This year, the COVID-19 pandemic pushed industries into unprecedented territory—moving many public sector organizations into a fully remote environment for the first time ever. We understand that budgetary constraints, retention challenges and employee morale have weighed heavily on HR professionals as they’ve navigated this new normal, and it may make the upcoming open enrollment season seem more daunting than ever.

However, open enrollment—even in a fully remote environment—doesn’t have to be yet another obstacle for you to overcome in 2020. With consistent, clear messaging and a thoughtful game plan, public sector organizations can host a successful open enrollment. Here are some tips from our team of HR experts for making this year’s enrollment season a win-win for both you and your employees.

Lean into tried-and-true remote communication methods.

Perhaps you’ve relied on desk drops or in-person meetings in the past to drum up awareness of benefit enrollment periods. In a remote world, digital communications may be easier to produce and disperse, and by now, you may have already established a tried-and-true way of connecting with your remote workers. Continue to leverage the methods your employees are familiar with, whether it’s weekly emails, internal newsletters or notifications from your payroll and benefits platform. Including open enrollment information in communication vehicles employees are already accustomed to seeing increases the likelihood of engagement.

Create an online repository for benefit information.

Think of using your company’s intranet as a place to house and highlight important open enrollment information such as upcoming deadlines, links to benefit administrator and vendor websites, benefit FAQs and essential forms, or any helpful videos and webinar recordings. Hosting information through a website or mobile app grants employees 24/7 access to the benefit details they need to make an informed decision and is another powerful resource you can leverage in a remote working environment.

Host virtual town halls, live webinars, etc.

The key to communicating benefit information is making sure that your employees have room to ask questions and engage with the material being presented. By hosting virtual town halls or live webinars, you can encourage employee engagement by creating a space to answer their questions and address any concerns. Be sure to get creative—consider organizing a virtual benefits fair and invite guest speakers from your benefit administrators to educate employees on their options. In fact, our experts regularly lend their guidance and expertise at these sessions to help employees understand the benefits our clients offer through MidAmerica. We suggest hosting multiple sessions at separate times and recording them—this covers all bases and ensures anyone can view the sessions at their own convenience, including those who may have missed it or new hires.

Make sure to plan ahead.

Our team of HR experts stress the importance of planning open enrollment and any education sessions ahead of time to cast the widest net possible—as well as beginning the open enrollment process one to two weeks before any HR-driven deadlines. We recommend socializing your open enrollment timeline well in advance—with frequent reminders—so enrollment stays top of mind for employees as critical dates and virtual education sessions draw near.

Proactively reach out to employees who may have a record of enrolling late.

If you know certain employees have struggled in the past with enrolling, take the time and effort to reach out to these individuals on a one-to-one basis. See if they have begun considering this season’s open enrollment process or if they have any questions that may be easier answered in this personal setting. Our HR experts say that this type of excellent customer service may be just the ticket to helping all employees successfully cross the enrollment finish line.

How MidAmerica Can Help.

Still looking for more tips and tricks? Check out this additional MidAmerica article that lays out ideas such as starting education early, remembering the basics, communicating your plan and level of coverage and more. We want you to feel empowered moving into this season and are more than happy to support you through these trying times. We offer many tools and resources you can use to help employees better understand voluntary benefits, like their Flexible Spending Account (FSA), and how to take advantage of it. If you have any questions regarding your FSA open enrollment, please reach out to accountmanagement@myMidAmerica.com.

Overall, the goal is to keep employees interested in what their benefits offer and what’s new to help them get the most out of their plans. By utilizing some of the above tips, you are sure to have a successful open enrollment season.

Understanding Your Special Pay Plan

Posted on October 16, 2020

We understand that navigating the world of retirement benefits may seem like a daunting task and, as an employee, you may have some questions about the Special Pay Plan your employer has set up for you. If you’re new to the plan, or just need a refresher, we’re here to help you get the most out of this powerful benefit.

What is the Special Pay Plan?

