Funding Retiree Medical

Using a retiree medical trust to meet anticipated future costs

Employers Feel the Pressure of Rising Health Care Costs

Accounting changes combined with rising health care costs have pressured some employers to limit participation in group health plans or reduce coverage. That’s a tough choice, especially considering that retirees from cooperatives typically have many years of tenure and service. Plus, health care costs can be a daunting financial challenge, forcing many ready-to-retire employees to stay in the workforce and many retirees to draw heavily on their savings, jeopardizing financial security.

For employers looking to preserve coverage, welfare plan trusts provide a way to fund these future expenses outside of the cooperative’s general assets. A commonly used arrangement is a Voluntary Employees’ Beneficiary Association (VEBA) plan trust. The plan is usually funded by the employer, and assets must be used to cover eligible expenses for plan participants.

The VEBA assets offset an employer’s financial obligation under FAS 106 rules, either by reducing the plan’s unfunded liability or creating a surplus when VEBA assets exceed the plan’s accrued liability.  Since the VEBA assets are dedicated to the plan and can be used only to cover eligible expenses, it provides a high level of benefit security for plan participants.

You can read how one cooperative developed its funding strategy, working with Homestead Funds as the investment provider. Your cooperative’s legal and accounting teams will want to review the potential advantages of a VEBA or other welfare benefit plan before establishing the trust. NRECA offers a range of administrative services, including model plan documents and actuarial services.

Going Against the Trend

One of America’s largest cooperatives, Northern Virginia Electric Cooperative (NOVEC), wondered if it was possible to continue to subsidize retiree health care benefits without disrupting its balance sheet or taking on outsize funding obligations. After a long history of providing some assistance to retirees, eliminating coverage was not in keeping with NOVEC’s benefits philosophy.

Cooperative leadership reasoned that if they established a trust account, according to the guidance provided in FAS 106, and invested thoughtfully over time, the account could grow and compound. NOVEC CEO Stan Feuerberg said, “We have had a long-standing and beneficial relationship with Homestead Funds as a member of NRECA, so it just seemed like a logical solution for us when setting up the trust.”

Read the Case Study

Contact Us to Start the Conversation

Let’s partner together to support your employees’ medical needs in retirement. Homestead Funds staff are available to discuss the implementation of a new trust account or review your current portfolio and investment guidelines. Contact us at 800.258.3030, option 3.


Back to Co-op Partnership