    It was a financial concern they had to
	23   reduce the benefits.  Benefits had to be reduced
	24   to meet the funding of the plan; reserves were

 
	1   dropping.
	2        Q.    If you could run through the next items
	3   as they go, and explain --
	4        A.    Let me do that.  I can go through this
	5   fairly quickly.  I think there are some important
	6   things to point out.  I can do it in a summary
	7   fashion.
	8        THE HEARING OFFICER:  Before you do that, I
	9   have to ask you, is the Segal Company only, in the
	10   area of the health and welfare, are you the only
	11   consultants?
	12        THE WITNESS:  Yes, we are the only benefits
	13   consultants.  I cannot think of any other
	14   consultants at all, service.
	15	    Marco Consulting now provides
	16   investment advice to the Board.  But in terms of
	17   this, yes.
	18        THE HEARING OFFICER:  In the history of these
	19   health and welfare plans, sometimes there have
	20   been instances where there have been let's say
	21   unnecessary consultants, and they come along and
	22   suddenly they are consulting because the premium
	23   is a little too high, there was reserves that are
	24   built up, and they had to keep it down.

 
	1	    Are you telling me there are no other
	2   consultants except you folks?
	3        THE WITNESS:  Exactly.  We prefer it when we
	4   are the only consultant.
	5        THE HEARING OFFICER:  I would say that.
	6        THE WITNESS:  Anything you can do to help us
	7   out, we would appreciate.
	8        THE HEARING OFFICER:  I would say that,
	9   because sometimes as it happened in the past, it
	10   would be consultants come in, because what happens
	11   in sometimes smaller funds, where fund will be
	12   just for the benefit of the provider, too large of
	13   a premium, you have seen that, then all these
	14   reserves build up and you have to figure out some
	15   way to get it down, suddenly consulting firms come
	16   in who are somebody's brother-in-law, and suddenly
	17   these things are peeling out for nonefficient
	18   consulting services.
	19	    But you gentlemen, your company --
	20        THE WITNESS:  That's right.
	21        THE HEARING OFFICER:  -- is the only one.
	22        THE WITNESS:  That's right.
	23   BY THE WITNESS:
	24        A.    September 1, 1993, this is an important

 
	1   step for the trustees.  A supplemental major
	2   medical expense benefit was added.  And this was a
	3   benefit that had been thoughtfully considered for
	4   a number of years by the trustees and discussed.
	5   This is a benefit which allows people who are
	6   retiring to have affordable health insurance until
	7   Medicare age.
	8	    So with a self-payment, and there are
	9   eligibility requirements for this, in essence, you
	10   can continue the plan.  It's showed on Page 13 of
	11   this book.  It is a $500,000 -- it's 13 of this
	12   tab -- it's a $500,000 lifetime, $500,000 lifetime
	13   maximum.  You have a prescription drug maximum of
	14   $5,000 per year, 10,000 mental illness and
	15   functional nervous disorders and $500 deductible.
	16	    For anyone who is over 50 years old and
	17   tried to go out and purchase health insurance, you
	18   know how difficult it is.  It's virtually
	19   impossible to find.
	20	    What was done for people who are, have
	21   been in this program, and they get a pension from
	22   the pension fund, they are eligible for this
	23   benefit, so this benefit is not important just
	24   because of the benefit amount, and for the level

 
	1   of benefits, but it's important that it's even
	2   offered to plan participants.
	3	    And regularly, the trustees monitor the
	4   experience of this program, and in essence assist
	5   in the subsidy of it.  But the clear and important
	6   thing here is that the participants have access to
	7   it, and they pay a cost of the plan, and that's
	8   monitored by the trustees.
	9	    And that was a new benefit that was
	10   added which enabled in essence people who should
	11   retire to retire, and have medical insurance to
	12   the age of 65.
	13        Q.    Had it been your experience as a
	14   consultant to a number of funds that employees
	15   would defer retirement in order not to lose
	16   medical coverage?
	17        A.    Yeah.  Employees don't retire unless
	18   they have medical coverage if they are under the
	19   age of 65.  They simply can't afford it, because
	20   basically you are putting your house at risk.
	21	    So in our experience, unless there is
	22   some sort of an arrangement, very often assisted
	23   by the plans, in terms of subsidy or arrangement,
	24   they don't retire.

