The Retiree Health Care Challenge

Prepared by Hewitt Associates

November 2006 |

The provision of health care benefits to former employees is an undertaking that is both important and daunting for employers in higher education. The availability of retiree health benefits increases retirement income security and can be an integral component of workforce management, better enabling recruitment and retention of key academic and administrative talent. The availability of retiree health benefits also influences the age of retirement and the retirement decision itself, as employees with employer-sponsored health coverage are more likely to retire earlier than employees without such coverage.

As important as retiree health benefits are, they also pose distinct challenges, These include managing costs, addressing accounting rules, deciding on benefit design/redesign, determining the extent to which institutions are able to prefund these benefits and, if so, which vehicles for prefunding best fit the institution’s situation. In addressing these challenges it is helpful for an employer to first develop a clear process and strategy that includes taking actions to:

• Define desired objectives and key outcomes for the future.
• Gather input of key stakeholders.
• Develop a benefit design that meets workforce needs – and that is affordable for the institution.
• Identify key transition and grandfathering needs for existing employees/retirees and formulate a transition strategy to meet those needs.
• Develop a funding strategy to support the institution’s financial needs.
• Implement strategies developed under the preceding steps in this process.
• Communicate actively with current employees and retirees.

This paper focuses on the factors affecting plan design and funding decisions. When the areas covered by this paper are addressed in the context of an integrated and strategic process, employers can make substantial progress in addressing their retiree health care challenges.

This paper was prepared by Hewitt Associates for the TIAA-CREF Institute Symposium, Seeking Remedies to the Retiree Health Care Challenge.