It’s that time of year again! Open enrollment is the yearly period when employees can enroll in a health insurance plan and voluntary benefit funding plans like Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA). For employers, it is a time of year that serves as an opportunity to help their employees navigate through decisions that will significantly impact them and their families. It’s important that this period goes smoothly so that employees make the right choices for their unique situation. To that end, here are some tried-and-true tips to make the most of this crucial time.
- Start Education Early
The annual benefits-election process should start well before any forms are filled out. The earlier you can get information and materials out to your employees, the better. This allows time for employees to review their options and formulate any questions before enrollment begins. Plan to answer some of the most common open enrollment questions for each program, such as:
- Why do I need this benefit?
- Which features fit my needs?
- What value does the program provide?
- How much is this going to cost me per paycheck?
If you offer an FSA through MidAmerica, we have several open enrollment and benefit education resources you can leverage. Simply reach out to your Account Manager!
- Remember the Basics
Many employees don’t fully understand health insurance or benefit funding plan basics. With health insurance options changing, employees may need education on definitions and examples of co-payments, deductibles, co-insurance, and out-of-pocket maximums. Avoid using confusing jargon in your marketing collateral so that solutions are easy to understand.
- Communicate Your Plan and Level of Coverage
Prepare to share information about your company’s benefits coverage and health benefit funding plans, including the different plans that you offer and their perspective coverage, and any changes you are making or considering. Be sure to clearly communicate cost information so employees understand what they will need to pay and how their benefit is changing. Prepare handouts outlining the major changes to the benefits and hold informational meetings, including new IRS guidelines and plan maximums. Anticipate questions and have FAQs ready for distribution.
- Avoid Information Overload
Some employers make the mistake of handing out pages and pages of text, jamming a year’s worth of communication into a few weeks. Instead, communicate the technical details of your various benefits over time. Don’t assume employees will weed through all your materials to make sense of the benefits offered to them.
- Give Employees a Generous Time Frame
While many people may wait until the last minute to fill out their forms, others consider their options with their family members for weeks. Giving them just a few days will not be enough. Be sure to build in a time frame that gives HR staff and employees the time they need. A recommended time frame is three weeks.
Although open enrollment can seem like a stressful time, it doesn’t have to be that way. By following the tips above, you can ensure that your organization has a successful open enrollment.
If you have any questions regarding your FSA open enrollment, please reach out to accountmanagement@myMidAmerica.com. We offer many tools and resources you can use to help employees better understand their FSA and how to take advantage of it.
Offsetting rising health care costs is a struggle for many employers. A Health Reimbursement Arrangement (HRA) is a cost-effective way for employers to provide great health benefits to employees at a reduced cost. An HRA is an employer-funded health benefit plan that reimburses employees for out-of-pocket medical expenses and health insurance premiums on a tax-free basis.
At MidAmerica, we offer three flexible HRA options, so you can make sure the benefit offered to employees meets the needs and goals of your organization:
A defined contribution HRA (dcHRA) offers a quantifiable retirement benefit that reduces the employer’s OPEB liability while attracting and retaining top talent. It allows employers to deposit a fixed dollar amount into the HRA while the employee is actively working for use upon retirement or separation of service. Funds can be used to reimburse eligible medical expenses for the retiree, their spouse, and eligible dependents on a tax-free basis. Funding the plan during employment allows for managed cash flow and potential asset growth as well.
A retiree HRA (rHRA) helps bridge the gap between retirement and Medicare eligibility for employees. An rHRA accomplishes this by using unique sources of funding like unused sick leave and unused vacation pay, or other incentives into an employee’s account at retirement. Funds can be used upon retirement or separation of service to reimburse eligible medical expenses for the retiree, their spouse, and eligible dependents.
An integrated HRA (iHRA) helps employers offset the cost of group medical coverage for active employees by depositing a fixed amount into the employee’s HRA. Funds can be used to reimburse eligible medical expenses, such as deductibles, and are available immediately upon contribution. This allows the employer to offer lower premium plans with higher deductibles without increasing the cost to the participant. In other words, this solution makes health care plans more affordable for both the employer and employee.
