Working in Higher Ed and Planning for Retirement

Leveraging higher education retirement plans yields great value if done correctly. However, many complicated questions need answers. Should you save in a 403(b), 457, or IRA? Do the plans have different features? What about Roth choices? What if I lose my job?

Here, information will be shared to help make the complicated world of retirement planning simple.

Retirement plan choices.

Choices403(b) – Scott Dauenhauer notes in his book, “Wild West: Providing Fiduciary Advice to Public School Employees”: “The 403(b) was codified into law with the Technical Amendments Act of 1958 and was more of a pre-tax, tax deferred ‘program’…” (1). This took place before the Revenue Act of 1978, setting up the 401(k) (2) and the Employee Retirement Income Security Act (ERISA) of 1974 establishing the IRA (3). The 403(b), also called a tax-sheltered annuity, is for “certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers” (4). The IRS notes (4):

Individual 403(b) accounts will be opened up as one of the following types.

  • An annuity contract, which is a contract provided through an insurance company.
  • A custodial account, which is an account invested in mutual funds.
  • A retirement income account set up for church employees. Retirement income accounts can invest in either annuities or mutual funds.

As with its cousin, the 401(k), participants may contribute up to $18,000 for 2016, plus another $6000 if over the age of 50.

457 – The 457 is a special plan available to local and state employees (and other 501(c) groups). The 457 has the same contribution limits as the 403(b) and 401(k). A few key differences as noted by 403bwise.com are:

  • Assets in a 403(b) are held directly by employees, while 457(b) assets are held in a trust for the benefit of employees.
  • There is no federal 10 percent premature distribution penalty imposed on withdrawals from a 457(b) plan when separating from service.

Additional catch-up contributions accompany the plan (5).

  1. Two times the current year’s normal retirement contribution limit, or
  2. Underutilized limits from past years. Note: Not all employers make this additional catch-up option available, nor are they required to do so. Check with your employer for details.

401(a) – Investopedia notes, “A 401(a) plan is a retirement savings plan normally offered by government institutions rather than by corporations. These plans are usually custom-designed and are only offered to key government employees as an added incentive to stay with the organization. The contribution amounts are normally set by the employer and are mandatory” (6).

Normally, each of the listed plans allows the participant to save money on a tax-deferred basis, with the tax benefit being realized now by seeing a reduction in income for the contribution amount. However, the new Roth provisions allow participants to put away money which has been taxed now and allow the money to grow tax-free. In this provision, tax diversification may be incorporated into a portfolio where the benefactor creates flexibility by hedging future tax rate changes. (Click here for a better understanding of tax diversification.) The Purdue plans allow for the Roth option on the 403(b) plan (7). Additionally, participants can save in multiple plans.

By creating a tax-diversified and investment-diversified plan, retirement planning will now be flexible.

Next StepsTIme for action

  1. Review your current plan for opportunities to improve your retirement picture by
    creating additional flexibility.
  2. Call me at 317-805-0840 or email me at ncarmany@thewatermarkgrp.com with questions or to review options.

 

Sources:

  1. “Traditional IRA.” Wikipedia. Wikimedia Foundation, n.d. Web. 22 June 2016.
  2. “Your 401(k): When It Was Invented-and Why.” LearnVest. N.p., 3 July 2013. Web. 22 June 2016. <https://www.learnvest.com/knowledge-center/your-401k-when-it-was-invented-and-why/>
  3. “Traditional IRA.” Wikipedia. Wikimedia Foundation, n.d. Web. 22 June 2016. <https://en.wikipedia.org/wiki/Traditional_IRA>
  4. “Publication 571 (01/2016), Tax-Sheltered Annuity Plans (403(b) Plans).” Publication 571 (01/2016), Tax-Sheltered Annuity Plans (403(b) Plans). Interna Revenue Service, n.d. Web. 22 June 2016. <https://www.irs.gov/publications/p571/ch01.html>
  5. Otter, Dan. “Wise Information for K‑12 Employees.” Other Plan That May Be Available: 457(b). 403bwise, n.d. Web. 22 June 2016. <http://403bwise.com/k12/content/18>
  6. “What Is the Difference between a 401(a) and a 401(k)? | Investopedia.” Investopedia. N.p., 2015. Web. 22 June 2016. <http://www.investopedia.com/ask/answers/060215/what-difference-between-401a-and-401k.asp>
  7. Snapshot of Purdue University Retirement Programs. West Lafayette: Purdue U, n.d. <http://www.purdue.edu/hr/Benefits/currentEmployees/retirement/pdf/Snapshot_Retirement_programs.pdf>

PURDUE LIFE INSURANCE

Life throws us curveballs all the time. Most of these curveballs we navigate easily, but some end in misfortune with a death. Typically, if satisfactory planning is not completed upfront, the bad luck may continue for months, years, or even decades in the form of lost income, medical bills, or final expenses.  How does this happen?

