The Boston-based Fidelity said in a news release that it believes that a dedicated, tax-efficient, account-based solution is needed to help employers manage retiree benefits costs, while also enabling workers to prepare for the significant financial liability of paying retirement health bills.
“Currently, there is no available account option that delivers the ideal combination of tax benefits, funding flexibility, portability and investment options,” said Brad Kimler, senior vice president, Fidelity Health and Welfare Consulting, in a statement. “However, it is our hope that future regulatory changes will encourage the evolution of accounts, leading to a workable solution: an account that involves employees in benefits decisions, promotes health care consumerism, allows for measured employer contributions, and complements the balance of an employer’s retirement benefit offering.”
Deere & Company, is working with Fidelity to develop a proposal for a Retiree Medical Benefits Account (RMBA), which functions much like a 401(k) for health care, the Fidelity announcement said.
“Our aim in supporting the creation of a RMBA is to help future retirees better understand medical costs and encourage them to plan and save to meet their own needs in retirement, beyond what Medicare and/or employer-sponsored retiree benefits provide,” said Mert Hornbuckle, vice president, Deere & Company Human Resources, in the Fidelity announcement. “In addition, the tax advantages offered by this new account will give employees an added incentive to save.”
Identifying a viable retiree health care account solution is the first step employers need to take in building their benefit offering, Fidelity asserted. To help them assess the existing accounts, Fidelity defined key account features that should be considered in the evaluation process, including:
- funding flexibility
- tax treatment
- contribution limits
- investment options
- covered expenses
- plan access
- survivor benefits.
In addition to advocating a new tax-advantaged health account, the Fidelity report also presented an estimate on how much a hypothetical retiree might need to pay for health treatment. A 65-year-old couple retiring today, with no access to an employer sponsored health care plan, needs an estimated $175,000 to fund out-of-pocket medical expenses in retirement, despite recent positive legislative changes, according to Fidelity.
“Research indicates that few pre-retirees are prepared to meet medical costs in retirement and most have given little thought to the possibility that they could face paying for future health care expenses not covered by Medicare,” said Kimler. “The situation is cause for concern, at a time when many employers are being forced to contemplate how, and even whether, they can continue to offer retiree health care benefits in the face of increasing costs.”