No matter what the health care benefit goal of your client is, it’s likely there is an HRA solution that can help them reach it. With flexible applications that help both the employer and employee, it’s a win-win plan for all.
Not sure which HRA plan is right for your organization?
Schedule a free consultation:
Public sector employers regularly provide valuable work opportunities for part-time, seasonal and temporary employees. Although some of these employees may not participate in public sector benefits, part-time, seasonal, and temporary workers have been able to take part in Social Security, but many public sector employers don’t realize that they have an opportunity for cost savings.
So how can public sector employers take charge? By saving money in their own operational budget, employers have the power to reinvest savings back into their organization, ultimately resulting in more satisfied employees, a higher retention rate, and benefits that attract quality talent.
MidAmerica’s 3121 FICA Alternative Plan is a type of retirement plan for public sector part-time, seasonal and temporary workers that replaces Social Security. In other words, it’s a huge cost saver for employers and a valuable benefit for employees.
Here’s how it works.
The 3121 FICA Alternative Plan eliminates the 6.2% Social Security match by the employer. Instead it routes 7.5% of employees’ before-tax wages into an interest-bearing retirement plan, creating a win-win arrangement for everyone. In addition to this advantage, the employees’ paychecks remain virtually unchanged and their eligibility for Medicare remains unaffected.
This chart shows the savings realized by an employer whose payroll for part-time, seasonal, and temporary employees totals $250,000:
*It may appear that employees have less take-home pay, but the chart below illustrates why that’s not the case.
Savings for the employer: $15,500
How 7.5% Equals 6.2%
Even though employees are replacing their 6.2% Social Security contribution with a 7.5% contribution into their 3121 FICA Alternative Plan, they are actually left with around the same take-home pay. Why? Because FICA Alternative Plan contributions are pre-tax. The chart below illustrates what seems like impossible math: how 7.5% equals 6.2%.
So who’s qualified for 3121 FICA Alternative Plans?
Eligible employers are either governmental entities that are are closely affiliated with state and local governments (generally by government ownership or control), or a political subdivision, which is a separate legal entity of a state that usually has specific governmental functions. Your state Social Security administrator can advise you on the status of your organization.
At the end of the day, the 3121 FICA Alternative Plan is an extremely cost-effective retirement benefit for part-time, seasonal, and temporary employees. But the employer isn’t the only one reaping the benefits of this plan—employees truly benefit, too. For them, 7.5% of wages are contributed on a pre-tax basis, while their take-home pay remains virtually unchanged. Funds are also invested, which means increased account value due to earnings over time. Investments may even be self-directed to meet personal retirement goals.
In a world of reduced budgets despite rising demands for resources, truly meaningful benefits make employees feel secure and valued. By implementing a 3121 FICA Alternative Plan, employers can take charge, ensuring their compensation structure remains attractive to potential and existing talent.
Is a 3121 FICA Alternative Plan right for your organization?
Schedule a free consultation:
A Special Pay Plan (a type of 403(b) or 401(a) retirement plan) is a simple, cost-effective retirement plan that benefits both the employer and the employee. Designed to handle special forms of compensation like unused sick leave or vacation pay, funds are contributed pre-tax into the participant’s retirement account upon their retirement or separation of service.
The following benefits of a Special Pay Plan illustrate how employers could enhance their current benefits package while saving them money:
How an Employer Benefits from a Special Pay Plan
- Tax Savings
Employers avoid 7.65% in FICA taxes that they would have otherwise paid if they did not place the funds in a Special Pay Plan.
- Unique Funding
Special Pay Plans are funded using unique forms of compensation like unused sick and vacation leave. Payments may also be based on years of service and severance.
- Recruitment & Retention Tool
Contributions into the retiree’s plan are made pre-tax, providing the full, untaxed value of the unused compensation. Funds are invested to grow as well, which means increased account value over time. This creates an impactful retirement benefit that can help employers attract and retain talent.
