School districts, cities and counties have historically provided some type of employer-paid health insurance benefit for early retirees – those retiring prior to age 65 – as a bridge from early retirement to Medicare eligibility. When these benefit promises were made so long ago, health insurance was relatively affordable and the common practice of denying insurance claims resulting from pre-existing conditions made staying on the employer plan the only real option for retirees.
But as we know now, things didn’t stay that way and health insurance rates skyrocketed. With fixed funding, fixed budgets and a pay-as-you-go philosophy, many schools, cities and counties are now facing immense unfunded liabilities.
Are Defined Contribution Retirement Plans the Answer?
Essentially, a defined contribution retirement plan is where the organization promises a specifically defined amount of money toward a specific benefit, rather than promising to provide the benefit no matter what it costs. Many public sector organizations are finding that this approach works well and is accepted by bargaining units and/or employee committees.
There are several things to consider when moving to a defined contribution approach:
To get started, contact your employee benefits consultant. S/he will help you determine the sustainability of your current benefit and which funding vehicle would work best for your organization.
To learn more about defined contribution plans, watch our video series: Restructuring Your Early Retiree Benefits.