Have you checked the balance in your retirement medical benefits account recently? Never heard of it? You are not alone. But now may be a good time to become familiar with it, especially if you are nearing retirement. Certain provisions in the retirement medical benefits statute expire in 2017, and state employees considering retirement in the next couple of years especially need to know what that will mean for them.
What is the retirement medical benefits account?
The retirement medical benefits account is not the same as a health savings account or flexible spending account. The fact that you are reading this article makes it highly likely that you are a participant in it. Enrollment is automatic for all employees in any of the three branches of state government, state elected or appointed officers, members of the General Assembly, elected officers paid by the state, and other officers paid by the state, including magistrates, juvenile court magistrates, and deputy prosecutors. Only certain state employees—conservation officers, excise police employees, and particular employees of the state police—are not eligible.
The retirement medical savings account is created under Indiana Code Section 5-10-8.5-11, which took effect in 2007. It is an arrangement reimbursing health insurance premiums covering sickness, accident, hospitalization, and other medical expenses for retired participants, their spouses, and their dependents. The account is operated by the Indiana State Budget Agency, which has contracted with Key Benefit Administrators to assist in the administration.
For each active, full time employee participating in the program, the state makes annual contributions to the retirement medical benefits account based on the participant’s age on the last day of the calendar year as follows:
| Participant’s Age | Annual Contribution |
| Less than 30 | $500 |
| At least 30, less than 40 | $800 |
| At least 40, less than 50 | $1,100 |
| At least 50 | $1,400 |
Account funds become available for the benefit of a participant in the account when (1) the participant retires and is eligible for and has applied to receive a normal, unreduced retirement benefit from a retirement fund administered by the Indiana Public Retirement System (INPRS), or (2) the participant retires having completed at least 10 years of service as an elected or appointed officer. The retirement fund of which the participant is a member will notify the State Budget Agency of the retirement after the fund has completed its processing. Within the next couple of months, the Budget Agency, through Key Benefit Administrators, will send a packet to the retiree explaining how to register for benefits and file claims. The funds then may be used by the retired participant and the participant’s spouse and dependents to pay premiums for health insurance coverage.
Why is this an important time to check the retirement medical benefits account?
On top of the annual contributions described above, an additional contribution may be made to a participant’s account. But in order to receive this additional contribution, the participant must retire before July 1, 2017. The participant must also (1) have completed at least 15 years of eligible service (or 10 years as an elected or appointed officer), (2) be eligible for a normal, unreduced retirement benefit from a fund administered by the INPRS, and (3) actually have applied to receive such benefit. The amount of the additional contribution is equal to $1,000 for each year of service registered by the retiring participant.
Therefore, the account balance achieved and the ultimate benefit received from the retirement medical benefits account could vary significantly for a particular employee, depending on the date the employee retires. An employee retiring before July 1, 2017 who otherwise is eligible for the additional contribution under Indiana Code § 5-10-8.5-16, would receive $15,000 ($1,000 for each year of service) or more in additional benefits. But if the same employee were to wait until July 1, 2017 or after, then no additional contribution would be made to the employee’s account.
Let’s take an example.
If on June 1, 2017, employee R.D. Toretire had 20 years of eligible employee service and applied to receive a normal, unreduced retirement benefit from PERF, Toretire would be eligible to receive an additional contribution to his retirement medical benefits subaccount of $20,000.
However, if he delayed retirement until July 1 or later, Toretire would lose the $20,000 additional contribution. In other words, a five-week delay in retirement could cost Toretire $20,000.
Examples of people in the same situation as Mr. Toretire become relevant for employees at or near retirement age and considering retirement within the next few years. Directors, managers, and others charged with supervising employees also may be concerned if substantial portions of their staffs are faced with similar circumstances. The requirement that retirement occur before July 1, 2017 might hasten a decision to retire for an employee otherwise eligible to do so. A director or manager with multiple employees under such circumstances would do well to attempt to plan ahead to mitigate any workplace disruption.
Employees who are not contemplating retirement in the next few years or will not be eligible for retirement benefits, on the other hand, need not become concerned about the expiration of the additional contribution provision. For example, a 35-year-old state employee with nine years of service in June 2017 will not have any choice to make; he or she would be ineligible for the additional contribution. Only employees who, before July 1, 2017, will have qualified for retirement with full, unreduced benefits and worked at least 15 years in eligible positions will be in a situation where the additional contribution to the retirement medical benefits account could factor into a retirement decision. Other employees simply will not ever qualify for the additional contribution under the current provision. Without any legislation introduced to modify the expiration date for the additional contribution, the present assumption must be that it will expire for good on July 1, 2017.
Whether contemplating retirement and in line to possibly receive an additional contribution, or simply planning ahead for many more years of employment with the state, all employees should learn more about the retirement medical benefits account and consider it in their retirement plans. The Budget Agency website provides several items of useful information regarding retirement medical benefits, including a resource where an employee participant may check his or her balance, frequently asked questions, and examples illustrating the effect of the additional contribution.