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Retirement Healthcare Funding Plan

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There are many articles about the devastating cost of health care in retirement. With the increasing reduction or elimination of the employer subsidy for health care in retirement, many public sector workers are looking for solutions to allow them to pre-fund their retirement health care costs over their career on a tax-favorable basis.

Instead of spending your Deferred Compensation Plan or a significant portion of your monthly pension check on insurance premiums post-tax, how would you like to pay for your medical expenses in retirement including premiums completely tax-free? A Retirement Healthcare Funding Plan (RHFP) is a health care savings plan that provides a source of tax-free funds to reimburse the participant for the cost of health care expenses for themselves, their spouses, and any other qualified tax-dependents.

Contributions are deposited into the plan completely tax-free prior to the Medicare and Social Security Tax being applied (if applicable). These funds accumulate and compound tax-free to pre-fund the future cost of health care expenses. We know of no other program in the IRS code that allows for participants to save money pre-tax, have it grow tax-free, and take tax-free distributions. Assets are held in a secured trust and are protected from creditors of the employer. By making this plan available, you can help ensure that retirement monies will be spent on living expenses not medical expenses.

Both employers and employees benefit from these types of plans. We all know of people who will not retire due to the fact that they can’t afford the medical premium. A Retirement Healthcare Funding Plan (RHFP) allows compensation to be paid in today’s wages, not in future wage inflated dollars. All funds deposited into the plan are deposited before the Medicare and Social Security payroll taxes (if applicable) thereby saving both the employee and the employer contribution to both the Medicare Tax and Social Security Tax.

The account may be used to pay for any qualified medical, dental, or vision out-of-pocket expenses (deductibles, co-payments, co-insurance, etc.), plus insurance premiums for medical, dental, vision (including COBRA premiums), qualified long-term care premiums, Medicare Part B premiums, Medicare Part D premiums, and Medicare supplement insurance plan premiums.

NPPFA Benefits provides this plan on behalf of the National Public Pension Fund Association (NPPFA). In an effort to improve the retirement outlook of the public sector employees that we serve, the NPPFA has paid for and made available a customizable and turn-key solution for each specific employer and/or bargaining unit. The NPPFA RHFP is a unique program for employers and both represented and non-represented labor interested in helping their employees and members deal with paying for the increasing cost of health care and other related expenses in retirement. RHFP allows employees to both pre-fund the future cost of health care expenses and shelter end of career payouts with pre-tax contributions.  

Retirement Healthcare Funding Plans have the following common elements:

  • Pre-Tax Contributions
  • Tax-Free Accumulation
  • Tax-Free Distribution of Funds for Covered Benefits

At separation of service, RHFP provides a tax and penalty free reimbursement for the payment of medical premiums along with out of pocket medical expenses. Pre-retirement access is available for such items as Long Term Care Insurance and Disability Benefits.

If an organization prefers the Declared Benefit VEBA approach, we will assist each employer with the development of an individually customized and priced program.

NPPFA Benefits will customize a Retirement Healthcare Funding Plan solution to meet your organization’s specific needs.