 
	1        Q.    Would you continue with the history of
	2   the fund, please?
	3        A.    January 1st, 1995, the basic out
	4   benefit was changed to $3,200.  Formerly, it was
	5   so much outpatient, hospital and other outpatient,
	6   this was just a clean-up amendment.  This just
	7   made it a little bit easier to take claims the way
	8   that they were being submitted.  It has a $3,200
	9   outpatient benefit.
	10	    January 1, 1996, this is a very
	11   significant improvement, because what it did is it
	12   allowed participants to have 100 percent of
	13   reasonable and customary charges for the first
	14   $4,000 of covered charges in a plan year.
	15	    So what that is saying is that if you
	16   get sick in this plan, if you get an illness or if
	17   you get an injury, basically, your first $4,000 is
	18   at 100 percent, so that you have no out-of-pocket
	19   cost.
	20	    And that is a very important thing in
	21   particular for the Laborers' who have children.
	22   Basically, it insures that the children will have
	23   access to healthcare.
	24	    Later on, you will see some wellness

 
	1   benefits that were added later.
	2        Q.    Is this relatively unusual to have the
	3   first dollar for $4,000 at 100 percent?
	4        A.    Yes, it is.  In fact, as far as I know,
	5   it's the only plan in Chicago to, that is jointly
	6   negotiated that has 100 percent of the first
	7   $4,000 in full.
	8        Q.    Please continue.
	9        A.    For charges in excess of $4,000, we go
	10   back into what was before the major medical, and
	11   that was a $200 individual deductible, 400 per
	12   family, and it must be added.  And then it's 80/20
	13   of reasonable and customary charges.  Okay.
	14	    And later on, I'm going to talk a
	15   little bit about some of the reasons that this is
	16   affordable, and the reason that this plan could do
	17   it, compared to other plans; and it's primarily
	18   due to technology, and products that have been
	19   purchased in essence to monitor the claims, in
	20   terms of the amount and in terms of the coding on
	21   the doctors, claim redundant software.
	22	    The lifetime maximum is increased from
	23   $500,000 to $750,000.  And just so you know, the
	24   trustees annually get a report on large claims;

 
	1   and if we are somewhere to near the 750,000, it
	2   happens on occasion, the trustees are made aware
	3   of that.  So it's a way of the trustees knowing
	4   that if 750 should be considered, to go up higher,
	5   it could be evaluated.
	6        Q.    With respect to the lifetime maximum,
	7   and is there any replacement each year if you use
	8   it?
	9        A.    Sherman, I --
	10        Q.    Some of them have $750,000, and that
	11   you get $1,000 renewal, or 2,000, do you know?
	12        A.    I'd have to check the plan.
	13        Q.    All right.
	14        A.    I don't know.
	15	    Lastly, the mental benefits are payable
	16   at 80 percent of reasonable and customary, subject
	17   to the deductible, and the calendar year maximum
	18   is increased from 10,000 to 15,000, okay?
	19	    September 1st, 1996, after a
	20   competitive bid, the trustees added a hospital and
	21   physician PPO network.  And the fund pays 80
	22   percent of reasonable and customary charges.
	23        Q.    85 percent is that?
	24        A.    85 percent of reasonable and customary

 
	1   charges, if the participant uses the network.
	2	    One of the things that is important to
	3   note is that healthcare is purchased very much in
	4   the community, and what will work here probably
	5   won't work in Minneapolis, probably wouldn't work
	6   in Milwaukee, may or may not work in St. Louis.
	7	    Healthcare is sold on a very, very
	8   regional basis, reasonably almost a very, very
	9   city like basis.  And it's evolutionary.
	10   Evolution of healthcare is different in different
	11   cities, based on the sophistication of the managed
	12   care.
	13	    What has happened is that in Chicago
	14   now, the hospitals have basically demanded that at
	15   this point in time, in the last twelve months,
	16   that you must include a differential, if you have
	17   a PPO.  In other words, you cannot enter into what
	18   is called a blind PPO, where you just pay a fee
	19   and take a discount.
	20	    In fact, many of the PPOs in Chicago at
	21   this point are scrambling a bit, because one of
	22   the hospitals, one of the hospital networks is
	23   pursuing, in the litigation type fashion, that
	24   they had a contract provision that said you had to

