Association of Indiana Counties

Transcription

1 Ways To Reduce Your Benefit Costs Now Using a HSA, HRA or VEBA Presented to the: Association of Indiana Counties By: David Branback, Director of Market Development Retirement Income Division Corporate Office: Brookfield, WI dbranback@nisbenefits.com Regional Office, Carmel. IN bcrossland@nisbenefits.com 1

2 BENEFIT INTRODUCTION High quality benefits play an important roll in attracting and retaining quality staff. It is in the best interest of the employer and employee groups to have benefits that are reasonably priced and affordable over the long term. Under a total compensation costing environment, because funds are limited, there is a mutual interest in reducing the cost of delivering benefits. When considering benefit changes, the impact on GASB OPEB should be considered. 2

3 Why would a county be interested in implementing a HSA, HRA or VEBA? To deliver the same or enhanced benefits at less net cost. 3

4 TAX ADVANTAGED PLANS COMPARED Employer Sponsored Plans 401(a) Health Savings Account (HSA) Health Reimbursement Arrangement (HRA) funded Voluntary Employee Benefit Association (VEBA) 4

5 TAX ADVANTAGED PLANS COMPARED Employer Sponsored Plans 401(a), non-elective Advantages Deposited and grow tax-deferred Employer and employee FICA taxes do not apply, saving 7.65% Once taxed, can be used for any purpose Disadvantages Not available without penalty until 59½ years of age or 55 and retired Subject to Federal and State taxation Contribution limits 5

6 TAX ADVANTAGED PLANS COMPARED Employer Sponsored Plans Health Savings Account (HSA) Advantages Accepts employer and employee deposits Used tax-free for eligible medical expenses Disadvantages Insurance plan must meet high deductible (HDHP) requirements» Including $1,200 single / $2,400 family deductible Employees are ineligible to participate if also covered by a non-hdhp Generally cannot be used for premiums 6

7 TAX ADVANTAGED DELIVERY TOOL Employer Sponsored Plans Health Reimbursement Arrangement (HRA), funded Disadvantages Employer deposits only No beneficiary designation beyond spouse and dependents 7

8 TAX ADVANTAGED DELIVERY TOOL Health Reimbursement Arrangement (HRA), funded Advantages Deposited, accumulate and used tax-free for eligible purposes Tax-free purposes include medical expenses and premiums No high deductible, HDHP plan requirements All employees/retirees eligible No contributions limits Fund use can continue post employment/retirement After death, funds continue to be used by the spouse and dependents Employer designed and controlled; can be administered by a third party 8

9 TAX ADVANTAGED PLANS COMPARED Voluntary Employee Benefit Association (VEBA) A HRA must have an underlying Trust The Trust can be either VEBA, 501(c)9 based or 115 based Governmental entices, including counties can use a 115 grantor/integral based HRA Taxable Corporations and Multi-employer county plans must use a VEBA Advantages of a 115 based HRA? No IRS approval No IRS annual reporting requirements Employer control over the plan 9

10 PRIOR TO PLANS LIKE THE HRA the only trade off for modifications to tax-free benefits such as health insurance was salary/wages. This trade off was, and continues to be, very inefficient. Salary and wage related benefit costs, including FICA taxes, reduce savings. Payroll related increases are also taxable to the employee. It takes the employer over $125 to give the employee/retiree $100, that is only worth $75 after taxes. 10

11 THE HRA Provides a new tax-free tool $100 worth of employer effort provides $100 worth of value to the employee 11

12 HRA SUMMARY Employer deposits are made on behalf of employees/retirees Deposited tax-free Carry over year to year and earn interest tax-free Used tax-free for eligible medical expenses and premiums (premium deposit equivalent, self-funded plans) 12

13 TYPICAL APPLICATIONS Payments due employees or retirees (unused sick leave, vacation, yrs of service) In lieu of health insurance participation for active employees with access to insurance through a spouse (A x B=C) The dollar equivalent of the employer obligation for retiree health insurance into a HRA; use not limited to participating in the employer plan (OPEB, Window) To transition to a funded defined contribution plan on behalf of new, recent hires; transitioning away from OPEB vs. 401(a) In exchange for negotiated health insurance plan design changes (funded, unfunded, cost shifting, consumerism) 13

14 Q AND A? Questions about employer sponsored plans in general? Questions about applications? 14