It’s a never-ending battle.  Healthcare costs continue to rise.  As an employer, how do you cope?  If healthcare costs are rising, that means employee health benefit costs are rising.  You want to provide a valuable benefit for your employees, to retain and attract good talent.  For job seekers, the strength of an employer’s benefits package can be as valuable as the salary, even more so if they have dependents.  Employers have to become creative in their financial strategies to limit benefit costs.

How are employers dealing today?  Here are 4 strategies that some have adopted:

  1. Introduce higher premiums or employee cost-sharing.  This is a short-term tactic which shifts more of the financial burden to the employee.  Although it’s counter-productive for drawing talent, it is still a frequent tactic.  Employee cost-sharing offers several options, including higher deductibles and out-of-pocket maximums, moving from a fixed-dollar co-pay to a percentage-based co-insurance model, increasing employee cost for using non-network providers, and increasing employee cost for using brand name prescription drugs over generics.
  2.  Level-funding company healthcare costs.  You’re probably familiar with the traditional fully insured plan and the traditional self-funded plan.  Level-funding is a hybrid of the two, whereby the plan is filed as a self-funded plan, and the employer pays a fixed and unchanging premium per employee each month.  However, after one or two years, the plan is evaluated to see if the employer qualifies for a refund of premium if claims were lower than expected.  Likewise, the premium may increase at renewal if claims were higher than expected.  With a bit of ingenuity and planning, the employer could simultaneously implement other methods to encourage behavioral changes that lead to healthier lifestyles among employees, allowing the employer to realize premium refunds rather than increases.  Which leads to….
  3. Health and wellness initiatives.  This method of cost containment is becoming increasingly more common.  Employers have realized that improving employee health and wellness is an effective way to lower healthcare costs and improve productivity.  The key to the success of these programs is the use of incentives, such as rewarding employees for participating in a program or attaining certain health-related goals, such as smoking cessation.  Wellness programs should be tailored to the individuals, meeting them where they are in order to realistically assist them in reaching healthy goals.  Another important condition is the need to measure employee engagement.  If you know who is and who isn’t participating in the program, you will have a better understanding of how to implement incentive-based initiatives for the future.
  4. Consumer-driven health plans.  Typically, we are talking about Health Reimbursement Arrangements (HRA), Health Savings Accounts (HSA), and even Flexible Spending Accounts (FSA).  These plans allow employees to access funds to cover higher cost-sharing provisions in exchange for lower monthly premiums.  With employees being more engaged in the cost of healthcare services, they become better consumers.  They may be more inclined to consider the necessity of higher-cost healthcare in certain situations, e.g. going to an urgent care facility vs. the hospital emergency room. Further, this greater insight into how healthcare dollars are spent may also persuade them to make positive behavior changes in their lifestyles, leading to significant reductions in health plan spending year over year.  This is a win/win for both employer and employee.  Below is a breakdown of the differences between the 3 types of consumer-driven plans.

 

  Health Care FSA HRA HSA
What is it? It’s an account to help employees pay for eligible medical expenses. It’s an account to help employees pay for eligible medical expenses. It’s a personal bank account to help employees save and pay for qualified medical expenses.
How do you get it? Enrollment is through the employer if they offer an FSA.  There is no need to enroll in a health plan. It’s usually connected to a health plan.  If the employer offers an HRA, enrollment is automatic when signing up for the health plan. Requires enrollment in a high-deductible health plan that meets a deductible amount set by the IRS.  Other IRS guidelines must be met in order to be eligible.
Who contributes to it? The employee.  The employer can also contribute if they choose to. The employer.  Employee contributions are not permitted. The employee, their family, the employer, and anyone else that chooses to.
How is the money put into it? The employer will deduct money from the employee’s paycheck, before taxes, and put it into the account. The employer may contribute on a monthly basis, or may fund the entire contribution amount at the beginning of the plan year. The employee can make deposits just like a personal bank account.  Family & the employer can also contribute.  Employee may be allowed to deposit pre-tax money from paycheck.
What happens if I don’t spend all the money in one plan year? The employer may choose to allow a carryover up to the IRS limit of $500. The employer may allow a certain amount to be carried over into the new plan year. Since the employees owns the account, the money will remain until they choose to spend it.
Can I keep the money if I leave my job? No.  The employer keeps the money. No.  The employer keeps the money. Yes.  The employee owns the account.
When can I start using the funds? The employee can start spending down the FSA on the first day of the plan year. Different types of HRAs each have their own rules as to when funds can be accessed.  The employer will set the rules. The employee can start spending down the HSA once enrolled in a high-deductible health plan and has opened the account.
Do I have to pay taxes on the money? No No No
What can I pay for with it? Medical expenses that are determined by the IRS & the employer.  This includes dental, vision, and many other health care services and supplies as listed under Section 213(d) of the Internal Revenue Code. Medical expenses that are determined by the IRS & the employer.  The employer may only allow the HRA to pay for services covered by your health plan.  Some HRAs can be used to pay for dental, vision, & other services/supplies listed under Section 213(d) of the Internal Revenue Code. Qualified medical expenses, including services covered by a health plan as well as expenses listed under Section 213(d) of the Internal Revenue Code.
Can I have other accounts with it? Yes.  The employee can have an HRA or a dependent care FSA. Yes.  The employee can have a healthcare FSA and/or dependent care FSA. Yes.  The employee can have a limited-purpose FSA or limited-purpose HRA, which can only be used for eligible dental and vision services.