 
	1   have a differential; they went back and checked
	2   for the first time ever, and they found that there
	3   were a lot of insurance companies, third-party
	4   administrators, that didn't have a differential in
	5   their plan.
	6	    When they didn't have that
	7   differential, it means they weren't entitled to
	8   get that discount.  They are kind of going back up
	9   the chain and suing.
	10	    So just because of that evolutionary
	11   position in the marketplace, and because it's at
	12   that point, at this point, the 85 percent
	13   differential, 85 to 80 is enough to send people to
	14   go in and comply with the underlying contracts of
	15   the PPO.
	16	    This is something Segal Company looked
	17   at.  That is something Arnold Kadjan looked at.
	18   That is something we have been aware of for some
	19   time, because of litigation that occurred on the
	20   East Coast.
	21	    June 1, 1997, another good improvement,
	22   active employees, life insurance benefits doubled
	23   from $10,000 to $20,000.  Active employee, AD&D
	24   benefits increased from 5,000 to 10,000.  The

 
	1   dependent life insurance increased.
	2   Nonoccupational weekly accident and sickness
	3   benefits increased from 70 to $105 per day.  That
	4   is for shorter term disability.
	5	    Vision care benefits were expanded to
	6   allow scratch proofing, an allowance, and plastic
	7   lenses, and $15 for tinting, or photochromatic
	8   lenses, frame allowance from 25 to $50.
	9	    Spinal manipulation, that's
	10   chiropractic care, to $2,000 per calendar year.
	11   Speech therapy was added.  This was a benefit that
	12   was interesting.  We got a number of requests that
	13   were put to the trustees' attention for speech
	14   therapy for small children, and it's something
	15   that is generally available in a school system.
	16   The trustees, the fund office did research, we did
	17   research and we found that due to the tightness in
	18   the economy, certain school districts were not
	19   providing speech therapy at the level that
	20   probably would have been desirable for the
	21   parents, so that the Laborers' plan added a speech
	22   therapy benefit for birth to 4 years old, lifetime
	23   maximum of $5,000, and the feeling there is that
	24   if you catch this early and you treat it, then for

 
	1   the rest of that child's life, they'll not only
	2   feel better about themselves, but then the school
	3   district and everybody can take him from that
	4   point forward.  So that was a benefit that came
	5   from kind of a grass roots approach.
	6	    Lastly, a wellness benefit was added,
	7   employee and spouse, it's employee and spouses,
	8   $300 maximum per person per calendar year,
	9   dependent children, $200 maximum per child per
	10   calendar year.
	11        Q.    In brief, what is the wellness benefit?
	12        THE HEARING OFFICER:  My question, what is a
	13   wellness benefit?
	14   BY THE WITNESS:
	15        A.    That's to go in and have a physical.
	16   You go in and have a physical, and even if they
	17   don't find anything is wrong with you, the bill
	18   gets paid because if you don't find a diagnosis
	19   when you go in for a physical, basically it's your
	20   out-of-pocket cost.  This allows for somebody to
	21   go in and have some work done.
	22   BY MR. CARMELL:
	23        Q.    So the design of the plan before that
	24   time was that they paid for illnesses?

 
	1        A.    Right.
	2        Q.    Is that correct?
	3        A.    Right.
	4        Q.    And now they're saying if you want to
	5   go in and have a checkup to prevent illness,
	6   you're well, that they would now pay you to go in?
	7        A.    Right.
	8        Q.    It's almost what the dental plan --
	9   dental plans had done this yearly examination,
	10   isn't that -- is that a benefit?
	11        A.    That's right.  Generally you have your
	12   exam at 100 percent.  What we're saying is go in
	13   and see the doctor.  Now, if they find something,
	14   you know, in the quick tune-up, then it's covered
	15   because you've got a diagnosis.  But what it does
	16   is it allows these Laborers, you know, they have a
	17   sore back or some sort of ailment, to go in and if
	18   it's nothing, just age, well, then you didn't go
	19   with the out-of-pocket cost.
	20        Q.    All right.  The following pages, from
	21   Pages 3 through 16, are the schedules of benefits
	22   under the various plans for the various groups,
	23   and we're not going to review those.  Those are
	24   there.  And that's the plan that's in effect as of

