Plan Adoption & New Funding (for K-12 employers)
Thinking outside the box has become more important than ever in today’s competitive landscape. Many governmental employers are looking for innovative ways to enhance total compensation and strengthen the financial wellbeing of their employees. This is driven in large part by urgent needs to attract top talent, promote longevity, and retain valued personnel. Current challenges might also include aging workforces, increasing insurance costs, and reduced budgets.
Employees are dealing with everyday issues as well. Many are raising families and struggling to cope with increasing healthcare expenses. Those nearing retirement worry about how they’ll afford to pay their own premiums when they leave employment.
The VEBA Plan can help and be a valuable tool to help achieve your goals and drive desired outcomes. Here are several common examples:
- Prepare employees for out-of-pocket medical costs, including retiree premiums
- Reward responsible leave time usage
- Reduce unused leave time liability
- Help job-locked employees retire
- Ease the impact of increased cost sharing
- Offer an early retirement incentive
Whether you’re a brand new group or just looking to expand current funding sources, we’re ready to help deliver winning solutions. Employers win by providing a benefit enhancement with a competitive edge. Employees gain peace of mind knowing they’re in a stronger financial position.
Key Features
The VEBA Plan provides several advantages over similar plans:
- No high-deductible health plan (HDHP) requirement like health savings accounts (HSAs);
- No annual use-or-lose or carryover limits like flexible spending account (FSAs);
- No IRS contribution limits like HSAs and FSAs;
- Participant-directed investment fund lineup (similar to 403(b), 457, and 401(k) plans); and
- Survivor benefits for spouses, dependents, and/or named beneficiaries.
Best Tax Advantage
The VEBA Plan delivers win-win tax savings for employers and employees—even better than tax-deferred 457, 403(b), and 401(k) plans with taxable withdrawals.
- Employers pay no FICA match on contributions (up to 7.65% savings); and
- Employees pay no federal income tax and no FICA taxes on contributions, investment earnings (if any), or claim reimbursements (withdrawals). Employee tax savings could be up to 30% or more, depending on their individual tax situation.
Funding Sources
Available funding sources differ by employer type as listed below.
- School Districts, Educational Service Districts, and Community and Technical Colleges (VEBA Plan). In many cases, groups start with contributions sourced from funds that would have otherwise been paid to employees as taxable wages. Employers save money by not paying matching FICA taxes in these instances. For example:
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- Sick leave cash outs (annually and/or upon separation or retirement)
- Vacation cash outs (annually and/or upon separation or retirement)
- Mandatory employee contributions (group salary reduction)
- Part or all of a COLA or pay raise
Other common funding sources include:
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- Direct employer contributions
- Longevity incentives
Groups might also consider contributions (incentives) triggered by voluntary employee actions. These strategies can help encourage desired behaviors and drive positive outcomes. For example:
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- Submit early notice of retirement
- Accept an early retirement offer
- Complete a certain number years of service
For more details, download our HRA Funding Sources and Case Studies.
- State Agencies and Higher Education Institutions (VEBA MEP). The sole funding source for VEBA MEP participants is sick leave cash out at retirement.
Group Decision (Vote)
HRA eligibility and funding are usually subject to collective bargaining or employer policy. IRS rules don’t allow individual elections. Employers and/or employee group leaders typically facilitate some form of a group vote or survey when adopting or adding HRA funding sources.
A group voting guide for your employer type, sample voting ballot, sample memorandum of understanding (union groups), and sample employer policy (non-union groups) are available upon request.
Note that eligibility requirements and funding amounts must not discriminate in favor of employees who are “highly compensated individuals.” Our HRA Non-discrimination Information (available upon request) contains more details.
Next Steps
We’re ready to help guide you through the plan adoption process or simply add new funding sources. Personalized support for decision makers and stakeholders is provided by Gallagher Benefit Services, Inc. Get started today! Contact the Gallagher office nearest you.
1-800-888-8322 | Spokane
1-800-422-4023 | Tacoma/Bellevue
1-855-565-2555 | Tri-Cities