VantageCare Retirement Health Savings RHS Plan

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VantageCare Retirement Health Savings (RHS) Plan

• October 2006
• Michele Martin, Territory Vice President Northern
  CA

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VantageCare Retirement Health Savings (RHS)

• 1999 first plan adopted
• IRS Private Letter Ruling received on tax-exempt
  status of integral part trust
• 2000 ICMA-RC makes RHS available nationally
• 2002 Opinion of counsel widens flexibility and
  IRS issues Notice and Ruling for Health
  Reimbursement Arrangements (HRAs)

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What Is VantageCare RHS?

• A program that allows employees to accumulate
  funds for post-employment/retirement medical
  expenses
• Health insurance
• Out-of-pocket medical expenses

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VantageCare RHS Benefits

• Funds may be contributed on a pre-tax basis
• Federal income tax
• State income tax (if applicable)
• FICA tax (if applicable)
• Investment earnings are tax-deferred
• Distributions for covered medical expenses are
  tax-free for participants, spouses, and
  dependents

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Key Advantages of RHS

• Flexibility in plan design for
• Participation
• Contributions
• Benefits provided
• Eligibility for withdrawal
• You may use combinations of different types of
  funding for different employee groups
• Different bargaining units may have different
  contribution rates and participation rules
• Direct employer contribution not required
• Employees may choose the level of their
  contributions
• No forfeiture on death

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Available Participation Contribution Features
HRA rules do not allow voluntary salary
deferral contributions
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Most Popular Plan Design
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Pre-tax Employee Contributions

• May be Mandatory or Irrevocably Elected
• From compensation
• From accrued vacation, sick or other leave
• At termination of employment
• Annual excess leave accruals
• Election may be deferred indefinitely
• Employer may establish minimum or maximum
  contributions

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Pre-tax Employee Contributions (cont.)

• Prospective Leave Accruals
• Irrevocable election of leave to accrue during
  following calendar year
• Once election is made, leave is not available to
  participant during the year
• Suggest that plan requires a floor on leave bank
  before election permitted

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Most Popular RHS Contribution

• Terminal vacation/sick payouts
• Employee saves taxes on possibly largest paycheck
  of career
• Employer saves FICA (if applicable)
• May discourage misuse of vacation/sick pay in
  last year of employment
• Many employers make funds available immediately
  can cover COBRA payments
• Employer/collective bargaining agreement
  determines whether mandatory or irrevocably
  elected

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Eligible Medical Expenses

• Determined by employers plan
• All IRC 213 medical expenses OR specific
  expenses
• No need for separate accounts
• Examples
• Medical Insurance
• Medi-gap premiums
• Medicare Part B and Part D premiums
• Qualified long-term care insurance premium (but
  not long-term care expenses)
• Prescription drugs
• Most vision and dental insurance and procedures
• Non-prescription drugs for the treatment of
  injuries or sickness

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Plan Withdrawals

• Medical expense reimbursement
• Participant, spouse, dependents tax-free
• Survivor benefits
• Transferred to spouse and dependents for medical
  expenses (tax-free)
• If no spouse or dependents transferred to
  designated beneficiary for medical expenses
  (taxable)
• If no beneficiary, reverts to Trust
• Employers plan determines allocation of
  forfeitures

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Benefit Eligibility

• May be age or event determined
• Events
• Separation from service
• Most popular
• Specified age has been reached
• Date of retirement benefit eligibility

All participants must become benefit eligible at
some point
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Defined Contribution Healthcare Plans

• Becoming important for active and retiree
  coverage
• Consumer-driven healthcare
• No unfunded liabilities for retiree coverage
• Advantages for employer and employee
• Can be used in conjunction with defined benefit
  approach
• Great bargaining tool

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Thank You!

• This presentation is intended as educational
  advice and is not to be construed as investment
  advice or the solicitation for a specific product
  or service. ICMA Retirement Corporation does not
  render specific legal or tax advice. Please
  consult the current Vantagepoint Funds prospectus
  carefully for a detailed summary of all fees,
  charges, expenses, trading restrictions and
  investment risks prior to investing any money.
  Vantagepoint securities are distributed by
  ICMA-RC Services, LLC, a broker-dealer affiliate
  of ICMA-RC, member NASD/SIPC. ICMA Retirement
  Corporation, 777 North Capitol Street, N.E.,
  Washington, DC 20002-4240. 1-800-669-7400.