 
	1   September 15th of 1997, is that correct?
	2        A.    Yes.
	3        Q.    Let's move to -- wait.  I want to ask
	4   you a question before that.  Having gone through
	5   all this, in your experience and that of the Segal
	6   Company, in terms of generosity or types of
	7   benefits, how does this plan rank among comparable
	8   multi-employer plans?
	9        A.    This plan is among the best, if not the
	10   best plan that I'm aware of in the Chicago area
	11   for a multi-employer plan.
	12	    Sherman, may I say, not only in terms
	13   of the schedule of benefits, but it also
	14   permits -- because you can give great benefits
	15   away in an HMO at a very low cost, but in terms of
	16   the gatekeeping and in terms of the access, the
	17   number of doctors and the number of hospitals, it
	18   is among the most, if not the most available in
	19   the area.
	20        Q.    Would you explain the term
	21   gatekeeping.
	22        A.    Gatekeeping is saying to someone,
	23   you've got this great plan, you go to this doctor
	24   and you basically will have a very small

 
	1   out-of-pocket amount, $10, $5, but what happens is
	2   you get to the clinic and it's filled up and you
	3   wait two hours and it's basically a way of saying,
	4   you can have the care, but the real carrier is in
	5   the drudgery of getting the healthcare.  And you
	6   call and you make an appointment and it's an
	7   emergency for that, you have a higher co-pay, and
	8   basically these people could go to their own
	9   doctor of their choice, very easy access to care,
	10   and a very high reimbursement level, very -- most
	11   of the bill is paid by the plan, but the plan, in
	12   essence, is contracted to obtain the discounts on
	13   behalf of the participant, so that it's not the
	14   drudgery of going through all the hassles with the
	15   claims in the gatekeeping.
	16        THE HEARING OFFICER:  You said it's one of
	17   the most beneficial.  A great many plans have what
	18   I call restrictive gatekeepers and will keep you
	19   there rather than let you on to a specialist.
	20   What is the record of this plan for referrals?
	21        THE WITNESS:  There is no -- if you want to
	22   go to a specialist instead of a doctor, you can go
	23   and it's still --
	24        THE HEARING OFFICER:  No, no.  I mean, you go

 
	1   and you're dissatisfied with the gatekeeper who
	2   gets paid for taking you in there and you may need
	3   to see a surgeon.
	4   BY MR. CARMELL:
	5        Q.    As I understand it, would you explain
	6   it, there is no gatekeeper?
	7        A.    There is no gatekeeper.  My point is
	8   that the schedule of benefits is important to look
	9   at, but what's equally important, if not more
	10   important, is that you could go to virtually any
	11   of these doctors in the 4,000 in full that is
	12   available, you would have 85/20 -- or 80/20 would
	13   be the difference --
	14        Q.    Let me try and break this down, if I
	15   may.  Let's take the selection of hospitals or
	16   doctors.  An individual may select any hospital
	17   and/or doctor within the PPO network and then it's
	18   at 85/15, is that correct?
	19        A.    That's correct.
	20        Q.    But the individual may decide to go
	21   what's called out of network, to go to any
	22   physician, any hospital he or she desires, is that
	23   correct?
	24        A.    Correct.

