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At a time when employment-based retiree health coverage continues to dwindle, more than four dozen colleges and universities are participating in a program that avoids the extremes of no health coverage or unaffordable coverage.
Launched in 2005, the Emeriti Retirement Health Solutions program has grown from 29 schools to its current 51. Under the program, each school contributes to a voluntary employees' beneficiary association, and decides the level of financial support for coverage it wants to provide.
Employees also contribute after-tax dollars to a separate VEBA and direct the investment of their contribution and their employer's contribution in a set of mutual funds offered by TIAA-CREF.
The contributions and the investment income earn tax-free interest. When employees retire and are eligible for Medicare, they can withdraw funds tax-free to pay premiums for health care plans offered by Aetna Inc. or, in Minnesota, by HealthPartners. Retirees also can use the funds to pay for other uncovered health care expenses, such as claims that fall under a deductible, as well as Medicare Part B and Part D premiums.
Employees who have met their institution's normal retirement eligibility requirements but retire before they are eligible for Medicare also can withdraw funds tax-free to pay for health care-related expenses.
Participants say the Emeriti program is attractive for several reasons.
“We thought it might encourage faculty and staff to retire at a normal retirement age if they had access to health plans and an account that could be used to assist with medical costs,” said Robin Aspinall, treasurer and vice president of business and administration at Claremont McKenna College in Claremont, California. Also, “We liked the idea of a defined contribution plan with a finite cost,” she said.
Claremont contributes to the VEBA an amount equal to 0.5% of annual salary for employees, starting at age 40.
“We like the defined contribution approach. You know what your costs will be,” said Jeff Wolf, vice president of fiscal affairs and administration at the University of Evansville in Indiana. The school contributes $1,400 a year to the VEBA for employees, starting at age 40.
While current Emeriti participants are colleges or universities, that could change. “Museums, libraries, independent elementary and secondary schools remain an area for us to focus our attention,” said Emeriti President and CEO David Trainor, based in New Windsor, New York.
Special trusts called voluntary employees' beneficiary associations, long used to fund long-term disability and other employee benefits, have become a way for financially troubled employers to shed their retiree health care liabilities.