How a Special Pay Plan Can Supplement a Health Reimbursement Arrangement (HRA)
Employers who currently offer an HRA to their retirees can provide an added benefit to their retirement package by implementing a Special Pay Plan. HRA funds must be used to pay for eligible medical expenses. A Special Pay Plan can supplement that post-retirement income by providing access to money that can be used for any purpose once the retiree has reached the distribution eligibility age*. This means an employer could potentially place unused sick leave into an HRA and the unused vacation pay into a Special Pay Plan, creating two buckets of post-retirement funds for the retiree. Both plans utilize an investment vehicle that allows the funds to accrue interest tax-free.
Special Pay Plan/HRA Comparison Chart
Want more information on our Special Pay Plan solution?
Download our Special Pay Plan brochure!
Are you an Alliance Partner with MidAmerica?
Log into the Alliance Partner Portal to access Special Pay Plan resources and presentations.
* Special Pay funds are eligible for distribution once the participant has reached age 55 and separated from service.
Most of us look forward to the day we can retire from our jobs—maybe kick back, relax and take it easy for a change. Or, for those who can’t sit still, maybe this is a time to check off bucket list items.
No matter how you plan on spending your golden years, you’ll need to save plenty of money for when it’s time to cash in. With some careful planning, you can find ways to enjoy this time—without the constant worry of finances.
5 Money-Saving Tips for the Dream-Chasing Retiree
Don’t be afraid to ask for the senior discount!
It only costs $16 a year to be a member of AARP or American Seniors Association, which will grant you access to a world of discounts. Apps like Senior Discounts or Flipp can help you easily discover savings at your favorite restaurants, travel, and stores like Target, Walgreens, and Walmart.
Declutter or downsize your home!
Retirement is the perfect time to take on new projects. Get rid of unwanted items in your garage or storage unit, then have a yard sale or donate it to a family in need. If your kids have moved out, look at the empty-nest phase as an opportunity to start fresh with a smaller home. Consider the savings you could generate—lower property taxes, utility bills, maintenance costs and homeowner’s insurance premiums— just to name a few!
Consider donating or selling an extra vehicle.
Now that you’re no longer commuting to work, perhaps you can get by with just one car instead of two. Sell the car for extra cash or donate the vehicle to a charity and gain a sizable tax deduction. Plus, it will save you on car insurance bills, maintenance and gasoline expenses.
Keep doing what you enjoy, but less frequently.
If you’re in the habit of eating out five times a week, try cutting back to three. It’s not a dramatic change, but you will notice the savings to your wallet. Think of the other ways you could cut back. How about golfing two days a week instead of four?
Treat your Special Pay Plan or Health Reimbursement Arrangement as a rainy-day fund.
If you currently have retirement benefits through MidAmerica, it makes sense to hold off on distribution or reimbursement requests until necessary. Why? Because your benefit funds are invested for tax-free or tax-deferred growth. This means the longer your funds stay in your account, the more money you could potentially end up with down the road. Your 403(b)/401(a) Special Pay Plan and Health Reimbursement Arrangement is there when you need it, but it keeps growing when you don’t. To learn more about your specific MidAmerica benefit, log into your account at myMidAmerica.com.
These are just a few simple ways to save money as a retiree, which we hope makes you realize that saving money doesn’t need to be difficult. Living the happy retirement you deserve can be as simple as sticking to your budget, keeping track of what you spend, and appraising your spending for any savings opportunities.
Working in the public sector can provide an employee with some unique retirement benefits that are not generally available to those who work for private companies. One such benefit is a Special Pay Plan, which pays out based on special forms of compensation, such as unused sick leave or vacation pay. These types of compensation are normally paid out as taxable earned income and are reported on a W-2 form. A Special Pay Plan mitigates this tax hit and provides a valuable investment vehicle in the process. If your employer offers a Special Pay Plan, it’s adding value for you in many ways.
What is a Special Pay Plan?