 
	1        Q.    And the inhibition is that it's paid at
	2   80/20, is that correct?
	3        A.    Right.
	4        Q.    But they don't have to see anybody to
	5   get to that doctor, they don't have to call the
	6   plan to get to that doctor, there is no gatekeeper
	7   that tells him which one to go to, is that
	8   correct?
	9        A.    That's correct.
	10        Q.    Let's turn -- we've turned now to Tab
	11   8, and I'd like to go to Page 1, which is headed
	12   Chicago Laborers' Welfare Fund, the medical claims
	13   process.  This is within the fund itself, is that
	14   correct?
	15        A.    That's correct.
	16        Q.    Okay.  If you could walk us through the
	17   way the claim is processed and handled.
	18        A.    Let me tell you that the Segal Company
	19   went to the fund office to come up with these, and
	20   basically what we did is we sat with the fund
	21   office and staff and looked at the different
	22   process that they used to pay a claim once it's
	23   received.
	24	    You could see that the first thing that

 
	1   happens is it's received at the fund.  The mail is
	2   then processed, and if it's a continuing claim, it
	3   goes to a claim adjuster.  If it's a new claim,
	4   then it goes through a process of checking.
	5	    The claim -- they register the claim
	6   and they check the eligibility.  In essence, what
	7   they do is they assign it a number in the computer
	8   and they enter it into the computer.
	9	    Claims are scanned.  And this is one of
	10   the few, if not the only plan that I know of in
	11   the City of Chicago that does this.  The objective
	12   of the fund is not to have a lot of paper around
	13   and not to pay claims twice, very expensive, so
	14   what this fund has done is they bought scanners.
	15   The claim is imaged into the computer so that
	16   rather than sit down with a number of bills in
	17   front of you, you are working off of the computer
	18   screen.
	19	    The claim payer, in essence, would get
	20   up in the morning, come to work and look on the
	21   screen for their work flow.  The paper is still at
	22   this point maintained and the trustees are
	23   discussing what to do with it because they have
	24   more paper now than they know what to do with and

 
	1   they would have to build another building to store
	2   it and they don't want to do that.
	3	    But basically at that point the paper
	4   goes away and they're paying the claim off of the
	5   computer.  The quality control aspect of this is
	6   that after the claim is scanned, it is reviewed by
	7   the scanner to make sure that the numbers, because
	8   scanning is not 100 percent, they're the highest
	9   quality scanners available, but sometimes things
	10   happen, the paper gets folded and they check
	11   that.  Then it goes to a claim representative.  If
	12   there is a question on eligibility, it may go to
	13   the policy department.
	14	    For example, if there's a question of
	15   contributions being made, the dependent status,
	16   you may have a child's claim that appears with the
	17   right name, but they've never had a claim before
	18   and you don't know if that child is an eligible
	19   dependent or not, then it would go to the policy
	20   department for adjudication, basically for
	21   review.  That goes back then to the claim
	22   representative once that dependent status -- and
	23   that is a big issue now with QMCSO.  QMCSO is an
	24   order basically that allows, how could I say this,

 
	1   people who aren't married to claim a dependent and
	2   then by order, that claimant is eligible for
	3   healthcare insurance.
	4        MR. CARMELL:  Mr. Hearing Officer, it's an
	5   amendment to ERISA called a Qualified Medical
	6   Child Support Order, which is comparable to QDRO.
	7   I don't think it needs to be in evidence.  What it
	8   does is it basically says now through a divorce
	9   proceeding the Court can say to the individual you
	10   are required to make this person, this child, a
	11   dependent who is covered by the plan.  And that
	12   child becomes a participant in the plan.
	13        THE WITNESS:  In fact, the discussions that I
	14   have been a part of, the trustees meetings, are
	15   basically a child is born, a person shows up to
	16   the emergency room, they say sign this order, they
	17   sign the order, that father is then responsible
	18   for healthcare.  It's done at the hospital.  It's
	19   instantaneous.  And that kind -- you know, since
	20   they're not living in a family relationship,
	21   figuring out whether this is a legitimate
	22   dependent or not in terms of plan eligibility
	23   becomes a bigger issue.  So that the policy
	24   department has the job of handling that.  BY THE