Consider your family and how losing an income might change its standard of living.  Do you have children?  Look at your desired plans for your children and ask yourself what will go unfunded if you were to pass away tomorrow.  What about your spouse? What plans will go unfulfilled due to your loss?  Don’t forget about debt on homes, cars, businesses, and other key items.

As you can see, having enough life insurance is vital to a financial plan and risk management. (Click here to learn more about risk management.) People spend extended life insurnanceperiods of time remaining underinsured for simple reasons like they don’t know enough about life insurance or they don’t want to go through the underwriting process.

Taking advantage of your employer-provided life insurance programs is a great way to easily provide proper coverage.  However, it is not the best alternative for everyone.

What life insurance coverage may be accessible through Purdue University?

Universal Life is one form of life insurance.  The coverage is considered permanent because the policy will remain in force as long as the premiums are paid.  Additionally, the policy builds cash value on a tax-deferred basis while providing flexible premiums and benefits.   Purdue provides access to a universal life policy with long-term care provisions through Trustmark.  Due to the complex nature of this policy, a separate blog post will be completed at a later time. (1.)

Purdue also provides access to term life insurance as the second policy through Minnesota Life.  As the name suggests, the policy has a finite lifespan.  The university provides a basic employee term policy with the following characteristics (2):

– One and a half times annual salary not to exceed $500,000.

– The choice to limit employer-paid coverage to $50,000 for imputed income tax purposes.

– Extra coverage available of up to eight times annual salary, not to exceed $2,000,000. (May require proof of insurability.)

How much life insurance do I need?

Like with all financial planning, general rules of thumb work only in general, and general advice does not relate to individual circumstances.  However, it is a good idea to start with generalities for comparison purposes.

The 10x factor.

Simply take your annual income and multiple it by ten. For example, a $100,000 salary requires coverage at $1,000,000. This approach assumes that income and future obligations will be enough with this figure when, in fact, you may need significantly more or less.

A thorough calculation will consider future spending by your spouse, educational needs of your children, health care expenses for aging parents, current debt, assets, liquidity of current assets, philanthropic wishes, and taxes.

Because of this complexity, it is a good idea to use a calculator or a professional to help you assess your life insurance needs.  If the latter is used, make sure that the insurance agent puts your best interest first and clearly explains the policy. Ask things like, “Could you describe the downsides of this policy? May I repeat the policy terms in my own words?” Review the information for which the agent asks in assessing your needs. Did he or she inquire about each area listed above?

Life insurnace 2Remember, insurance is meant to protect you or your family from a low-probability and highly catastrophic event. (Click here for an understanding of Risk.) Insurance in its purist form is neither a savings vehicle nor a way to reduce taxes. In fact, insurance should be regarded as an expense to transfer risk.

Using your university policy is a great starting point, but comparing costs for more coverage is a good idea.

Cost Comparison of University Term

Low Load Life Insurance (3) was used as an outside proxy. The information below is meant only for illustrative purposes.

The chart below shows annual premiums for an additional $250,000 of coverage at the ages of 35, 45, and 55.  The term limits for the nonunisex nontobacco group (individual policy) provide level term coverage up to age 65, while the unisex group will see rate increases in five-year increments. For example, people age 30 through 34 pay the same premium and a rate increase happens for the group starting at 35, then 40.

Annual Premiums
Best Class Standard Non-Smoker Unisex Group (non-tobacco)
Age Male Female Male Female
35: 30-yr Term 263 227 483 389 123
45: 20-yr Term 337 272 604 479 201
55: 10-yr Term 452 344 839 614 555

 

Upon a first review, it appears that the group insurance is cheaper than buying an individual policy. However, seeing premium increases every five years does influence total premiums paid over time.

Let’s examine the results if we assume that $250,000 of life insurance is purchased for coverage through age 65 and look at the average premium per year to account for the unisex group rate increases.