The Special Pay Plan uses special forms of compensation (hence, “Special Pay” plan) like your unused sick leave, unused vacation pay, or early retirement incentives to fund a tax-deferred retirement benefit that’s invested for potential growth. Employers and employees alike reap considerable benefits from a Special Pay Plan, as the benefit enables tax savings for both parties and MidAmerica assures peace of mind in our handling of your hard-earned funds.

How does it work?

Once you retire or separate from service, your employer deposits your accumulated unused sick leave, vacation pay, and other forms of compensation into a 401(a) or 403(b) retirement account. Crucially, these forms of compensation enter the account pre-tax, providing you with significant savings.

Pre-tax savings.

To demonstrate the extent of these savings, take the instance of a participant who receives a $10,000 deposit into their Special Pay Plan. They permanently avoid the 7.65% FICA tax, saving them $765 in FICA taxes deposited into their plan. Furthermore, the employer also avoids matching the 7.65% FICA tax they are otherwise obligated to pay per IRS rules. The employer may elect to use these savings to fund organization projects or to invest these savings back into their employees.

Tax-deferred.

The participant’s retirement account is income-tax deferred, meaning any income taxes will be paid upon withdrawal from the account. Income-tax deferral can usually provide you with even more savings, since you’ll likely fall into a lower income tax bracket further into retirement due to a reduction in your annual income (compared to when you were actively working.)

Invested for potential growth.

Finally, your Special Pay Plan is invested for potential tax-free growth with a minimum guaranteed annual rate of return. You may also have the freedom to self-direct the investment of your funds to meet personal retirement goals, if your plan allows.

When can I access my funds?

Participants are immediately vested in their Special Pay Plan upon retirement or separation of employment—which means you fully own the account—giving you immediate access to your funds once you retire. However, we encourage you to think of the account as a rainy-day fund: a reservoir of resources accessible on a needs-first basis. The money is there when you need it but has the potential to grow tax-deferred when you don’t!

Important IRS rules to consider.

IRS rules state that participants achieve full access to their funds when they reach 59 ½ years of age. So, if you separate from employment before that age, a 10% tax fee will be imposed on your distribution. If you are over the age of 59 ½ when you separate from employment, you will have full access to your 401(a) or 403(b) account, and are, in fact, obligated to withdraw a certain percentage of your funds after the age of 72.

 We’re here to help.

If you still have questions about your Special Pay Plan or need additional resources, MidAmerica’s Participant Services (PSR) team is here to help. We provide nation-wide coverage for participant education, ensuring you understand how to manage and access your benefit. In addition to our service team, you always have access to your benefit online by selecting Access Account from the top right-hand corner of the website.*

The PSR team is happy to answer any questions at (855) 329-0097 Monday through Thursday from 8:30 a.m. – 8:00 p.m. ET and Friday from 8:30 a.m.–6:00 p.m. ET. You can also reach us by email at accountservices@myMidAmerica.com.

 

*Please note you will not have access to your account online until MidAmerica receives your first plan contribution. Once the contribution has been received from your employer, we will mail you a detailed Welcome Kit with instructions on how to register for your account.

Written by Jim Tormey  |  President & CEO

To say 2020 brought a set of unexpected challenges to the public sector would be an understatement. As the year continues to unfold and the Coronavirus pandemic continues to evolve, we understand the pressure and toll it’s taking—especially on you, the clients we serve.

We founded our business in 1995 to support the public sector, providing guidance and solutions to help you face some of your toughest challenges. We were there for you then and, more than ever, we’re here for you now as we hold true to one of our MidAmerica Core Values: We Take Care of our Customers.

As classrooms reopen, as cities make tough calls on mask ordinances and shut-downs, and as we all remain focused on the wellbeing of those we love, please let me offer a heartfelt THANK YOU for everything you’re doing to keep our communities safe.