 
	1   WITNESS:
	2        A.    Claim adjuster gets the claim.  What I
	3   wanted to point out, which I alluded to earlier,
	4   is that the fund was the first Taft-Hartley.  The
	5   fund about five years ago, the trustees called in
	6   and heard presentations from two providers, and
	7   the two providers were in the business of selling
	8   what was called claim rebundling software.
	9   BY MR. CARMELL:
	10        Q.    Claim what?
	11        A.    Rebundling software, and it had been a
	12   concern that doctors may, in essence, take a
	13   procedure and unbundle it, and they basically
	14   would charge more because the pieces were worth
	15   more than the whole.  And what this fund -- when
	16   we realized that, in looking at the kind of
	17   benefit plan that this plan has and the fact that
	18   there was a great concern that that might be
	19   occurring, particularly in this plan in terms of
	20   the wide breadth of doctors across the whole
	21   panoramic view of Chicago, it became very
	22   attractive.
	23	    We interviewed two providers and we
	24   found out this.  One provider basically provided

 
	1   software to large mainframe computers in the
	2   insurance industry.  They were the Metropolitans,
	3   the John Hancocks, the Prudentials.  The other had
	4   a system which could be used with a PC system and
	5   the fund contracted to buy that claim rebundling
	6   software and rather than just -- and one of the
	7   things that they did in the insurance industry was
	8   say if you look at these codes, they're more
	9   likely to be unbundled.
	10	    What the fund decided to do was not
	11   just basically say we're not going to do it with
	12   just some codes, we're going to do it with every
	13   code.  Basically 100 percent of the claims are
	14   scanned.
	15	    The processing pays the claim, it goes
	16   to the processing system it gets rebundled and
	17   then the following morning it's down there on the
	18   desk, the claims that have gone through the
	19   software process.
	20	    That is one of the reasons the cost of
	21   the plan has remained fairly level, I believe, is
	22   that people have gotten creative in their
	23   management of claims, the fund has been able to
	24   catch that and has been very successful.

 
	1	    Next it goes to the claims supervisor.
	2   That occurs if it's a claim over $50,000.  That's
	3   why that's there.  And then if necessary --
	4        Q.    If that's a claim in excess of 50,000?
	5        A.    $50,000, right.  Every claim over
	6   $50,000 is reviewed by a supervisor.  If it's a
	7   question of medical necessity, is it appropriate,
	8   then it goes to the plan nurse, and then to the
	9   trustees and the committee.  Otherwise it gets --
	10   an EOB gets printed and the check gets mailed.
	11        Q.    EOB is an explanation of benefits?
	12        A.    Yes.
	13        Q.    And it's printed.  The following page
	14   is the health claim process, which is petty
	15   straightforward and straight line and we'll just
	16   go through that, as is the next page, which is
	17   Page 3, the dental claims process.  And we won't
	18   go through that, but I wanted to ask you a
	19   question which I noticed.  What about vision, how
	20   is vision reimbursed?
	21        A.    Vision, we didn't do one for vision.
	22   Vision is paid by the fund.  It would be virtually
	23   the same process as the medical claims without the
	24   rebundling.  It would come in, it would be

 
	1   processed, it would be a new claim, they check the

	2   eligibility.  They would, in essence, just pay it
	3   under the contract.  They would just pay it based
	4   on the schedule and a check would be sent out.
	5        THE HEARING OFFICER:  You don't have a
	6   separate vision contract?
	7        MR. CARMELL:  Yes.
	8        THE WITNESS:  Oh, we do.
	9        MR. CARMELL:  There is a schedule, if you
	10   look back, Mr. Hearing Officer, in Tab 7.
	11        THE WITNESS:  Page 14.
	12        MR. CARMELL:  Okay.  Thank you.
	13   BY MR. CARMELL:
	14        Q.    Now, this is for retirees, from age 53
	15   to 65.
	16        A.    Yeah.  I'm sorry.
	17        Q.    It should be active?
	18        A.    The same plan, I think.
	19        Q.    The same plan?
	20        A.    Yeah.  Page 8.  Sorry.
	21	    Okay.  I'm sorry.  It was my omission.
	22   I didn't include a vision plan.  I didn't think
	23   to.  It's paid out of a schedule, so it's very
	24   simple process.