Average Annual Premiums for Coverage Through Age 65
Best Class Standard Non-Smoker Unisex Group(non-tobacco)
Age Male Female Male Female
35: 30-yr Term 263 227 483 389 366
45: 20-yr Term 337 272 604 479 485.75
55: 10-yr Term 452 344 839 614 723

 

Quickly, one may see a different story in the average policy premium paid, leaving one wondering about the best strategy or maybe starting one’s career with the unisex policy and later moving to an individual policy.  However, one must be careful with the latter notion, higher ages and changing health conditions over time may result in higher premiums.

 

What are my next steps?

First, work with free online life insurance calculators to gain a better idea of the amount you need. Note the different calculators will not use the same assumptions, so you will end up with a range of coverage. However, this should place you in the general area you need.

 

Second, what is your current state of health? The tables mentioned a best class and standard non-smoker.  Generally, the better your health, the lower your rate will be.  Upon examining the state of your health, do you think you will be in the best class or nonstandard?

Three, start comparing your choices with premium comparisons.  This stage may involve conversations with your human resources representative and insurance agent, as well as online research. Be sure that you do not buy policies that do not meet your needs.

If you have questions, please do not hesitate to contact me at ncarmany@thewatermarkgrp.com.

 

Sources:

  1. “Universal Life Insurance.” – Benefits. Purdue University, 2015. Web. 08 May 2016. <http://www.purdue.edu/hr/Benefits/currentEmployees/employeeBenefits/voluntary/universalLife.html>.
  2. “Term Life Insurance.” – Benefits. Purdue University, 2015. Web. 08 May 2016. <http://www.purdue.edu/hr/Benefits/currentEmployees/lifeAndAccidentInsurance/term.html>.
  3. “Welcome to LLIS.” The Advisor’s Insurance Advisor. Low Load Insurance Services, Inc. Web. 08 May 2016. <https://llis.com/>.

Purdue University: Employee Long Term Care

We left the nursing home knowing Grandma was not doing well.  Often, the family visited over the next several weeks as she got better and later returned home.  Variations of the two-sentence story become a reality for more families every year.  As parents of boomers and boomers age, not only does providing extended healthcare become a concern, but a heavy burden.  Starting from the beginning makes sense when addressing this difficult topic.

What is long-term care?

Many definitions exist about the meaning of long-term care (LTC). It is the extended care needed for people who cannot live independently. Coverage includes areas such as physical illness, disability, or cognitive impairment.

General facts on long-term care.

Roughly 70% of Americans over the age of 65 will need some form of long-term care, with 40% needing in-home care.  The average duration of a nursing home stay is 2.6 years (1). Women, on average, need an extra one and a half years’ worth of care (1).Old Person Healthcare

Costs for long-term care are expensive.  Nursing home care in Indiana runs about $70,000 each year on average with in-home healthcare running $30,000 each year for 25 hours of service a week (1).

Long-term Care Policy Elements

LTC policies are complicated, with many terms and rules.  Policyholders encounter the following common terms.

Elimination period – The period of time after the illness or injury starts with no insurance benefit provided.  The industry refers to this as the deductible and periods are usually 30, 60, 90, or 180 days (depending on the policy).  As with disability insurance, the longer the elimination period, the lower the premiums paid.

Benefit amount – The daily amount paid by the insurance company, usually $50 to $350.  A lower benefit means paying a lower premium.

Age – As we get older, the higher the likelihood LTC will be needed.  Older individuals can expect to pay a higher premium.

Inflation – The cost of LTC rises about five percent each year.  The $50 to $350 daily benefit erodes quickly.  Some policies do not have an inflation provision, while others may cap the limit at three percent yearly.

Home Healthcare Choices

TIme to planAccording to Low Load Life Insurance, about 80% of people initially receive home healthcare (2). Most people prefer care in a familiar environment.  When reviewing policies, spend extra time understanding the services provided at home, the benefit received, and the duration of service.

When should I get long-term care?

The oldest people that most insurance companies will insure are from 75-79 (2).  Like life insurance, the older the insured, the higher the premium.  However, on the opposite end, lower premiums are paid, but the duration may last decades, resulting in large lifetime costs.  Understanding the health issues of a family, longevity, and when the issues arise will help provide a starting point on when to purchase LTC insurance.

How much do I need?