While health insurance premiums will continue to rise, employers have options to potentially reduce escalating costs while still providing a valuable benefit to their employees and encouraging employees to become more invested in their own healthcare.  If you’d like to learn how FSAs and HRAs can help you achieve your financial goals, contact us today at accountmanagement@midamerica.biz.

 

MidAmerica Administrative & Retirement Solutions has been providing retirement solutions since 1995, and health and welfare programs since 2002.  Our goal is to maximize benefit dollars for both the employer and the employees.  Our staff of highly experienced subject matter experts, ease of technology, and streamlined administration enable us to reach this goal.  Please contact us if you’d like assistance in reaching your goals.

 

Is a Defined Contribution Plan the Answer?

Posted on February 28, 2017

Traditionally, public sector employers have generously provided some type of employer-paid health insurance benefit for their early retirees (under age 65) as a way to bridge the gap between early retirement and Medicare eligibility.  In a time when health insurance was reasonably affordable, it was common to offer what is known as a “defined benefit” plan, in which an employer promises a specific benefit (such as health insurance) over a specific time period.

The Issue

Unfortunately, with premiums rising and budgets being strained, it may be challenging for schools, cities, and counties to plan effectively for the retirement health benefits awarded to former employees now in retirement, or for the health benefits promised to current employees as they retire.  Yearly expenditures to fund these benefits become a tremendous liability, draining budgets and forcing schools to deflect money away from classroom instruction and municipalities to reduce spending on needed services and infrastructure.

The Solution

Employers are now realizing they need to reconsider the benefits packages they offer in an effort to contain costs and long-term financial obligation, yet still provide an impactful retirement benefit to their employees.  A Defined Contribution Retirement Plan may be the solution.   Contrary to a defined benefit plan which provides a distinct benefit over time, no matter the cost, the defined contribution plan allocates a specific contribution toward that benefit.  The contribution is not tied to rising insurance costs, which makes cash flows more predictable, and results in the reduction, or even elimination of, OPEB (Other Post-Employment Benefits) liability.

How a Health Reimbursement Arrangement Can Help

One of the most ideal funding options for a defined contribution plan is a Health Reimbursement Arrangement, or HRA.  The HRA account is designed to reimburse employees for their eligible medical expenses to offset their out-of-pocket costs. The employer regularly deposits funds into individual accounts on behalf of employees while they are employed. These funds, with earnings, are free from federal income and FICA taxes, and can be used at any time, upon eligibility.  To be eligible to use the funds, the participant must have either separated from service or retired.  Participants are 100% vested immediately, meaning that they own the account balance as soon as the account is established.

Migrating an employer’s benefit plan design from a defined benefit to a Defined Contribution HRA will enable that employer to reduce existing liability and minimize future costs, all while keeping its promise to employees and freeing up resources to better serve students, citizens, and the community.  A dedicated solutions partner can furnish an HRA plan that will provide a seamless transition for employees entering the retirement phase of their lives, and ensure they receive the most appropriate benefit, even while healthcare costs continue to rise.

Trusts & HRAs

In conjunction with an HRA program, employers may consider establishing a Post-Employment Benefit Trust as a vehicle to pre-fund employee and retirement benefits.  A trust enables the employer to set aside funds while the employee is still actively employed in order to minimize, or even eliminate, the liability later on.  Funding through a trust reduces what can be a substantial liability on the financial statement.  The trust is a legal entity and trust funds are safe from the employer’s creditors.  If you’d like to learn how HRAs and trusts can help you achieve your financial goals, contact us today at accountmanagement@midamerica.biz.

