Veba Overview

1. VEBA Montana Health Reimbursement Account Veba Overview For Public Employees Presented by: Melanie Denning, VEBA Health Officer Health Care & Benefits Division Dept. of Administration

2. History of VEBA • Drafted SB51-passed April, 2001 to 2-18-1301, MCA • Began offering to State, Cities, Counties, K-12 & University system employees in September, 2003. • SB 168 passed during the 2007 session which allows an additional source of contribution.

3. What IS a VEBA • 100% tax-free medical savings account • Funded with tax-free employer $$’s • For public service employees in Montana • Cities, Counties • Public Schools (K-12) • MT University System • All State Employees

4. Why VEBA • Intention is to assist with creation of a supplemental medical fund for use after separation/retirement • Avoid taxes on compensation – 100%! • Pre-65 average retiree medical cost - $10,000/yr on Premiums • Average Medicare retiree medical cost - $6,000/yr on Premiums • IRS rules require us to administer the plan in specified measures which call for “group” participation.

5. How to use VEBA? • You may pay for medical out of pocket expenses related to Medical, Dental, Prescription Drugs, Vision benefits as well as many over-the-counter items. • VEBA also allows you to pay for your Insurance premiums which include; • Health - Medical, Dental & Vision • Long-Term Care, and • Medicare B

6. How is VEBA offered? • Your Employer may decide how to offer the VEBA. • Active Contributions vs. Separation only • Employees may request the benefit by 25% of eligible group

7. What’s in it for YOU? 100% tax free! • Tax free contributions • Tax free earnings • Tax free withdrawals

8. $10,000 – NO VEBA $10,000 benefit available • 27% Federal income tax • 7.65% FICA • 8% State income tax $ 10,000 Benefit 4,265 Taxes __________________ - $ 5,735 Cash Payout

9. $10,000 – WITH VEBA $10,000 benefit available • 27% Federal income tax • 7.65% FICA • 8% State income tax Benefit $ 10,000 0 Taxes __________________ - $ 10,000 MT VEBA

10. CASH Tax Savings $5,735 $10,000 MSA VEBA Montana VEBA HRA saves $4,265 in taxes!!!

11. Tax Reporting Not required! • No W-2 to employee • No 1099 on earnings or withdrawals • No 1040 tax return reporting • No state return reporting • No employer tax reporting

12. What is Death Benefit? • Surviving spouse, dependents or heirs can continue to use account for their medical expenses and premiums • If no will, then follow Montana Laws of Intestacy • Money only can be used for Qualified Medical Expenses • If no spouse or dependents, then reverts back to plan.

13. Impact on Social Security? • Your Social Security Benefit is calculated on lifetime of earnings. • Calculation made late in salary career. • Tax-free portion of VEBA payout also late in career. • VERY minimal impact to benefit amount.

14. Administrative Cost • Low monthly policy fee of $5/mo. • All other costs are paid from investment earnings – 1 ¾ % annualized. • Some members’ investment choices pay for monthly costs.

15. What IS a Group? • Union or non-union employee groups • Recommend using existing group boundaries • All or none decision – ballot process • Vote may be taken annually • Contribution Source-Agree before vote! • PERS HAC Discussion

20. www.montanaveba.org

21. Check with PERS for YOUR impact! Do Research! VOTE when you see a ballot! Ask Questions!! Group vote is for “1” year Review the website Summary Put the pieces in place! Agree on Contri-bution Decide on your Group!

22. VEBA Montana Health Reimbursement Account Who to contact • Your Payroll Staff • Melanie Denning, 444-3745 mdenning@mt.gov • www.montanaveba.org