Expect long-term care expenses to rise for the coming decades as boomers age.  The price of healthcare will likely change by region as well.  However, one should start by examining where the care will be administered to ballpark the daily cost.  Next, review how long you want coverage and at what benefit.  Do you want more features and services?  If so, the cost will increase.  Run different scenarios with your advisor to see how much your portfolio may supplement an LTC policy.  The more cost you cover, the less in required benefit and less in premiums will be paid over a lifetime.

How can I afford it?

The numbers present a strong case why LTC insurance needs to be part of everyone’s plan; most people still worry about the cost.  Traditional long-term care policies may quote annual premiums from $3,500-$7,000, depending on the benefit.  Hefty for most, newer alternative policies recently made their way to the marketplace.  For example, combining annuities or life insurance with long-term care provisions allows a more economical alternative for covering some of the long-term care costs.  In fact, Purdue offers such a policy (click here for details.)

Long-term care planning has been and will be one of the most complicated areas of financial planning.  The need for LTC insurance starts to rise as assets are accumulated. People with limited means rely on some other type of program, such as Medicaid.  Once enough wealth has been accumulated, long-term care has been self-funded.

Pain Points

Long-term care has not been without issues over the past decade.  For example, from 2007 to 2012, ten of the top twenty insurers by sales had stopped selling new long-term care policies (3).  Reasonably, one may assume the high dropout rate may have been due to mispricings of the policies.  Not surprising, considering that 70% of people age 65 will need some form of long-term care and the fastest aging group of citizens is 65+ because of the boomers.

Additionally, we need to be reminded that insurance was meant for low probability, highly catastrophic events.  A 70% probability is not a low chance of occurrence.  Be careful what you or your planner assumes when incorporating healthcare into your financial plan.

Purdue Long Term Care Information Provided directly from Purdue’s website (4).

Guaranteed coverage for new faculty and staff, if elected within 60 days of hire

Newly hired benefits-eligible employees who meet the following qualifications will be accepted for long-term care insurance coverage during the enrollment period:

  • Ages 18-79
  • Actively at work in a benefits-eligible Purdue position for 30 days prior to the coverage effective date
  • Have a Social Security number
  • Maintain a permanent U.S. residence

Others who are eligible to apply

The following individuals may apply for inclusion in the Purdue group long-term care insurance program, subject to full underwriting approval.

  • Benefits-eligible faculty and staff who did not elect coverage during the spring 2012 open enrollment may apply at any time.
  • Spouses and same-sex domestic partners under age 80.
  • Parents, step-parents, and corresponding in-laws under age 80.
  • Children and step-children of employees between 18 and 80.
  • Siblings of employees under age 80.
  • Retirees and their surviving spouses under age 80.

Underwriting is the insurance industry’s process for determining whether to provide insurance to someone who has applied for coverage.

Simple plan design with options for flexibility

Those who decide to enroll in long-term care insurance will make the following choices:

  • Monthly benefit level ($3,000, $4,500, $6,000, or $7,500)
  • Number of years of benefit coverage (three years or five years)
  • Inflation protection option

Premiums will be based on the covered person’s age at the time coverage begins and on the options selected.

 

Sources:

  1. What You Should Know About Long Term Care. Indianapolis: Indiana Department of Insurance, 2015. Print. <http://www.in.gov/iltcp/files/What_You_Should_Know_print_proof_8-2015.pdf>
  1. Long Term Care Insurnace. Tampa: Low Load Life Insurance. Print. <https://llis.com/tools/download/54/LOW-429-Long-Term-Care-Insurance-FINAL.pdf>
  2. “Long Term Care | Insurance – Consumer Reports.” Long Term Care | Insurance – Consumer Reports. Consumer Reports. Web. 29 Apr. 2016. <http://www.consumerreports.org/cro/2012/08/long-term-care-insurance/index.htm>.
  1. “Long Term Care Insurance – Benefits – Purdue University.” Long Term Care Insurance – Benefits – Purdue University. 2015. Web. 29 Apr. 2016. <http://www.purdue.edu/hr/Benefits/currentEmployees/employeeBenefits/voluntary/ltc.html>.

PURDUE CHILD CARE

If you are a new staff member or faculty member of Purdue University, this article will help you learn about child care choices near or on campus while explaining actions the university has taken in recent years to improve choices for faculty, staff, and students.

History

In 2012, Purdue conducted a Coache survey asking for feedback from faculty with respect to working for the university.  Many themes for improvement emerged from the survey, including:

-mentoring programChild care 1

-addressing research space

-not cutting benefits

Providing satisfactory child care was part of the feedback as well (4). In December of 2014, the university announced another facility opening in August of 2016, increasing full-time child care capacity by sixty-three percent (5).