 
	1        Q.    All right.  Let's go back to Tab 8 and
	2   to Page 4, which is headed Chicago Laborers'
	3   Welfare Fund Medical Claim Statistics.  And it
	4   says that the information is provided by the fund
	5   office and United of Omaha.  Where does United of
	6   Omaha come into the picture.
	7        A.    The trustees get two independent claim
	8   audits a year.  Those are directed by the
	9   trustees.  It is a way of monitoring the fund
	10   office performance.  That's twice what we would
	11   normally expect out of an insured plan.  Generally
	12   on an insured plan, if you get claim statistics,
	13   it's annually.  The fund does this twice a year.
	14   What we wanted to do is put together that plus
	15   some volume information.
	16	    Pieces of mail received per day by the
	17   fund office, and this is per information from the
	18   fund office, 500 to 3,000.  It depends on how many
	19   mail they get.  Scanning per day is
	20   not -- you can't scan everything you get in a
	21   day.  To buy scanners to do that capacity, it
	22   wouldn't necessarily be a good value, so they're
	23   targeted to scan 1500 to 2,000 pieces of mail a
	24   day.  And what happens, if 3,000 comes in is it's

 
	1   like a train.  I mean, you put them through and
	2   then you create a backlog on that piece and then
	3   the next day hopefully less comes in and you flush
	4   it through.
	5	    As far as I know, based upon the --
	6   other than the year-end people filing to get their
	7   deductible and all that, this is adequate in terms
	8   of servicing the members.  It's my understanding
	9   that the claim turnaround is anywhere from --
	10   well, we'll see later here what it is.  We've
	11   actually got a statistic for that.
	12	    I see other reports, too, that are on a
	13   more frequent basis.  So pieces of mail scanned
	14   per day is 1500 to 2,000.  Claims adjusted per day
	15   5 to 600, so that, in essence, sometimes you get
	16   mail and it's not necessarily a claim.  And those
	17   are the numbers that the fund offices have given
	18   us to give everybody a sense of what their volume
	19   is.
	20        Q.    Then we come to a category which is
	21   claim accuracy percentages.  What is that?
	22        A.    Let me go through this because this is
	23   a very important thing.  I took the most recent
	24   audit, which was February of 1997, and you should

 
	1   know that in this sample, and I should have put it
	2   on here, I didn't, there were 181 claims that were
	3   looked at.  Those claims were pulled randomly by
	4   United of Omaha.  And there is a report on file at
	5   the fund office that has been delivered to the
	6   trustees with these numbers.  These are just
	7   excerpts from that report.
	8	    The accuracy in terms of the payments.
	9   Now, accuracy in terms of payment, this is in
	10   reference to the number of claims without payment
	11   error.  Okay.  So of the full sample, 100 percent
	12   of them did not have a payment error.  Okay.
	13   Overall, overall -- now, that's a payment error.
	14   Overall, there are some claims that come in for
	15   which a payment is not made.  That would be, for
	16   example, a claim that was under the deductible,
	17   something that wasn't $200.  It's still very
	18   important to handle that claim properly and get it
	19   in the flow.
	20	    Apparently what hapened in this sample
	21   is that there was a nonpayment error and generally
	22   that does relate to inappropriate handling of
	23   deductibles which could potentially cause an error
	24   in the future if the next time they pick it up,

 
	1   they don't process that one properly.
	2	    Lastly, the financial, which is the
	3   absolute value, or -- the financial error is the
	4   absolute value over or under divided by the
	5   benefits paid.  If you pay $100,000 and you
	6   underpaid 5,000, you overpaid 5,000, that's not
	7   100 percent.  That would be 90 percent.  So for
	8   this period of time, these are the numbers.
	9	    Generally, I could tell you in going
	10   back and getting these reports in the meetings,
	11   usually they are within 2 or 3 percent on the
	12   payment in the financial.  We see errors from time
	13   to time, but in in sample, it just turned out that
	14   they didn't have any.
	15	    Time calculated, this is another thing
	16   that was very important to the trustees while they
	17   get reports on a regular basis from the fund is
	18   look at the date stamp and have somebody
	19   independent take a look at the time service.  They
	20   are basically saying here that within five days,
	21   50 percent of the claims are paid, within 10 days,
	22   79 percent of the claims are paid and within 15
	23   days, 86 percent of the claims are paid.
	24	    I want to point out to you that as the

