Dismissed medical malpractice claims. The most common outcome of a medical malpractice claim is that it will be “dismissed” (i.e. abandoned) by the claimant rather than (1) settled or (2) taken to court. According to a study by Dwight Golann titled Dismissed Medical Malpractice Claims: Their Surprising Frequency, Obvious Causes and Potential Remedies https://www.healthaffairs.org/doi/10.1377/hlthaff.2010.1132, roughly all claims brought medical practitioners are “dismissed” by plaintiffs, and dismissed claims were more than twice as common as settlements and almost four times as common as judgmental claims. Medical malpractice claims are dismissed for a number of reasons, including (in descending order of frequency from highest to lowest): (1) the case against the doctor is weaker than originally thought; (2) there are several defendants in the suit, only some of whom are excluded from the suit; (3) changes in the prevailing standards of medical treatment (i.e., the method of treatment used by the doctor at the time of the filing of the claim was of the most modern quality, but subsequent advances in medical technology made such treatment of poor quality); (4) a change in the plaintiff’s condition (usually for the better); and (5) the plaintiff’s lack of candor with his attorney. While they do not result in any damages, dismissed medical malpractice claims incur significant costs. In the study mentioned above, the cost of dropping a claim averaged $25,735 and approximately $44,200 for dropping a claim. (A dismissed claim includes a claim against a single person or entity, while a terminated claim includes a claim against multiple individuals or entities.)
The 10/10 Rule is a matter of analyzing and demonstrating the transfer of risk as a precondition for the use of reinsurance accounting, which was codified in the early 1990s with the adoption of Financial Accounting Standard (FAS) 113 (and its statutory counterpart, SSAP 62). FAS 113 itself was a response to alleged abuses and set the standard for testing whether something should be called an insurance contract. FAS 113 required that the transfer of risk be demonstrated by comparing the present value of the cash flows associated with the contract and, in particular, by exceeding certain thresholds of “significance” of risk. The thresholds, often referred to as the 9a and 9b tests, are: 9a. The reinsurer assumes significant insurance risk under the reinsured parts of the underlying insurance contracts. 9b. It is possible that the reinsurer could suffer a significant loss from the transaction. While neither “significant” nor “reasonably possible” was defined in this context, standard rules of thumb quickly emerged in the implementation of FAS 113. The most commonly cited is the “10/10 Rule”. This rule states that a contract reaches a threshold if there is at least a 10 percent chance that it will suffer a loss of 10 percent or more in present value (expressed as a percentage of the contract premium ceded).
401(k) Fee Claims are claims alleging that those responsible for administering a company’s 401(k) retirement plan allowed the plan’s providers to charge excessive fees. Over many years, even a small difference in the amount of fees charged for administering such plans can have a significant impact on an employee’s balance sheet at the end of that period. Assume that a 401(k) plan investment returns 5 percent annually over a 40-year period. Let’s also assume that an employee contributes $7,500 per year to the plan. If the employee pays 2% per annum during this period, his balance will be $565,509.45. But if the annual pay were reduced to 1.5 percent, a reduction of just ½ percent, the worker’s balance would increase to $634,127.08, a difference of $68,617.63. 401(k) plan fee claims can be especially costly if multiple affected employees file such a class action lawsuit. Fortunately, 401(k) benefit claims are covered by the fiduciary liability policy, since such plans are governed by the Employee Retirement Security Act (ERISA).
A 401(k) plan is the most common type of defined contribution plan in which employees choose to set aside a portion of their compensation. Under a typical 401(k), employees contribute between 1 and 15 percent of their annual pre-tax salary to the plan each year. In addition to this amount, many employers pay an employee contribution, such as 50 to 6 percent of the employee contribution. For example, if an employee contributes 6 percent of their salary to a 401(k) plan, the employer will contribute an additional 3 percent so that the employee saves a total of 9 percent of their annual salary (i.e., 6 percent contribution plus 3 percent employer contribution). There are annual maximum amounts that employees can contribute, as well as distribution limits under the age of 59.5.