Following are the current child care choices.

Ben & Maxine Miller Child Development Laboratory School

The school originally opened in 1926 as the Purdue University Nursery School to provide practice for senior students taking the course in Child Care and Management. As the university grew, so did the school, changing throughout the decades.  The facility is also a laboratory school which “provide (s) hands-on learning for Purdue students who are preparing to work with young children and families” (1). “The Ben & Maxine Miller Child Development Laboratory School was awarded the highest level in the Indiana’s Paths to QUALITY child care quality rating system” (2).

The program is accredited by the National Association for the Education of Young Children. The center is open to the children (six weeks to five years old) of faculty, staff, and Purdue students, as well as to the public.

Children’s Creative Learning Centers at the Patty Jischke Early Care & Education Center

In September of 2015, Purdue established an agreement with Children’s Creative Learning Centers (CCLC) to run the Patty Jischke Early Care and Education Center (3). The school provides year-round service and extra care in helping parents navigate day-to-day challenges. The center is open to children six weeks of age to 12 years, providing full-time care or occasional backup care year-round (10).

Purdue Village Preschool

The Purdue Village Preschool is a cooperative school with classes available two, three, or five days a week. Preschool classes are for children who are at least 3 years old by the beginning of the present school year (11).

Child Care 2Each class consists of a lead instructor and one or two assistant teacher(s) depending on volunteer availability. All teachers are employees of Purdue and “must hold a bachelor’s degree in early childhood education or related field with experience teaching in preschool or day care” (11).

“Children take part in a curriculum of weekly themes designed to the interests of young children. Attention is given to language development, social skills, math and reading readiness, growing awareness of the world around us, and physical development both in fine motor and large motor skills. Our program includes outdoor play on our large, accessible playground” (8).

Purdue Child Care Center

As noted earlier, the Purdue Child Care Center is expected to open in August of 2016. The center will develop with an emphasis on infant care and the provisions of care for school-age children ages six weeks to five years. Also, the center will offer before- and after-school care and a summer education program for children in kindergarten through age 12 (9).

Availability operates on a tier system, with the highest priority given to children of full benefit-eligible faculty and staff, followed by graduate and undergraduate students.

The Children’s Creative Learning Center will run the program. Teachers and teacher assistants will have at least a Child Development Associate credential (9).

Off-campus care

Should you need another alternative for child care, Purdue provides a resource to help you find a suitable facility. Click here for more information.

 

 

 

Sources:

  1. “Frequently Asked Questions.” MCDLS. Purdue University, 2016. Web. 10 May 2016. <http://www.purdue.edu/hhs/hdfs/MCDLS/enrollment/faqs_about.html>.
  2. “Licensure.” MCDLS. Purdue University, 2016. Web. 10 May 2016. <http://www.purdue.edu/hhs/hdfs/MCDLS/about_us/licensure.html>.
  3. “Purdue Child Care Center – Family Friendly – Purdue University.” Purdue Child Care Center – Family Friendly – Purdue University. Purdue University, 2015. Web. 10 May 2016. <http://www.purdue.edu/hr/familyfriendly/purdueChildcare/PCCC/index.html>.
  4. OIR Monthly Report Series. Publication no. Volume 2, Issue 5. West Lafayette: Office of Institutional Research, 2012. Print. <http://www.purdue.edu/oir/PDF%20Files/OIRAE_Briefings_Metric_Reports/Survey_Results/OIR_Monthly_Report_December_2012_COACHE.pdf>
  5. “Planned Child Care Center to Open by Fall 2016.” Purdue University. Purdue University, 1 Dec. 2014. Web. 10 May 2016. <https://www.purdue.edu/newsroom/purduetoday/releases/2014/Q4/planned-child-care-center-to-open-by-fall-2016.html>.
  1. http://www.cclc.com/our-centers/west-lafayette/in/081051/
  2. http://www.purdue.edu/hr/familyfriendly/purdueChildcare/PVP/index.html
  1. Purdue University. Purdue Village Preschool FAQ’s. West Lafayette. <http://www.purdue.edu/hr/familyfriendly/purdueChildcare/PVP/PVPFAQ.pdf>

PURDUE UNIVERSITY DISABILITY INSURANCE

Not being able to work may prove disastrous to a family’s financial well-being.  However, transferring the risk to an insurance company via disability insurance makes sense.