 
	1   insertion of managed care has hit the country,
	2   claim delay has gotten really out of hand.  And
	3   this represents a good job.  It's not unusual now
	4   for claims that used to take three days to process
	5   for them to take two weeks based upon our
	6   experience in the industry because everybody is
	7   checking all these different things.
	8	    One of the reasons this fund has been
	9   fairly successful at it is because of the system's
	10   aspect of the claim processing.  The claim
	11   rebundling software takes one night.  That's done
	12   very quickly.  The reasonable and customary value
	13   is loaded in the computer and it's pumped out.  So
	14   with all of that, it's helped on facilitate the
	15   speed of the claim pattern.
	16        Q.    I want to turn to Page 5, which is the
	17   summary of amounts outlined in the examples on
	18   Pages 6 through 11.  I'm not going to go through 6
	19   through 11 except for one small part.  But what I
	20   want to do hopefully for the Hearing Officer is to
	21   show what the fund pays on an eligible claim based
	22   on various scenarios of the amount of the claim.
	23   So would you go -- just go through like the first
	24   column.

 
	1        A.    I can quickly go through this.  I think
	2   everybody understands there is 4,000 in full, so
	3   on a $1,000 claim, as long as it's an eligible
	4   charge for which there is no reasonable or
	5   customary adjustment or something ineligible, 100
	6   percent would be paid.  For a $10,000 claim, 8,640
	7   would be paid, leaving 1,360 or 86.4 percent.
	8        Q.    Let me stop you there.  That's a
	9   combination of both the -- the corridor has been
	10   put at $4,000, the deductibles now go into effect
	11   and you now move into a co-pay, is that correct?
	12        A.    Yes.
	13        Q.    And just to show so that we can just
	14   correlate --
	15        A.    Page 7.
	16        Q.    That would show on Page 7 the
	17   calculation and a sample claim form, is that
	18   right?
	19        A.    Yes.  And what I did when I talked to
	20   them about this, I told them to use the worst case
	21   scenario, the out-of-network claim, the 80 percent
	22   co-insurance, so that, you know, this is the most
	23   that you would pay.
	24	    And by the way, the maximum out of

 
	1   pocket in this plan is $1700, so that even if you
	2   were going out of network, in terms of the total
	3   dollars out of your pocket, the plan is not
	4   punitive, okay, so that there is not necessarily a
	5   different max for out of pocket, which is, as you
	6   know, in many instances, significant.
	7	    $25,000 claim, 23,300 paid, 93.2
	8   percent; $50,000 claim, $48,300, 86.6; $100,000
	9   claim, 98,300, which is 98.3; and a $500,000
	10   claim, $498,300, 99.7 percent of the claim.
	11        Q.    Let me just clarify that.  Take that
	12   last one, the $500,000 claim, which paid 99.7
	13   percent, that would show up on Page 11 in the
	14   claim form, with the worst case scenario, which is
	15   at 80 percent co-pay, is that right?
	16        A.    That's correct.
	17        Q.    Okay.  And so would the percentage
	18   change if the person were in-house -- not
	19   in-house, in network?
	20        A.    No, because they would still have the
	21   same out-of-pocket maximum, so there would be no
	22   difference.  The trustees didn't want to be
	23   punitive just because someone decided that a
	24   different doctor was necessary, but wanted there

 
	1   to be a visual attractiveness to use the PPO.  And
	2   it gets high utilization because of its size.
	3        Q.    In your experience and that of Segal
	4   Company in designing plans, where most
	5   out-of-pocket expense I think you said was 7 --
	6   what was that amount?
	7        A.    $1,700.
	8        Q.    How does that rank as far as being a
	9   generous --
	10        A.    Great benefit plan.
	11        Q.    Great benefit plan?
	12        A.    Yeah.
	13        Q.    All right.  Now I'd like to turn to
	14   page, to tab 9, please, and a series of documents
	15   that relate to the assets.  And first one is the
	16   statement of changes in net assets for the year
	17   ended May 31.  And this carries again the ten-year
	18   period.
	19	    Would you describe this, what it
	20   encompasses, what it shows?
	21        A.    This is information from the audited
	22   financial statements.  And what our objective here
	23   is, to show how this plan has grown over the last
	24   ten years.
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