SECURE Act and What You Need to Know

Posted on January 14, 2020

Effective January 1, 2020, Congress passed an appropriations bill that included a piece of legislation called the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). In summary, the bill may impact your plan in the following ways:

  •  Increase Required Minimum Distribution Age (Section 114). The SECURE Act increases the age at which Required Minimum Distributions (RMD) must begin from 70 ½ to 72. Participants reaching the new requisite age will still be able to delay their first RMD until the following year (by April 1), for which they must take their first RMD (the required beginning date). Additionally, a second RMD will still need to be distributed by the end of the same year (the year the individual turns 73). Effective for participants turning 70 ½ after December 31, 2019.
  • Child-Birth or Adoption Withdrawals (Section 113). The SECURE Act permits participants to take penalty-free withdrawals of up to $5,000 (per child, per parent) for expenses related to the birth or legal adoption of a child (up to the age of 18) for up to one year following the qualifying event. These distributions may be recontributed back to the plan from which the distribution was made, or to an IRA. This is effective for distributions after December 31, 2019.
  • Post-Death Required Minimum Distribution Rules for IRAs and Defined Contribution Plans (Section 401). The SECURE Act changes the post-death Required Minimum Distributions (RMD) rules for inherited retirement plan accounts requiring that all distributions (to a designated beneficiary) be made by the end of the tenth calendar year following the year of the participant’s death or inheritance. This change differs from existing law that allows designated beneficiaries to use their own life expectancy for distributions. The 10-year distribution requirement does not apply if the designated beneficiary, also referred as eligible beneficiary, is a surviving spouse, disabled or chronically ill, not more than 10 years younger than the participant, or a child of the participant who has not reached the age of majority. This is effective for distributions by reason of a participant’s death after December 31, 2019 (December 31, 2021 for governmental plans).
  • Reduced Minimum Age for In-Service Distributions (Section 104 of Division M). The SECURE Act reduces the voluntary in-service distribution minimum age under a pension plan or governmental section 457(b) plan to age 59 ½ (rather than age 62 that was permitted for pension plans or age 70 ½ that was permitted for 457(b) plans). This is effective for plan years beginning after December 31, 2019.

We will continue to watch the development of this legislation closely and post any relevant updates or changes.

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 [email protected].

 

*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.

Creating a Powerful Company Culture

Posted on January 7, 2020

Since 1995, MidAmerica has developed long-lasting relationships because of our dedication to service and a desire to help the people who make our community a better place. Putting people first has always been at the center of everything we do, and we’re constantly searching for more ways to connect with those we serve. MidAmerica strives to do the right thing for our participants and plan sponsors to create an excellent experience for them. As a result, we’ve maintained a 99% client retention rate for more than 17 years.

For MidAmerica, providing excellent customer service starts with having an excellent internal corporate culture. We sum up our approach by simply putting People First. We know that people who find genuine satisfaction in their jobs will go the extra mile to make a customer happy. It’s important to us that each MidAmerica team member feels valued, which is why we regularly deploy an employee satisfaction survey, have quarterly “town halls” known as Renewals, and meet to ensure voices are being heard and any concerns are brought to the surface. We communicate through our actions by focusing on things like communication, accountability, and empathy to reinforce the importance of our commitment to our most valued asset: our people who take care of our customers. By introducing the People First mindset to our own associates from the time they start their journey with MidAmerica, this attitude extends beyond our offices so we can do what is right for each individual participant, employer, and partner.

We also instill the importance of accountability. We give our employees the tools they need to succeed and empower them to act as they deem necessary. When people feel their leaders listen to and respond to their concerns, and that the entire workforce is a team pulling towards the same goals, they feel happier and more engaged at work. MidAmerica knows that our customers see the benefits of this because of our employees’ dedication to delivering excellent service and their overall attitude.

From the time an associate is onboarded, we make sure that they fully know and understand the “Why” behind MidAmerica. Our mission is to take care of those people who do so much to take care of our communities— like public school employees, law enforcement and firefighters, and municipal employees— by providing best-in-class administration for the benefit plans that allow them to live with security and to retire with peace of mind.

An employee learns what is expected of them beyond their role and how their everyday responsibilities impact the business as a whole. They are challenged and empowered to look beyond the mechanics of their everyday job so that they can make a difference in the business and understand what clients rely on our company to do. If an employee understands how their role impacts our Vision and Mission, we have a greater opportunity to create a culture of performance and success. That is why each employee sets quarterly goals that ultimately align with our organization’s overall mission. The alignment between personal goals makes a measurable difference in harnessing employee engagement to drive growth. When employees can see their role as not only the responsibilities within their job, but their purpose in serving the needs of fellow employees and ultimately customers, our organization becomes extraordinary. This approach drives a greater level of employee engagement which is reflected in our rising employee engagement score. We’ve also started to see the impact on client retention, long-lasting relationships, and MidAmerica ambassadors.

Culture is not something we put in a memo or dictate to the organization. It’s ultimately generated out of the mission and vision of our company and the actions we take that align with them. When we focus our people practices on serving our employees as they serve each other and our customers, our culture thrives.

Do you share our values?

We’re looking for people who are motivated, talented and eager to help us realize our mission. If you are interested in joining our team, visit our Careers page to view current opportunities.

Public sector employers regularly provide valuable work opportunities for part-time, seasonal and temporary employees. Although some of these employees may not participate in their employer’s benefits, part-time, seasonal, and temporary workers have been able to take part in Social Security. However, many public sector employers don’t realize that they have an opportunity for cost savings.

So how can public sector employers reduce their cost while providing a valuable benefit? 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. Ultimately, it’s a  cost saver for employers and a valuable benefit for part-time employees.

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.

 

Here’s how it works.

The 3121 FICA Alternative Plan eliminates the 6.2% Social Security contribution by the employee and 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. Due to the pre-tax nature of their contribution, the employee’s paycheck remains virtually unchanged and their eligibility for Medicare is 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 the magic of how 7.5% equals 6.2%.

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 a 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, adding a potential for earnings on contributions over time. Investments may even be self-directed to meet personal retirement goals.

In a world of reduced budgets despite rising retirement costs, truly impactful retirement benefits make employees feel secure and valued. By implementing a 3121 FICA Alternative Plan, employers can ensure their compensation structure remains attractive to potential and existing talent.

Is a 3121 FICA Alternative Plan right for your organization?

Schedule a free consultation:

Which HRA Is Right For You?

Posted on September 26, 2019

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:

dcHRA
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.

rHRA
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.

iHRA
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:

Learn more about our HRA!

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

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