Most first-responders retire before they are eligible for Medicare, making finding affordable health insurance challenging. Due to the physical nature of the job, first-responders rarely reach 65 before retiring and are often left with many ongoing health challenges.
Without access to Medicare and the increasing cost of post-retirement benefits for associations, first-responders are in need of other options. Voluntary Employees’ Beneficiary Association Plans (VEBAs) can be an advantageous option for both first-responders and the associations where they work.
What are VEBAs?
VEBAs are used to supplement health insurance for first responders. As negotiations happen, the city may reduce health insurance benefits or increase premiums, especially for post-retirement benefits. Unfortunately, many new hires do not get any post-retirement at all. With most first responders retiring well before they are eligible for Medicare, finding affordable insurance can be problematic. By establishing a VEBA with the city, first responders can invest to help offset the costs of healthcare in retirement.
There are also tax advantages for employers and employees alike. Employers enjoy the benefit of tax savings since they do not pay FICA, Workers’ Compensation, or Unemployment insurance taxes on the contributions they make to the VEBA. Funds grow tax-free and are withdrawn tax-free as long as they are used for qualified medical expenses. For cities, VEBAs can save untold amounts of taxes on accrued vacation and sick time payouts.
How do VEBAs work?
First-responders can use the money in their VEBA to pay health plan deductibles, co-pays, and coinsurance as well as prescription drugs and certain insurance premiums. There is no need to worry about spending all of the money in a VEBA by the end of the year – any remaining balance will simply roll into the next year. Users will accumulate funds over time, leaving money to pay for health expenses after retirement.
Contributions can only be made by employers, but there are many ways employer contributions can be negotiated:
- Scheduled contributions to the participants at a specified rate
- Conversion of sick or vacation leave as decided by the association*
- Mandatory salary deferrals at a $ or % amount determined by the association. Can have a match as well*
- Wellness invectives from the city
- Early retirement incentive
*Once voted on by the association, every member must follow the same rules regarding the contribution. There are no individual considerations.
Employees can use post-retirement VEBA funds to pay for medical premiums and long-term-care premiums. An employer can choose to make contributions throughout employment or convert accumulated unused sick time, vacation, severance money, or other longevity-based benefits post-retirement.
A VEBA provides tax-free reimbursement, meaning all medical expenses defined under IRS Code Section 213(d) are eligible under a VEBA including:
- Long Term care premiums
- Medicare Part A and B premiums
- Medicare Supp. premiums
- Medicare Advantage premiums
- Any insurance carrier premiums for medical, dental, RX, and vision
- Any of the above for your tax dependents
Get started with VEBAs
VEBAs can be a powerful way to provide additional benefits to your first-responders, without going over budget on employee benefits. If you think VEBAs may be a good fit for your association, click here and schedule time with our team to discuss further.
Source of article: https://anewadvisors.com/blog/how-do-vebas-work-for-first-responders