 

MidAmerica Administrative & Retirement Solutions has been providing retirement solutions since 1995, and health and welfare programs since 2002.  Our goal is to maximize benefit dollars for both the employer and the employees.  Our staff of highly experienced subject matter experts, ease of technology, and streamlined administration enable us to reach this goal.  Please contact us if you’d like assistance in reaching your goals.

Women around the world are concerned about their retirement prospects.  In the 21st century, women have more education and career opportunities than their grandmothers ever did, but the retirement path is still not always a smooth one.  Lower wages due to gender differences, as well as absence from the workforce due to parenting or caregiving, can create negative effects on the long-term financial stability of female employees.

It’s a fact that women trail behind men when it comes to saving and planning for retirement.  It’s also a fact that women tend to live longer than men, which suggests an even greater need for women to get serious about preparing for their later years.

For the past 12 years, the Transamerica Center for Retirement Studies® has been publishing a retirement survey, and a significant part of this research is devoted to publishing research reports about women in an effort to raise awareness of the retirement risks that women face.  The latest survey report outlines a lengthy list of “facts” about women’s retirement outlook.

Below is an abbreviated list of these facts, along with some tips that women can use to take charge of their retirement planning.

Fact #1

Retirement Confidence is Low.  While 32% of men admit they are “not too confident” about their ability to comfortably retire, nearly half of women (45%) express that same sentiment.

Fact #2

Many Expect to Retire after Age 65 or Not at All.  Fifty-three percent of women plan to retire after age 65 (40%) or do not plan to retire at all (13%).  This figure compares to 54% of men when asked the same question.

Fact #3

Most Lack a Plan “B”.  Sometimes people are forced into retirement sooner than expected, perhaps due to unexpected job loss, medical issues, or family obligations.  Only 19% of women and 31% of men have a backup plan if faced with one of these circumstances.

Fact #4

7 out of 10 Women Save for Retirement.  Seventy-two percent of women take advantage of employer-sponsored plans such as a 401(k) and/or savings plans outside the workplace (e.g. IRA), while 80% of men do the same.  Men also start saving at an earlier age (median 26) compared to women (median 28).

Fact #5

Many Women Guess their Retirement Savings Needs.  According to statistics, women live longer than men and should be saving more to support themselves in their retirement years.  However, women tend to “guess” how much of a savings bucket they will need rather than using calculators or spreadsheets.  Men are more likely to use mathematics.

Fact #6

Lack of Knowledge about Social Security Benefits.  All retirees should educate themselves on the availability of government benefits.  However, baby boomers (those born between 1945 and 1964) often fail to brush up on this knowledge.  Only thirty-eight percent of female baby boomers claim to know “a great deal” or “quite a bit” about Social Security benefits, compared to 55% of baby boomer men.

 

Now let’s take a look at some suggestions for helping women become retirement ready.

Tip #1

The key is to START saving, and get into the habit of saving on a consistent basis.

Tip #2

If a retirement plan is offered at work, participate in it.  Take full advantage of any employer matching contributions, if available.  Take advantage of catch-up contributions if you are age 50 or older.

Tip #3

Maintain your ability to continue working past age 65.  Keep your job skills current, learn new skills and technologies, or join a networking group.

Tip #4

Educate yourself about investing.  Learn how to make your savings last longer by knowing when to take withdrawals from retirement accounts, and the best time to start Social Security.  It’s important to minimize taxes and penalties, and maximize benefits.

Although every person’s situation can be unique, the tools for dealing with these situations are similar.  And using as many tools as possible can add up to a big result!

How Rollovers Work For You

Posted on November 10, 2016

If you have a 403(b) or 457(b) TPA account, rollovers allow you to roll over part or all of your funds into another eligible retirement plan. This comes in handy if you change employers or if your employer offers multiple plan types.

Rollover Rules
Certain rollovers are permitted by the IRS while others or not. These rules are updated each year and are provided in an easy-to-reference chart on the IRS website. Click here to view the current IRS Rollover Chart. One thing to keep in mind is that you must have a qualifying event to be eligible for a rollover, such as reaching age 59 1/2 or separation from service.

How to Request a Rollover
If you’ve made the decision to roll over your funds to another eligible plan, you’re only two easy steps away from completing your request.

Contact Your Provider
Your first step is to contact your providers. Simply let them know you’d like to roll over your funds to another plan. They will provide the necessary paperwork to complete the process.

Send us the Paperwork
Once you’ve received your rollover paperwork from your provider, complete and sign the forms and send them to MidAmerica for processing.

Questions?
If you have questions on any of the topics in this article, please contact us at (866) 873-4240 or email us at 403bTPA@midamerica.biz.

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