Five Ways to Learn More About Emeriti
For more information about the Emeriti Program, please visit us on the web (www.emeritihealth.org ); call the Emeriti phone center (1-866-EMERITI); look for materials about Emeriti in the mail from Emeriti, Fidelity, and Aetna or HealthPartners; and come to annual Emeriti workshops on your campus. Future issues of this newsletter will focus on the information provided through these venues.
Welcome to the first issue of the EMERITI MATTERS newsletter for participants in the Emeriti Program. Your institution has adopted an Emeriti Retiree Health Plan to provide you with two very important benefits: a tax-advantaged way for your institution and you to invest during your working years to pay for your medical expenses in retirement, and a group retiree health insurance plan to cover many of the costs that Medicare does not pay for in full.
You have received information about the Emeriti Program from your institution, and from Emeriti. You can also call the Emeriti Service Center toll free at 1-866-EMERITI (Monday through Friday, 8AM to 9PM ET, 5AM to 6PM PT) for answers to any of your questions about Emeriti, to start or change your voluntary contributions, to change your investment allocation, or to enroll in the Emeriti insurance options. And you can check out our website (www. emeritihealth.org) for more information about the Emeriti Program. From the Emeriti website, you can access up-to-date information about your Emeriti health account, using secure technology, via Fidelity NetBenefits® and an array of health care information on Aetna Navigator.
We hope that this newsletter provides you with helpful information about your future healthcare needs in retirement and about maximizing the value of the Emeriti Program as part of your overall retirement planning.
Kenneth E. Cool
Three Key Features of the Emeriti Program
When you think about Emeriti, keep in mind these three key features. In each issue of this newsletter we will address different aspects, so that you can make best use of the Program, wherever you are in your retirement planning.
1. A unique tax-favored way to invest for retiree health expenses:
The Emeriti Plan adopted by your institution enables both you* and your institution to make contributions to Emeriti Health Accounts, and to invest those contributions through Fidelity Freedom Funds®, which are broadly diversified and designed for retirement purposes.
- Institutional contributions are made pre-tax, grow tax free, and are disbursed tax free for retiree health benefits.
- Employee contributions are made after tax, grow tax free, and are disbursed tax free for retiree health benefits.
There are no limits on contributions, but the assets must be used for retiree medical insurance and other qualified medical expenses for you and your eligible dependents.
2. A tax-free way to pay for your health expenses in retirement:
Assets in the Health Accounts can be used for two important purposes:
- To pay for Emeriti Health Insurance plan premiums for you and your spouse (or domestic partner*) throughout retirement, and
- To pay for any qualified medical expenses** for yourself, your spouse, and other eligible dependents, for life.
3. Portable group retiree health insurance building on the foundations of Medicare:
When you retire, having met the requirements for retirement eligibility under the plan, you will be able to choose among a range of group insurance options at different costs. All include Medicare-approved Part D prescription drug coverage.
- Aetna provides the insurance to institutions in 48 states and the District of Columbia and to eligible retirees living in those locations.
- HealthPartners provides comprehensive coverage and Aetna provides RX-only coverage for retirees from institutions in Minnesota who live in Minnesota.
- Emeriti will select a carrier to provide insurance for retirees of New Mexico institutions.
Each year, Emeriti insured retirees will be able to choose from among the available insurance options for the following year, as their needs change.
* (if your institution's plan permits)
**These expenses, listed in Internal Revenue Code Section 213(d), include: insurance deductibles and coinsurance; Medicare cost sharing; vision, dental and hearing care costs; over-the-counter drugs; durable medical care equipment; long-term care insurance or at-home medical care; and premiums for pre- or post-65 retiree medical insurance. For more detailed information about each of these features, please click here.
The Retiree Health Expense Savings Gap - Why You Need to Save Now for Your Health Expenses in Retirement
You may be familiar with the concept of the three-legged stool for retirement income planning, which is comprised of: Social Security, your institution's retirement plan, and your own savings or investments. This combination, built up over your entire working career, is needed to provide sufficient replacement of income over a retirement that often lasts 25 years or more.
You should be thinking about funding your retiree medical costs in a similar fashion: 1) Medicare; 2) your institution's contributions to your Emeriti Health Account; and 3) your own contributions, which over time can provide you with the resources to fund your health insurance and other health costs in retirement.
Maybe you haven't been thinking about this. Maybe you've been busy with other priorities, such as buying your first house, saving or paying for college costs, etc. Or maybe you have assumed that your retirement savings would cover your health costs as well your income needs. Or that Medicare would cover everything. You aren't alone in thinking this way, but you may want to give retiree health care some more thought.
Here are a few facts to consider:
- On average, health expenses for today's retirees are paid from a combination of Medicare (a little over 50%), private health insurance (about 19%), government programs like Medicaid or VA benefits for those who are eligible for them (10%); and out-of-pocket (about 20%). (Source: The Employee Benefit Research Institute Issue Brief 295, July 2006, based on estimates from the 2003 Medical Expenditure Panel Survey).
- A Fidelity Investments study estimates that a couple retiring in 2007 at age 65 without an employer-sponsored retiree health plan would require $215,000 in savings to cover their insurance premiums and other out-of-pocket retirement medical expenses. (For an estimate of what you might need to fund your health care costs in retirement, click here to use the Retirement Health Care Cost Calculator on the Emeriti website.)
