Magazine article Risk Management

MAXIMUM Contribution

Magazine article Risk Management

MAXIMUM Contribution

Article excerpt

How will you pay for medical expenses if you retire early, before Medicare kicks in, or even after Medicare starts? It's one of the many distressing health care questions that worry Americans. However, if you work for the City of Westminster, Colorado, you might worry a little less, thanks to the efforts of Pierrette Ray. Ray, risk manager for the city, and a member of both RIMS and PRIMA, did some serious bookwork and found a rarely-used IRS code that allows city employees to pay for retiree medical benefits with funds from their pension plan.

"About five years ago we started to get inquiries from our employees about what the city was going to about retiree medical," says Ray. "So I thought about it and realized there were two parts to the picture. First, employees needed some kind of access to a plan."

Over the course of two years, Ray and her boss gained approval from the city council to allow employees who retire before the age of sixty-five to continue to participate in the group health plan. "Of course, they had to pay the premiums, but doing so was still less expensive than purchasing coverage outright," says Ray. "And many people don't realize that Medicare is not available until you reach the age of sixty-five."

Once she had secured this approval, Ray set out to solve the second, more thorny, challenge: how to pay for the coverage. "No employer, public or private, is in a position to fund a retiree medical program. So how do you create a program that gives employees money for medical expenses, and yet does not cost the city or organization any additional funds?"

Here's where the real search begins. "I sat down with one of those enormous IRS manuals, called the Employee Benefits Handbook," recalls Ray. "It was in three-ring binders and had really thin paper. It was full of codes and regulations." What she discovered was in the 401(h), a close relative of the 401(k). "The plan was originally written for defined benefits plans; but it says that if the money goes into a 401(h) account, then it goes in on a pretax basis, and can be used for medical expenses for the employee, their spouse and any dependent children.

"With this plan," continues Ray, "you can spend the money on medical insurance premiums, prescriptions, durable medical equipment, crutches, wheelchairs. And none of it is taxed." The money can also be used toward part of the expenses of an assisted living facility. "That's something that more and more people are starting to come to terms with," says Ray; "the fact that they may need to live in a facility where they are supervised. …

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