A Special Pay Plan, which is a type of 403(b) or 401(a) retirement plan, is a simple, straight-forward, and cost-effective retirement plan that benefits both the employer and the employee. Designed to handle special forms of compensation like unused sick leave or vacation pay, the funds are contributed pre-tax into the participant’s retirement account upon their retirement or separation of service.
Presenting a Special Pay plan to your client could enhance their current benefits package while saving them money.
How an Employer Benefits From a Special Pay Plan
Employers avoid 7.65% in FICA taxes that they would have otherwise paid if they did not funnel the funds through a Special Pay Plan.
Alleviate OPEB Liability
A Special Pay Plan can help employers who want to decrease their OPEB liability once an employee retires. By funding the retirement account with the retiree’s unused sick leave or vacation pay, the employer alleviates the burden of paying a large sum of money directly out of their budget.
Recruitment & Retention Tool
Contributions into the retiree’s plan are made pre-tax, providing the full, untaxed value of the unused compensation. Funds are invested to grow as well, which means increased account value over time. This creates an impactful retirement benefit that can help employers attract and retain talent.
How a Special Pay Plan Can Supplement a Health Reimbursement Arrangement
Employers who currently offer an HRA to their retirees can provide an added benefit to their retirement package by implementing a Special Pay Plan. HRA funds must be used to pay for eligible medical expenses. A Special Pay Plan can supplement that post-retirement income by providing access to money that can be used for any purpose once the retiree has reached the distribution eligibility age*. This means an employer could potentially place unused sick leave into an HRA and the unused vacation pay into a Special Pay Plan, creating two buckets of post-retirement funds for the retiree. Both plans utilize an investment vehicle that allows the funds to accrue interest tax-free.
Have a Client who could benefit from a Special Pay Plan?
If you have a client who could benefit from learning more about Special Pay Plans, download our Special Pay Plan brochure today. To request a white-labeled version of the brochure or a Special Pay product presentation, submit your request and company logo to marketing@MyMidAmerica.com.
Have any other questions about the Special Pay plan? Email accountmanagement@MyMidAmerica.com.