A Special Pay Plan is an interest-bearing 401(a)/403(b) retirement account that is established by your employer in your name. Your employer makes pre-tax deposits/contributions into this account in lieu of disbursing a check for your unused sick leave, separation of service pay, or other retirement incentive pay. The funds deposited into the Special Pay Plan are invested, which leads to earnings over time, helping you to meet your retirement goals.
From a tax perspective, a Special Pay Plan is a valuable benefit in the following ways:
- You will permanently save 7.65% on FICA taxes. For example, if your benefit amount is $10,000, you will take home the entire $10,000 less income tax, saving $765 in FICA.
- Funds in a Special Pay Plan can be available before age 59½ without penalty. If you are at least age 55 at the time of retirement and remain separated from service, you can access the funds and avoid the 10% early withdrawal penalty.
- The account is tax-deferred, meaning that you are not taxed until you withdraw funds. In addition, if your tax bracket is lower after retirement, you could potentially save on tax when you withdraw funds. A Special Pay Plan allows you to control the timing of your cash distributions as well as the timing of your tax obligations.
Other Benefits of the Special Pay Plan
Besides the built-in tax advantages, a Special Pay Plan provides a valuable savings vehicle for your retirement in other ways. During your working years, the benefit continues to grow. Once you retire, you are free to roll the accumulated funds into an IRA or another qualified plan, or take a partial or lump sum distribution. If desired, periodic distributions may be taken monthly, quarterly, or annually. The funds can be used at your discretion, for any expense. This type of plan provides complete liquidity for withdrawals or rollovers, enabling you to manage your financial future on your terms.
As a public sector employee, you already know your retirement benefits offer some unique opportunities. If your employer offers a Special Pay Plan, consider yourself fortunate. This lovely benefit converts otherwise taxable incentives into a tax-advantaged retirement option for you. Having this added sense of financial security may convince you to get off the fence about retiring early.
A Health Reimbursement Arrangement (HRA) is another valuable savings tool that can benefit you in retirement. If your employer offers an HRA, please click here to learn how this benefit can make a difference for you.
If you are contemplating retirement, one of your foremost concerns is probably the issue of medical insurance. How will you pay for it when you are no longer receiving a regular paycheck? If remaining on your employer’s medical plan is an option, this may be something to consider. However, it’s very possible that your employer is eager to transition you off their medical plan and offer you a Health Reimbursement Arrangement (HRA) instead.
What is an HRA?
A Health Reimbursement Arrangement is an interest-bearing, employer-funded account created in your name. Deposits can be made completely tax-free¹, meaning that you receive 100% of the value of each benefit dollar.
The HRA account is designed to reimburse retirees for their eligible medical expenses and/or premiums to offset their out-of-pocket costs. Your employer determines which qualified medical expenses are eligible for reimbursement under the plan.
What are my HRA Options?
There are two HRA options designed to benefit retirees: a Defined Contribution HRA or a Retiree HRA.
- With a Defined Contribution HRA, funds are deposited while you are still actively working, growing over time, and becoming available for use upon retirement or separation of service. Participants are 100% vested immediately, meaning that you own the account balance as soon as the account is established.
- With a Retiree HRA, funds are deposited in a lump sum upon retirement/separation of service. The funds are invested once deposited, and can be used immediately upon deposit.
For both types of HRA, account balances roll over year to year, qualified expenses are reimbursed tax-free, and funds can be used to reimburse eligible medical expenses incurred by you, your spouse, and any qualifying dependents.
Additionally, both of these HRA types provide an opportunity to bridge the gap between retirement and Medicare eligibility. Given this financial incentive from your employer, you may consider retiring earlier than planned, and you may choose to seek an alternative healthcare option, rather than remaining on your employer’s plan.
Similar to a Special Pay Plan, both the Defined Contribution HRA and Retiree HRA can be funded using your unused sick leave or vacation pay.
Although a Special Pay Plan is structured differently than an HRA, it is an equally valuable retirement benefit. If your employer offers a Special Pay Plan and you’d like to learn more about its advantages, please click here.
¹Not subject to FICA, Federal or State income taxes