Teachers, city workers, public safety employees and countless other public sector workers have faced unprecedented adversity this year yet continue to show up each and every day in service to our communities. Their selfless example fuels and inspires us, and reaffirms our steadfast commitment to being there for you through it all.

Whether you need help retaining employees, are facing seemingly insurmountable budget challenges, or just need advice—we’re here to talk, to listen and to problem solve. We see the incredible work you’re doing every day for our schools, colleges, cities, and communities, and we’re grateful and proud to support you as a trusted partner every step of the way.

Thank you from the MidAmerica team for keeping our worlds moving forward. We’re in this together!

Sincerely,

Jim Tormey

We’re here to help.

If you or your participants have questions or need support during this time, we’re here for you. Our hours have not changed and we’re still accessible via phone or email.

Participant Service Hours
Monday through Thursday
8:30 a.m.–8:00 p.m. ET
Friday
8:30 a.m.–6:00 p.m. ET
Phone: (800) 430-7999 | accountservices@myMidAmerica.com

For employer-level service, contact your Account Manager by emailing accountmanagement@myMidAmerica.com.

Common HRA Misconceptions

Posted on October 13, 2020

When it comes to providing employees with a comprehensive health benefit plan, it’s important for the employer to consider all parties involved. Some employees may be open to a change in benefits, while others will undoubtedly be hesitant. Every employee has a unique financial situation that will sway his or her opinion, but MidAmerica has found that through candid conversations between decision makers and employees, a win-win arrangement is achievable.

Since the IRS approved the use of the  Health Reimbursement Arrangement (HRA) in 2002, MidAmerica has helped public sector employers across the country save on FICA taxes, reduce their OPEB liability, and help employees offset the cost of rising health care. Despite the increasing adoption of the HRA and the recognition of both its cost-saving abilities and administrative flexibility, employees may be hesitant to accept it as a new benefit due to some common misconceptions. If you currently offer an HRA or if you’re looking to implement an HRA for your organization, we understand that getting your employees on board is a large part of the process. Below are some common concerns employees, unions and bargaining groups may have and tips on how to help them understand the long-term benefit of the HRA solution:

Employee Concern: “I don’t need my unused leave for medical expenses—I want to use that money for any purpose I want after I retire.”

Employer Response: “The average 65-year-old couple retiring in 2019 can expect to spend $285,000 in health care and medical expenses throughout retirement[1], which means that without an HRA, you will likely use a tax-deferred retirement benefit or cash payout to cover these expenses. An HRA allows that money to be invested for potential tax-free growth and used tax-free when you incur the inevitable medical costs. Plus, we can set up a unique plan design so that a portion of your unused leave is placed into an HRA while the remaining funds are placed into a tax-deferred retirement plan, like a 401(a) or 403(b) plan, to be used for any purpose you choose.  Essentially, you’ll maximize the value of your unused leave to help offset the rising costs of health care in retirement.”

Employee Concern: “It seems like I’m losing money since I’m not receiving a cash benefit.”

Employer Response: “You’re actually receiving more money since the HRA is tax-free! This means you receive dollar for dollar the benefit amount you are promised. Unlike other retirement plans, the money reimbursed through the HRA is not subject to FICA, Federal, or State income taxes. With an HRA, deposits, accumulation, and reimbursements are all tax-free. In fact, you can easily calculate how much of your total benefit you’d receive based on the benefit vehicle.” Below is an illustration based on a $25,000 benefit amount.

*Based on 20% Federal Tax assumption. Consult your tax advisor for the actual tax rate that would apply to you.

Employee Concern: “Is it true that HRAs do not allow beneficiaries?”

Employer Response: “A participant’s surviving spouse, tax dependents, and qualifying children can still access HRA funds to pay for their own qualifying medical expenses after a participant’s death. Most participants fully spend their HRA  balances over the course of their lifetimes.”

Other Common Misconceptions: What an HRA Is, And What It’s Not


No matter if you need help explaining your current HRA to your participants, or if you’re interested in implementing one, we’re here to help. MidAmerica can work with you to create a plan design that meets your unique needs and will assist in discussions about this valuable benefit. Simply reach out to your Account Representative or Account Manager to request additional details or to arrange a consultation.