- Increases in health care costs have consistently outpaced the general inflation rate as measured by the Consumer Price Index (CPI). People are also living longer, which tends to increase medical costs over one's lifetime. These factors, along with the impending retirements of the baby-boomers, are likely to cause the Medicare Trust Fund to be exhausted by 2019.** (Source: 2006 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds). Remedies may involve higher taxes, lower benefits or more cost sharing.
So what can you do? Well, you can start by educating yourself about Emeriti so that you understand what you can expect from the Program when you retire, and also by trying to set aside something now to help you pay for your health costs later. Even if you can only invest a small amount, the earlier you start, generally the better. Time is one of the most powerful investment tools around.
Take a look at this chart:
Note: These examples are intended as illustrations and are not a prediction of investment results. Your own account might earn more or less than this example. Investing in this manner does not ensure a profit nor guarantee against a loss in declining markets. Actual account balances will be determined by the timing and amount of contributions, any investment gains and losses, and any fees taken out. These examples do not take fees into account. Employer contributions and earnings accrue tax free and are paid out tax free for reimbursement of qualified health expenses. Employee voluntary contributions are made after tax, but earnings accrue tax free and the total accumulation is paid out tax free for reimbursement of qualified health expenses.
What does this tell you? If you are age 40 or so, it tells you that it is not too late to build up a significant amount of money, but start as soon as you can. If you are closer to 25, the news is even better. It really does not require a lot of money to benefit from compounding of earnings. If you have time on your side, and you can invest even a modest amount every year, you are likely to do as well as or better than the person who waits until he can afford to contribute "enough" each month. And remember that you pay no taxes on any of that money as you withdraw it to pay for your health expenses in retirement.
Fidelity Freedom Funds Update
The Fidelity Freedom Funds are the investment options for your accumulations in your Health Account. (You can also allocate some of your contributions or assets to the Fidelity Retirement Money Market Portfolio, and in retirement to the Fidelity Guaranteed Income Annuity.) The Freedom Funds are designed to offer a simple yet diversified approach to investing for your long-term retirement goals. Each Fidelity Freedom Fund invests in a diversified portfolio of actively managed Fidelity mutual funds. Over time, the investment mix of equity funds, fixed income funds, and short-term funds becomes more conservative as each Freedom Fund approaches its targeted retirement year. All but one of the 12 Freedom Funds are managed to targeted retirement dates. The Freedom Income Fund is a more conservative option designed for those already in retirement who seek high current income and, secondarily, capital appreciation.
The management of the Freedom Funds periodically adds new Freedom Funds to help meet the needs of younger participants. And they also review and adjust the proportions of asset classes and the underlying mutual funds that are used in the mix. Recently two new funds were added to the family-the Fidelity Freedom 2045 and 2050 Funds. In March, Fidelity announced some changes to the underlying funds for the Freedom Fund family, but the overall allocations remained the same. (For more information about the Freedom Funds, click here.
When you enroll in the Emeriti Plan, you are asked to select your investment allocation. If you do not select an allocation, your account will be set up with an allocation to the Freedom Fund that is targeted closest to the year that you turn 65. At any time you can change your allocation for future contributions among any of the Freedom Funds or Retirement Money Market, and you can transfer assets among these funds. You can either call 1-866-EMERITI (1-866-363-7484), or click here to log on to Fidelity NetBenefits.®
Two Fidelity Freedom Funds Win Lipper Awards
The Fidelity Freedom 2010 and 2020 Funds were recently awarded the 2007 Lipper Fund Award for their respective Lipper Peer Groups. The Lipper Fund Awards program highlights funds that have excelled in delivering consistently strong risk-adjusted performance, relative to peers in 21 countries in Asia, Europe and the United States. The award-winning funds are among the 130,000 funds Lipper tracks globally.
The Fidelity Freedom 2010 Fund won the award for the three year time frame in the Mixed-Asset Target 2010 Funds category.
The Fidelity Freedom 2020 Fund won the award for the three year and 5 year time frame in the Mixed-Asset Target 2020 Funds category.
Does Emeriti know who your eligible dependents are?
If you have any money in your Emeriti Health Accounts either from your own contributions or those of your institution, please call the 1-866-EMERITI telephone number to let us know which of your eligible dependents will share in your accumulated Health Account assets for their health expenses. Your spouse and dependent children are eligible for Emeriti Health insurance when you sign up for the insurance after you retire, and they are also eligible to have qualified out-of-pocket medical expenses paid out of the Health Accounts after you have terminated employment and have reached age 55. (Earlier withdrawals may be possible, in the event of catastrophic health expenses, terminal illness, or if you terminate with a very small account balance).
If your institution's plan permits, your domestic partner or dependent relatives may also be eligible for Emeriti benefits. Your dependent domestic partner is eligible for the same benefits as you. (Independent domestic partners are eligible for insurance, but do not have access to the health accounts.) Dependent relatives are eligible for the reimbursement of qualified medical expenses, but not for the insurance. (For more information about the IRS definitions of an eligible dependent, click here. It is important that you designate your eligible dependents before they might be likely to have reimbursable expenses. And if you die without having named them, there may be complications when they try to use the account. Call 1-866-EMERITI now and make sure we have recorded your dependents.