The Other Retirement Planning Crisis

Boomer business owners also could consider setting up health reimbursement account programs or health savings account programs for their companies.

Employers can use tax-deductible contributions to HRAs to cover the cost of current and future medical expenses, including retirement health expenses, for themselves and their employees.

One major insurer, Aetna Inc., Hartford, recently announced a program to help employers finance retiree health benefits by using HRAs to set up retiree reimbursement accounts.

But Aetna is aiming its reimbursement account program at employers that want to shift away from traditional, employer-paid retiree health programs, not at boomer business owners who want to cover the cost of their own retirement health expenses.

Some boomer business owners might be affluent enough to prefund their own retirement health expenses but not affluent enough or generous enough to do the same for their employees.

Boomer business owners may be able to get similar results for themselves while reducing the burden of funding employee benefits by setting up HSA programs. The tax code lets employers share all or part of the funding costs with employees.

Affluent boomers who are self-employed or get no health coverage or high-deductible coverage from their employers also can set up HSAs.

But the tax code puts strict limits on HSA contributions, and affluent boomers who still have access to traditional, rich coverage probably are better off with traditional coverage than with HSAs, experts say.

The National Association of Retired Federal Employees, Alexandria, Va., has argued in letters opposing efforts to offer an HSA option to federal employees that giving employees a choice between HSAs and traditional coverage will undermine traditional health insurance plans by taking away the healthiest employees and leaving them with the employees with the highest claims costs.

Employers who want to share retirement health plan funding costs with employees might find that employees are wary of the accounts or feel that they are unable to afford account contributions.

The University of Minnesota faculty senate, for example, has been trying to set up a post-retirement health care savings plan that would have a basic contribution equal to about 1.5% of a faculty members salary. So far, though, advocates of the plan have been unable to get the faculty senate to adopt it, according to reports on the faculty senates Web site.

Fidelity Investments, Boston, has tried to drum up support for a new retirement health savings vehicle, the retirement medical benefit account (RMBA), that would let employees direct a portion of 401(k) plan contributions to a special health care expense account.

The government would exempt RMBA contributions from income taxes, and it would exempt RMBA distributions used to pay for qualified medical expenses from income taxes. That would make the RMBA more effective at paying for retirement health expenses than ordinary retirement plans, Fidelity says.

Economists at the Center on Budget and Policy Priorities, a Washington think tank, argue that the RMBA proposal would reduce sorely needed tax revenue without doing much to help the low-income and moderate-income workers who most need government help with covering retirement health costs.

Reproduced from National Underwriter Edition, June 25, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.