Presentation on theme: "VEBA MEP A tax-free health reimbursement arrangement for Washington State employees in general government agencies and higher education institutions Presented."— Presentation transcript:
1 VEBA MEPA tax-free health reimbursement arrangement for Washington State employees in general government agencies and higher education institutionsPresented by:Brian Riehs
2 Outline General Plan Information What is an HRA? About the VEBA Trust Growing Cost of Post-Employment Health CareContributions, Earnings and WithdrawalsBenefits vs. Conditions (IRS rules)Participant Enrollment
3 What is the VEBA MEP? Health reimbursement arrangement (HRA) Accepts tax-free contributionsProvides tax-free earningsAllows tax-free withdrawals for qualified out-of-pocket health care expenses and premiumsCan be used anytime
4 What is an HRA? Defined by IRS as a “health reimbursement arrangement” Reimburses healthcare expenses for employee, spouse, and qualified IRS dependentsFunded by employerNo individual choiceNot a health savings account (HSA)
5 What does “tax-free” really mean? Tax-deferred plans (TSA, 457, IRA, etc.)Subject to FICA (7.65%)Postpone federal income taxTax-free VEBA MEPNo FICA or federal income tax on contributions, earnings, or withdrawalsSave up to $300 or more in taxes for every $1,000 contributed to the VEBA MEP
6 About the VEBA Trust Created in 1984 Non-profit, tax-exempt employee benefit trustAuthorized under IRC Section 501(c)(9)For employees of school districts, state agencies, community & technical colleges, and higher education institutionsIRS Letter of Determination updated in 1999
7 About the VEBA Trust $142 million in assets 31,000 active participants Participating employers95% of all school districts and educational service districts in Washington32 community & technical collegesOver 80 state agencies and higher education institutions
9 $300,000 Growing CostYour post-employment health care costs could exceed $300,000You and your spouse retire today at age 60Normal life expectancy to age 84PEBB Uniform Medical Plan until age 65Medicare Part B; Medicare Part D; and Medicare supplement plan after age 65PEBB dental insurance plan$500/year incidental out-of-pocket (deductibles, co-payments, etc.)5% annual increase in costs
10 How much will you need?923K723K567K444K302KCurrent Age
11 VEBA MEP Can Help Turn-key HRA plan Reimburses/pays out-of-pocket health care expenses and premiumsAccess funds anytimeCovers retiree, spouse, andqualified dependentsNo “use-it-or-lose-it”
12 Funding SourceCompensable unused sick leave cash-out contributions at retirementNote: State law does not allow annual sick leave cash out contributions to VEBA MEP.
13 Tax-free Contributions Sick Leave Cash Outs Cash Out Amount25% Federal Income Tax7.65%FICA TaxNetAmountWithout VEBA MEP$10,000<$2,500><$765>$ 6,735With VEBA MEPn/aVEBA MEP Tax Savings = $3,265**Tax savings are approximate.
14 Investments Earnings are tax-free Participant-directed Choose either one of two optionsOption A: Do-it-yourself; orOption B: Choose a pre-mixCan change monthlyManagement fees vary by fund(s) selected
15 Investments Six asset classes Stable Value Large Cap Equity Total Return BondMid Cap EquitySmall Cap EquityInternational Equity
16 Investments Four pre-mixed asset allocation portfolios Immediate Use (begin to file claims within 0-1 years)Short-term Use(begin to file claims within 2-3 years)Medium-term Use(begin to file claims within 4-5 years)Long-term Use(begin to file claims within 6+ years)
17 Investments Four pre-mixed asset allocation portfolios Comprised of funds from some or all of the six asset classesDesigned by professionalsRoutinely monitored using sophisticated financial analysis software and modern portfolio theoryRisk levels designed with strong consideration to target time horizon (i.e. length of time until participant anticipates filing claims)
18 InvestmentsQuarterly Investment Fund Overview lists investment returnsInvestment Fund Information brochure containsMore detailsImportant investment guidelinesVisit
19 Administrative & Operating Expenses Average approximately 1.65% annuallyPaid by reduction to investment earningsNet earnings (+/-) credited monthly$2.00/month small inactive account feeCharged only if account balance is less than $250 and no contributions received during previous months
20 Tax-free Withdrawals (Claims) Can be submitted anytimeEfficient, hassle-freeProcessed daily from SpokaneMail, fax, or to third-party administrator (TPA), REHN & ASSOCIATES
21 Tax-free Withdrawals (Claims) Systematic (automatic) payment of ongoing premiums availableDirect deposit of reimbursements availableRequired claims documentationExplanation of Benefits (EOB)Itemized bill or statement from providerItemized receipts for prescriptions and OTC medicationsDetailed co-pay or office visit receipts
22 Whose expenses are eligible? Employee (retiree)SpouseQualified dependentsChildrenElderly parents, etc.
23 Qualified ExpensesOut-of-pocket health care expenses defined in IRC Section 213(d)Co-payments, deductibles, co-insurance, prescription drugsCrowns, root canals, orthodontiaEyeglasses, contact lenses, etc.Eligible over-the-counter (OTC) medicationsSame as Section 125 health care flexible spending account (FSA)
24 Qualified Insurance Premiums MedicalDentalVisionLong-term care (LTC)Must be tax-qualifiedSubject to IRS limitsMedicare Part B and Part DMedicare supplement plansNOTE: Premiums paid by an employer, or premiums that are or could be deducted pre-tax through your or your spouse’s Section 125 cafeteria plan, are not eligible for reimbursement.
25 Death Benefit Account can continue to be used by Surviving spouseDependentsHeirs, if no spouse or dependents remain*Reimbursements to surviving spouse and dependents are tax-freeReimbursements to heirs are taxable** The current heir death benefit will expire on July 1, 2009 per IRS Revenue Ruling
26 Benefits vs. Conditions (IRS Rules) Tax-free contributionsTax-free earningsTax-free withdrawalsConditions (IRS rules)Withdrawals for qualified health care expenses onlyAll employee group members defined as eligible must participate (no individual choice)
27 Participant Enrollment Participant Enrollment Forms distributed, completed, and returned to benefits officeCompleted forms and initial contribution sent from employer to TPAAccounts opened and Welcome Packets sent from TPA to new participants
28 Your VEBA Account Online Review account activityChange investment fund allocationUpdate personal account informationPlan informationQuarterly investment fund returnsPrintable forms