What is disability insurance?

Disability insurance replaces income if an employee becomes ill or injured and can no longer work.  Like life insurance, individual and group (employer-sponsored) policies exist.  Here we discuss the general qualities of disability policies.

Benefits of disability Insurance

Being covered by disability insurance may provide several benefits, including:

-Replacing most incomeDISABILITY UMBRELLA PIC

-Preventing the erosion of accumulated assets

-Helping pay for medical bills while you are not working

Below, the discussion continues, outlining important reasons for considering disability insurance.

Occupational vs. non-occupational

Occupational coverage applies to injuries or illnesses related to the job, while non-occupational coverage is not related to one’s work.  The former may constitute coverage originating from multiple sources, like a group disability plan through the employer or an individual policy and government programs such as Workers’ Compensation or Social Security.

Non-occupational and occupational coverage should not be confused with own-occupation versus any occupation terms.  Own-occupation and any-occupation as described by MyLTDBenefits.com:

An own occupation policy typically requires that the insured be unable to perform the material and substantial duties of his or her particular occupation to be considered “totally disabled.” The disability need not render the claimant totally helpless; rather the claimant must be rendered unable to perform the material and substantial duties of his or her particular occupation…

…an “any occupation” standard to qualify for disability benefits. These policies typically define disability in terms of the insured’s inability to engage in any gainful occupation that the insured is reasonably suited for based on his or her education, work experience, and other individualized factors (1).

Group disability policies may start providing benefits under an own-occupation provision and later move to an any-occupation (1).

What is an elimination period?

Think of the elimination period as a deductible. It is the time period after the illness or injury during which benefits are not paid.  The longer the elimination period, the lower the premium.  The period may be a few days to 30, 60, 90, or 180 days.

Depending on the time period, coordinating your emergency fund to help cover expenses during the elimination period is a great practice.  There are, however, circumstances in which this may be difficult. An example is a person who has landed his or her first faculty post but has not yet saved enough money to cover three to six months’ worth of living expenses.

Short-term versus long-term

Disability insurance fits into long-term policy and short-term policy classes.  While the classifications suggest differences with respect to time, this comparison will review more information.

Short-term disability policies normally are provided only through employers.  A few states (California, Hawaii, New Jersey, New York, and Rhode Island) require employers to provide such a benefit (2).  The benefits coverage may start a few days after the illness or injury and will last only a few weeks to a few months.  Because the coverage duration is short, premiums are affordable.  Workers may also use sick or vacation time and emergency savings to accompany short-term policies. (Please speak with your HR department for DISABILITY CASTmore information.)

Long-term disability policies are more important from a planning perspective, as the duration of coverage may last from months to years.  This makes such policies more expensive than a short-term disability product.  The elimination period – the time during which benefits are not paid – may be anywhere from 60 to 180 days.  During this period, the employee must provide the means to cover expenses.  Long-term policies may be customized to suit the specific needs of the person.

How much coverage do I need?

Like life insurance, a host of factors influence coverage needed for a disability.  The general idea, however, remains the same in terms of managing risk: replace the income stream lost because of the inability to work.  Start by gathering your monthly outlays and add retirement account contributions, philanthropic giving, and health insurance premiums. Next, evaluate coverage provided by your employer.  If the employer does not provide coverage, seeking an outside policy may make sense.  Third, look for ways to make up a shortfall. This may depend on other income sources available. For example, a worker who is close to retirement may not need as much coverage because of his or her access to income sources like Social Security or a pension.  Online calculators exist to help determine the coverage wanted.

Also, private policies are more expensive than group policies; premiums are influenced by health, age, income, and terms of the policy.

General provisions of Purdue coverage

Purdue provides both short- and long-term disability coverage. While all employees automatically receive coverage under the long-term policy upon hire, the optional short-term disability coverage may be provided after a year of employment for benefits-eligible clerical and service staff (3).

Short-term disability policy

As previously noted, the optional short-term policy (managed by Cigna) will be available to eligible clerical and service staff.  Here are a few of the provisions:

-The benefit will cover 65 percent of your budgeted salary for the days and weeks you remain disabled, including pregnancy.

_”You must be deemed medically unable to work by the company that administers Purdue’s STD plan, and”

-“You must satisfy a 21-calendar day elimination period (4).”

– For a list of exclusions, click here (4).

