Veba Overview

For Public Employees

Presented by:

Melanie Denning, VEBA Health Officer Health Care & Benefits Division Dept. of Administration

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.

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

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.

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

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

What’s in it for YOU?

100% tax free!

 Tax free contributions  Tax free earnings  Tax free withdrawals

$10,000 – NO VEBA

$10,000 benefit available  27% Federal income tax  7.65% FICA  8% State income tax $

10,000

$

Benefit 4,265 5,735 Taxes

Cash Payout

$10,000 – WITH VEBA

$10,000 benefit available  27% Federal income tax  7.65% FICA  8% State income tax $

10,000 Benefit 0 Taxes

$

10,000 MT VEBA

Tax Savings

$5,735

MSA VEBA CASH

$10,000

Montana VEBA HRA saves $4,265 in taxes!!!

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

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.

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.

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.

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

www.montanaveba.org

Summary

Put the pieces in place!

Decide on your Group!

Review the website Agree on Contri bution Do Research!

Check with PERS for YOUR impact!

VOTE when you see a ballot!

Group vote is for “1” year Ask Questions!!

Who to contact

 Your Payroll Staff  Melanie Denning, 444-3745 [email protected]

 www.montanaveba.org