The Retiree Health Care Savings Plan allows employers to set up defined-contribution style plans to which employees can contribute part of earnings, post-tax, to be used for health care costs in retirement. Employers have the option of contributing to the plan as well. Employer contributions and earnings are not taxable when used for medical expenses in retirement.
Doug Chittenden, vice president for institutional product management at TIAA-CREF, told PLANSPONSOR that the firm increasingly heard from clients of all types about the challenges in offering retired employees health care subsidies or benefits. Following a symposium in which the topic of retiree health care costs was discussed, TIAA-CREF decided the only solution is to start now and pre-fund for health care costs, and formed a task force that has been working on the solution for the past two years.
The Retiree Health Care Savings Plan is a trust-structured solution where the plan sponsor is the owner of the trust, but the participants’ accounts are individually recordkept. The plan sponsor will decide investment options, and TIAA-CREF anticipates that most will allow participants to direct investments of their accounts. According to Chittenden, most clients currently looking at the program are eyeing lifecycle funds, but sponsors can choose any type of investment for their programs’ menu.
The plan will look similar to participants’ 403(b) accounts, and participants will be able to use TIAA-CREF’s Web site and other tools for account monitoring and management, Chittenden said. Once in retirement, participants will be able to use a debit card to access benefits at the point of service.
TIAA-CREF started the program for its own employees on January 1, and expects to offer it to about 15 more plan sponsor clients this year. Chittenden said the program will be offered across all client institutions next year.
Employers interested in the Retiree Health Care Savings Plan can find out more from a TIAA-CREF representative or by calling 888.842.7782. The firm will be putting information about the program on its Web site soon.