If you’d like to learn more about the HRA, simply complete the form below!

Learn more about our HRA!

 

[1] https://www.investopedia.com/retirement/how-plan-medical-expenses-retirement/

With the cost of health care continuing to rise and the COVID-19 situation still in the forefront, the need to find creative methods to pay for medical expenses has never been more relevant. According to the 2021 Large Employers’ Health Care Strategy and Plan Design Survey, conducted by Business Group on Health, employers project the cost of health benefits will increase by 5.3% in 2021, although the impact of COVID-19 is causing uncertainty about overall costs. Nevertheless, the total cost of health care, including premiums and out-of-pocket costs for employees and dependents, is projected to be $15,500 per employee in 2021. In keeping with trends from recent years, employers generally will cover 70% of the cost while employees will cover the remaining 30%. These figures suggest that employers will be looking for innovative ways to control the cost of their employee benefit programs, while employees will need help coping with their out-of-pocket expenses.

A relatively easy-to-administer yet cost-effective solution is the Health Reimbursement Arrangement (HRA). One of the benefit’s more unique qualities is its ability to mitigate the ever-increasing problem of managing health care dollars. And better yet, the flexibility of the HRA lends itself to a variety of applications—essentially making it a viable solution no matter the employer’s unique situation.

What is an HRA?

A Health Reimbursement Arrangement is an employer-funded health benefit plan which establishes an account in the participant’s name. Contributions are made completely tax-free*, meaning the employer saves up to 7.65% in FICA taxes and the participant receives 100% of the value of each benefit dollar.

Designed to reimburse participants on a tax-free basis for their eligible medical expenses and/or health insurance premiums, the HRA offsets their out-of-pocket health care costs. Additionally, HRA funds are invested in a fixed or variable account to potentially grow over time and any earnings realized are tax-free! Regardless of how the HRA is used, there are some additional benefits that come with offering this plan:

  • Qualified medical expenses can be determined by the employer. While the global list of eligible HRA expenses is provided under Section 213(d) of the Internal Revenue Code, the employer can choose to limit the plan to certain expenses within that list, such as a premium only HRA.
  • 100% of account balances can roll over year to year or the employer can designate a rollover amount. Any of the unused funds can be forfeited to the plan to fund future HRAs!
  • Funds can be used to reimburse eligible medical expenses incurred by the participant, their spouse, and any qualifying dependents. If the participant should pass away, the surviving spouse and eligible dependents are able to use the remaining funds.

What are the HRA Options?

MidAmerica has designed three unique HRA applications to ensure the benefit offered meets the needs and goals of both the employer and the employee. Flexibility is a key component of the HRA, as plan design will take into consideration factors such as contribution amounts, vesting schedules, deposit frequencies, and definitions of which medical expenses are eligible for reimbursement.

Defined Contribution HRA: Attract and Retain Talent While Reducing OPEB Liability

A defined contribution HRA (dcHRA) allows employers to deposit a fixed dollar amount into the HRA while the employee is actively working. These funds can be accessed upon the employee’s retirement or separation of service. The dcHRA is a quantifiable retirement benefit that can reduce the employer’s OPEB (Other Post-Employment Benefit) liability while attracting and retaining top talent. The dcHRA can use unique sources of funding such as unused sick leave and unused vacation pay, or other forms of incentive compensation that are typically already earmarked for payout. Because the account is funded during employment, the employer is better equipped to manage cash flow and participants become 100% vested immediately, meaning they own the account balance as soon as the account is established. What’s more, the dcHRA enables employers to restructure costly “promise to pay” retirement health care plans while still affording a valuable, portable health care benefit for their employees.

