Restructuring Retiree Benefits
One of the most effective solutions for reducing unfunded OPEB (other Post-Employment Benefit) liabilities is moving retirees from a defined benefit plan – where the promise is to provide a specific benefit such as health insurance, to a defined contribution plan – where the promise is to provide a specific amount of money toward a specific benefit. Not only will this help eliminate an employer's unfunded OPEB liability, but it can assist in reducing the implicit rate subsidy.
Additionally, employees/retirees within the plan benefit from increased benefit security and increased benefit flexibility at retirement, including the ability to obtain health coverage elsewhere, such as through a spouse or by exploring the Affordable Care Act (ACA) Marketplace. Employees/retirees may also have the ability to invest their funds, assuming any potential vesting schedules and/or retirement requirements have been met.
Defined Contribution Retiree HRA or Employer-Sponsored 403(b)
Employers can set a defined contribution for retiree health insurance, offering new hires annual contributions to an HRA or 403(b) for retirement, reducing unfunded liabilities. This plan, paired with a vesting schedule, serves as a strong retention tool.
Employers would deposit funds into an employee's HRA or 403(b) during employment, but the employee cannot access the money until retirement or separation of service. Contributions would default to a fixed interest account, with variable options available, and may follow a service-based vesting schedule. Employees can use the funds for eligible medical expenses and premiums.
