Retiree Benefits
scottorr
599 Posts
We have retiree health and welfare benefits for our employees. This benefit does not take effect until the employee works for us for at least 5 years. We are now approaching our 5th year of existance and people are starting to ask about it. Right now the benefit is very vague as to what is covered. I am looking to find out if any of my fellow forumites offer these types of post retirement benefits? And if so, what do you give them?
Comments
Most companies are discontinuing retiree medical benefits because of a ruling by the Fair Accounting Standards Board several years back that now requires organizations that offer this to account for it as a liability on their books. The liability must be valued at the actual benefit to the employee, which is much bigger than the annual premium. This means that your organization must reserve against this liability and tie up its cash. This is a huge financial hit. Be sure to consult your CFO before you finalize your plan. The big three car makers have been trying to get the government to take over this promised liability for years because it's breaking them financially.
Also consult your insurance carrier (or third party administrator if you are self-insured). Offering retiree medical will really change your rate structure because you're insuring people medically at a time when they are most expensive and they have the time to go get treatment that they may have been putting off. Doctors also will be more aggressive in suggesting things that could be done when they know they have insurance to bill and are not getting a Medicare reimbursement.
With all that said, if you are going to offer health benefits as a part of the package, you might consider offering them at the employee rate for the 18 month COBRA period. It wouldn't increase your costs significantly as you would have to offer COBRA anyway. If that's not sufficient, at least limit the amount of time they can keep medical to three years, etc. If someone were to retire at 55 years old, you'd be primary until they qualified for Medicare, which will be 12 years later (and moving up all the time). If they happened to have aquired a "trophy wife" in their waning years, you will have her for several more years than that, as she will be eligible for COBRA even if employees' coverage terminates when they are Medicare eligible.
I'm sorry to be so long winded, but the pitfalls are numerous in this area. Hope that helps.
Margaret Morford
theHRedge
615-371-8200
[email]mmorford@mleesmith.com[/email]
[url]http://www.thehredge.net[/url]
Your CFO or a CPA should be able to locate this for you. They would have the FASB rulings or know how to research them. The ruling is about 10 years old. These are not rules HR people normally have access to.
If you have a friend who is a CPA, I'd ask him/her instead of your CFO. Then dazzle Senior Management with how proactive and smart you are!
Margaret Morford
theHRedge
615-371-8200
[email]mmorford@mleesmith.com[/email]
[url]http://www.thehredge.net[/url]
If you are under age 65, you may continue your medical coverage. The cost will depend on your years of service.
0 to 10 years of service- COBRA for 18 months
10+ years of service- Continue with the same cost sharing until age 65.
At 65- Plan is replaced by Medicare.
Also, your spouse may be eligible to continue medical coverage based on the status of your coverage at retirement.