The Defined Benefit—a Flawed Approach

Emeriti starts from the premise that the defined benefit paradigm for retiree medical benefits is unsustainable in its open-ended promise of subsidizing retiree health insurance at some designated share of future cost, whatever the actual expense might become. The defined benefit already shows multiple signs of collapse: rising health care trends, declining federal ability to meet Medicare obligations, larger numbers of retirees, increasing life expectancies, and the benefit’s own growing proportion of the compensation budget.

The Emeriti-Defined Contribution Model—a Sustainable Solution

Emeriti uses an alternate funding model: the defined contribution model commonly associated with our 403(b) pension plans. This approach maximizes budgetary predictability and cost control for the institution by:

• Making commitments in the current budget
• Offering faculty and staff opportunities to contribute their own savings
• Allowing faculty and staff to direct the long-term investment of all contributions into a health account.

At retirement, the accumulated assets held within VEBA (Voluntary Employees’ Beneficiary Association) Trusts are made available on a fully tax-free basis to participants who have satisfied their institution’s vesting and retirement eligibility requirements. The assets may be designated for purchase of a range of fully-insured health plans and for reimbursement of other qualifying medical expenses. And even if their health accounts should become depleted, retirees may continue to take advantage of the health plans and other medical services by designating an electronic transfer of assets from other savings. In short, Emeriti provides tax-advantaged funding opportunities for retiree health care and leverages income protection for other retirement assets, such as pensions, which can only be used on a taxable basis.