Retiree HRA: Offset the Cost of Rising Retiree Health Care Using Earmarked Funds

With a retiree HRA (rHRA), funds are deposited in a lump sum upon retirement or separation of service. Like the dcHRA, the rHRA can also use unique sources of funding such as unused sick leave and unused vacation pay. The funds are invested once deposited and are available for immediate use by the retiree.

Both the dcHRA and the rHRA provide an opportunity to bridge the gap between retirement and Medicare eligibility for the participant. Given this financial incentive from the employer, a worker may consider retiring earlier than originally planned, and may even use the HRA funds to select an alternative health care option rather than remaining on the employer’s plan, thereby reducing some of the administrative burden for the employer.

Integrated HRA: Offset High Deductible Health Plans or Offer in Lieu of Health Benefits

The integrated HRA (iHRA) is designed for active employees enrolled in group medical coverage. The employer deposits a fixed amount into the participant’s HRA to fund the reimbursement of eligible medical expenses, such as deductibles, and the funds are available immediately upon contribution. Much like a Health Savings Account (HSA), this type of HRA enables the employer to offer lower premium plans with higher deductibles without increasing the cost to the participant. Unlike the HSA, however, the iHRA treats health insurance premiums as qualified medical expenses**, supporting the argument that the iHRA is an ideal solution for making health care plans more affordable for both the employer and the employee.

The iHRA also serves another meaningful purpose in that it can be used to assist employees who have selected group health coverage under another employer, such as their spouse’s. An employer might be inclined to offer cash in lieu of health benefits for these individuals, in turn reducing the cost of their group health plans. However, this avenue can expose an employer to regulatory and legal complications that can jeopardize their plan’s compliance if not administered properly. Instead of making monthly cash payments directly to employees in lieu of benefits, there is a safer and more cost-effective solution—the money can be deposited into an iHRA.

Regardless of the plan design, the HRA participant will always receive the benefit of tax-free deposits into their account, tax-free reimbursements for qualified medical expenses, funds that carry over year to year, and the convenience of claims submission via online platform, mobile app, and a debit card.

HRAs provide versatility that can satisfy a wide range of health care benefit goals. The flexibility of HRA applications provides both employers and their employees with a winning benefits solution that drives substantial savings for all concerned. If you’d like to learn more about HRAs, simply email us at accountmanagement@myMidAmerica.com.

 

*Not subject to FICA taxes of 7.65%, or Federal or State income taxes

**HSA funds cannot be used for health insurance premiums unless the participant has reached the age of 65.

Senior-level employees like police and fire chiefs, department heads, and city managers often have hundreds (and sometimes thousands) of hours in accumulated leave time on the city ledger. Such is the nature of these professionals, who are often highly compensated, dedicated employees who are long-tenured and rarely take significant time off. So what happens when these employees decide to retire or leave to accept a position with another public agency? Cities are unexpectedly hit with the liability of paying out large banks of leave hours—and too often, management finds that their budget is not prepared for payouts of this magnitude. This liability not only can crush an organization’s budget, but must also be reported annually as compensated absence, adding to the city’s overall unfunded liabilities. This can be viewed negatively by credit rating agencies when assessing the city’s creditworthiness.

It’s no secret that the public sector is facing a significant crisis in its effort to keep up with escalating pension and retiree health care costs. State and local governments are increasingly finding themselves saddled with huge unfunded liabilities.

  • On average, government employees leave 21 percent of their PTO unused.
  • In 2013, there were 24 million government workers, accounting for 13 percent of total jobs. The public sector accounts for 25 percent of all unused days of PTO, or 106 million days, because government workers tend to earn more PTO and leave more days unused.*
  • Nationwide, payouts for untaken time off have rocketed upward by nearly 80 percent since 2008.**
  • In 2017, California paid out six-figure sums to about 460 employees, up from 280 in 2012.

Despite the seemingly insurmountable challenge at hand, fiscal sustainability can be readily achieved through an accrued leave conversion plan, which is an innovative way to increase budget predictability, reduce or even remove liabilities of accrued leave payouts, and decrease administrative burden.

