Insurance Rating Company Looks Into Future

Q: Recently I read about Weiss Research, an outfit that rates insurance companies for stability and soundness. How do I contact this company?V.

A: Weiss Research in West Palm Beach, Fla., is just one of several services that rate insurance companies. Although in the business for 20 years, Weiss is not as well known or as widely respected as some of its competitors, particularly A.M. Best, Moody’s and Standard & Poor’s. Weiss’ research methods are also questioned in some quarters because it makes assumptions about potential future business conditions as it attempts to assess the long-term strength of the insurance company’s investments.

However, it is this very issue of projecting into the future that makes Weiss analysis stand out. Recognizing that insurance policies and annuities are long-term contracts, Weiss attempts to assess the long-term prospects of the insurance companies issuing these investments. To do so, it tries to estimate the future strengths and weaknesses of these companies and assess their ability to weather economic downturns and other financial problems. Other insurance rating companies limit their analysis to past performance, which is another gauge of strength entirely. Investors considering a major purchase might be wise to consider both past performance as well as potential future prospects.

Weiss research reports may be obtained by calling (800) 289-9222. Ratings of individual insurance companies cost $15 for an over-the-telephone ranking. For $25, you can get the phone rating as well as a one-page report.

The service is open from 6 a.m. to 7 p.m. PDT Monday through Friday and from 6 a.m. to 1 p.m. PDT Saturday and Sunday.

Districts Can Let Teachers Join Medicare

Q: Can you please explain a few things about the new Medicare tax? In the school district where I work, some teachers pay Medicare taxes and some do not. Why this difference? And what do those who pay the tax get that the others don’t?A.

A: For starters, the Medicare tax that most taxpayers are paying this year is not new. As we said several weeks ago, due to an increase in the amount of earnings subject to Medicare taxes, many employers now show your Medicare contributions separately from your Social Security taxes.

However, the situation is more complicated for teachers in California. Teachers hired after March, 1986, have been required to contribute to Medicare. They have been paying the Medicare tax all along and continue to do so. But teachers hired prior to April, 1986, were not required to join Medicare, and many didn’t. These teachers are covered by the California Public Employment Retirement System.

But now, under a 1990 state law, school districts can decide to allow their teachers currently covered by PERS to enroll in just Medicare. If a district allows its teachers to join, teachers can individually decide whether to take Medicare coverage. If they do, then 1.45% of their wages will be deducted from their paychecks. And their school districts will match that with a contribution of another 1.45%. Teachers making the contribution will be covered by Medicare when they reach age 65.

According to the Social Security Administration, many teacher groups throughout the state are negotiating with their school districts to allow them to join Medicare. However, Social Security officials warn teachers to carefully consider whether they really want Medicare coverage because once they elect to join, the decision is irrevocable.

401(k), 403(b) Differ in Investment Option

Q: What is the difference between a 401(k) plan and a 403(b) plan? I had never heard of the latter until it was offered through the hospital where my husband works.U.

A: Both 401(k) and 403(b) plans are types of tax-deferred savings or pension plans offered by employers. The most common plan is the 401(k). But public schools and charitable organizations, including nonprofit hospitals, offer 403(b) plans to their employees. With one major exception, the plans are alike. The difference is that 403(b) plans require participants to invest their funds in an annuity account through an insurance company, while 401(k) plans allow participants to invest in stocks and mutual funds.

Tax Deferral Is Real Question on IRAs

Q: I am still confused about who can make a contribution to an individual retirement account, and who can’t. Can you please clear this up once and for all?C.

A: Anyone can make an IRA contribution. The real question is whether that contribution will be tax deferred, or with money that has already been taxed.

Perhaps the largest single reason taxpayers open IRAs is to set aside retirement money on a tax-deferred basis. But several years ago Congress decided to limit the tax-deferred contributions to a rather small portion of taxpayers.

As the law currently stands, taxpayers not covered by any pension plan at work may contribute up to $2,000 (or 100% of their earned income, whichever is smaller) per year into an IRA on a tax-deferred basis.

Taxpayers who are covered by pension plans must meet certain income requirements to take advantage of the tax break. Fully deductible contributions are available only to married taxpayers with adjusted gross incomes of $40,000 or less and single taxpayers with adjusted gross incomes of $25,000 or less.