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Voluntary separation programs with early retirement incentives can offer a strategic alternative to traditional layoffs. These innovative plans empower employees to make their informed decisions, leaving them feeling valued and appreciated by their employers.
By offering a Health Reimbursement Arrangement (HRA) or Special Pay Plan (SPP) 403(b), employers not only enhance the value of the employees’ benefits but also may help them retire earlier with financial security. It's a mutually beneficial strategy that ensures success for both employers and employees.
Retiree Health Reimbursement Arrangement
A Retiree HRA can be a powerful tool for employees. With employers contributing funds, employees can cover qualified medical expenses in retirement on a tax-free basis. A Retiree HRA also offers:
- Tax-Free Savings: Contributions, distributions, and interest accrual are all tax-free, saving both the employee and employer on taxes.
- OPEB Liability Reduction: This arrangement can help reduce or eliminate Other Post-Employment Benefits (OPEB) liability.
- Bridge to Medicare: HRAs can bridge the gap between retirement and Medicare eligibility.
- Comprehensive Coverage: Funds can be used for eligible medical expenses and premiums, including medical, dental, vision, long-term care (LTC), and all parts of Medicare.
Special Pay Plan 403(b)
The Special Pay Plan 403(b) offers flexible benefits that can be used for any purpose, making it an excellent addition to an employer’s retirement planning toolkit. It offers:
- Tax Savings: Both employees and employers can save up to 7.65% in FICA taxes permanently.
- Deferred Payouts: Payouts can occur up to five years past the date of separation, and earnings are tax-deferred.
The Financial Impact of HRAs and SPPs
Below is an example of how a Retiree HRA or SPP plan can make a substantial difference for you and your employees.
To learn more about Retiree HRAs or Special Pay 403(b), please contact your NIS Representative.
National Insurance Services is not a law firm and no opinion, suggestion, or recommendation of the firm or its employees shall constitute legal advice. Readers are advised to consult with their own attorney for a determination of their legal rights, responsibilities and liabilities, including the interpretation of any statute or regulation, or its application to the readers’ business activities.