Here’s how it works

Unused compensated employee absences (vacation, holiday, and sick days for example) are deposited into a tax-deferred 401(a) plan, a tax-free Health Reimbursement Arrangement, or a combination of the two. This transfers the value of leave bank dollars, and therefore management of those funds, to the employee while allowing for potential growth. The plan is funded (typically annually) with the current unused leave balance, avoiding payouts at a potentially higher pay rate down the line and eliminating the risk of large payouts upon separation or retirement. And as an ancillary benefit, the plan ultimately allows a city to have more certainty when reporting their annual liabilities.

Simply put, it’s a win-win for both the employer and employee.

If you’re interested in learning more about accrued leave liability solutions, simply reach out to accountmanagement@myMidAmerica.com.

Sources:

*Oxford Economics, “An Assessment of Paid Time Off in the U.S.: Implications for employees, companies, and the economy,” (February 2014).

**Steven Malanga, “Debts No Honest State Can Pay,” (March 25, 2019)

If you feel that the world of health savings can be a bit confusing, you’re not alone. At MidAmerica, we oftentimes are asked to help clients decipher the differences between account acronyms, which can certainly be confusing to the untrained eye. Two commonly confused benefits are Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). But how do these accounts differ? What about them is similar? Continue reading for further insight.

Health Savings Account (HSA)

An HSA is a personal bank account to help employees save and pay for qualified medical expenses. In order to contribute to an HSA, you must be enrolled in a high-deductible health plan (HDHP) that meets a deductible amount set by the Internal Revenue Service (IRS).  The HSA is a voluntary benefit of which employees can choose to participate (or not to participate). HSAs can be funded by the employee, the employer or any combination of the two. While HSAs help offset the cost of an HDHP, they come with maximum contribution limits and restrictions on eligible reimbursements.

Health Reimbursement Arrangement (HRA)

Unlike an HSA, an HRA does not require enrollment in an HDHP and is overall a bit more flexible with its administration. If the employer offers an HRA, enrollment is automatic and requires no action from the employee. Employers are the only allowed contributor for HRAs and can determine the amount and frequency of the contribution. HRAs have no maximum contribution limits and can allow for reimbursement of health insurance premiums upon retirement.

HSAs and HRAs: A Comparison

HSAs and HRAs have a lot in common, but also have key differences that should be highlighted. The comparison chart below illustrates the most notable similarities and differences between the two benefits.

HRA HSA
Taxes 100% tax-free contributions, reimbursements and interest accrual. 100% tax-free contributions, reimbursements and interest accrual.
Eligible Expenses HRAs cover medical expenses that are determined by the IRS & the employer.  The employer may decide to 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. HSAs cover qualified medical expenses, including services covered by a health plan as well as expenses listed under Section 213(d) of the Internal Revenue Code.
Contributions Employer can contribute (Participant can still contribute to a full medical FSA). Participant and Employer can contribute (Participant can only use FSA for dental and vision expenses).
Participation Eligibility All participants and retirees can participate. Some participants are not eligible to participate.
Integration with FSA The HRA allows the employee to have a health care FSA and/or dependent care FSA. HSAs permit the employee to have a limited purpose FSA which can only be used for eligible dental and vision services.
Carryover 100% of funds can roll over each year or the employer can designate a certain rollover amount and share in a portion of the unused funds. Funds can roll over each year. The employer cannot share in a portion of unused funds.
Investments HRAs can be invested for potential growth. HSAs can be invested for potential growth.
Design Flexibility Can be used with any type of health insurance plan design.

 

Can only be used with an IRS-qualified High-Deductible Health Plan (HDHP) whose limits are set by the IRS.

Gaining clarity with key terms is very important when planning your benefits. If you ever struggle with understanding the difference or similarities between different plan types, MidAmerica is always here to help. To learn more about HRAs and HSAs, you can download our comparison chart by completing the form below.

Download the full HRA/HSA Comparison Chart!

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