Retiree health care costs continue to soar while public agencies struggle to fund their benefit programs. This leaves employees and agencies having to consider ways to most efficiently save and invest for retiree health care expenses.
Investment firms project that the average healthy couple will need between $220,000 and $400,000 for out-of-pocket health care expenses during their retirement. This amount shocks most people. In fact, only 8% of the population has factored these expenses into their retirement investment portfolio.
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The CALGOVEBA was developed by the City of Foster City in 2004 to address these issues. The program takes advantage of favorable IRS tax regulations that encourage employees to plan ahead for these substantial expenses. Each participant has an individual account which is portable, and the program features guaranteed investment returns. Additionally, participants can use their account for current expenses if they so choose.
The CALGOVEBA is enabled by IRC § 501(c) 9 which establishes VEBA Trusts. The VEBA Trust is a collectively bargained agreement that offers special tax incentives to encourage individuals to save for these expenses. Specifically, the CALGOVEBA program allows for:
1. Pre-Tax Contributions
2. Tax-Exempt Investment Growth
3. Tax-Exempt Reimbursements
The CALGOVEBA also permits tax-free Leave Pay contributions. Too often employees who diligently save up Leave Pay end up with a significant tax burden. Bargaining units are able to elect to contribute all or part of their Leave Pay into their account.
For agencies with OPEB liabilities, the CALGOVEBA is GASB 45 approved. Therefore, agency contributions will reduce disclosed OPEB liabilities.
The CALGOVEBA is an integral and critical component of one's retirement plan. Retiree health care expenses are significant. Taking advantage of the § 501(c) 9 tax advantages reduces this burden.
Please contact us for more information on how we can help.