The benefit will be employee-funded with pretax premiums. The annual cost may be figured by multiplying your annual budgeted salary by .0068 (4).

Long-term disability policy

Like the short-term benefit, the long-term policy is managed by Cigna with the following provisions:

-The benefit will begin after a 90-day elimination period for regular clerical and service staff and after 180 days for all other staff and faculty.

-Partial disability benefits may be available if an employee cannot work full-time.

-If an employee becomes disabled before the age of 60, benefits will continue until full retirement age as defined by Social Security. If the stated employee becomes disabled after the age of 60, a sliding scale will determine the duration of the benefits period.  (Click here for more details.) (5).

-The benefit will be 65 percent of the budgeted salary plus 65 percent of eligible summer session earnings. Benefits may be lessened by other benefits received during the disability period.

Half of the long-term disability premium will be paid by Purdue University, while the annual cost of the employee portion will be the employee’s annual budgeted salary times .0029. The employee portion of the premiums will be used with after-tax dollars. (Click here for long-term disability exclusions.)

Incorporating into your financial plan

Depending on the time period and coverage of a short-term disability policy, coordinating your emergency fund to help cover expenses during the elimination period is a great practice.  There are, however, circumstances in which this may be difficult. As previously noted, a new faculty member starting her career or a faculty member who has little to no savings may not be able to bridge the gap.

Another technique involves using other benefits to cover any short-term needs before the long-term coverage benefit begins.  For example, use vacation or sick time as a possible funding source.  The benefit will be complete coverage of your salary, but taxes may be taken out.

Taxation

Taxation of disability benefits depends on who pays the premium and whether it was with pre- or post-tax dollars. Individual policies are normally purchased with after-tax money, making the benefits not taxable. However, employer-sponsored group plans may be different.  If the employer pays the premium or portion of the premium that is not included in the employee’s taxable income, the benefit becomes taxable. Any portion of the premium paid by the employee with after-tax dollars will create a nontaxable portion to the corresponding benefit (6).

NEXT STEPS

  1. Evaluate how much coverage is needed.
  2. Examine your current disability coverage and see if a shortfall exists.
  3. If a shortfall does exist, can you buy extra coverage through your employer? If so, how long will it be before your benefits enrollment period opens? Contact your HR department for more information about policy details, or contact me for planning questions.
  4. Examine outside policies, if needed.
  5. Call me at 317-805-0840 with financial planning questions and to help coordinate your university benefits.

Sources:

  1. “Own Occupation v. Any Occupation.”  MyLTDBenefits.com. Alan C. Olson & Associates, 2011-2016.  Web. 5 Mar. 2016.<http://getmyltdbenefits.com/own-occupation-v-any-occupation/>
  2. Walters, Chris. “Long-term Disability vs Short-term Disability Explained – PolicyGenius.” PolicyGenius. 2014. Web. 05 Mar. 2016. <https://www.policygenius.com/blog/long-term-disability-vs-short-term-disability-explained/>.
  1. “Disability Coverage – Benefits – Purdue University.” Disability Coverage – Benefits – Purdue University. Purdue University. Web. 05 Mar. 2016. <https://www.purdue.edu/hr/Benefits/currentEmployees/disability/disability.html>.
  2. “Short Term Disability.” – Benefits. Purdue University. Web. 05 Mar. 2016. <https://www.purdue.edu/hr/Benefits/currentEmployees/disability/STD.html>.
  1. “Long Term Disability.” – Benefits. Purdue University. Web. 05 Mar. 2016. <https://www.purdue.edu/hr/Benefits/currentEmployees/disability/ltd.html>.
  1. “Taxation of Disability Insurance.” Financial Planning Advice and Financial Advisors. Ameriprise Financial. Web. 05 Mar. 2016. <https://www.ameriprise.com/research-market-insights/tax-center/tax-planning/taxation-of-disability-insurance/>.

Purdue Healthcare Plan Choices

Purdue experienced a few changes in its health care programs in 2014 by contracting with Anthem to govern the self-insured plans. With the new design, Purdue offered two high-deductible plans and one traditional preferred provider plan, PPO (1). Here we look at a few of the differences between the plans.

What is the difference between a high deductible plan (HDHP) and a preferred provider plan (PPO)?

The major difference between the types of plans is out of pocket costs. The PPO requires a higher monthly premium and lower deductibles. The high deductible plan requires a higher deductible while paying a lower premium. Additionally, the high deductible plan may allow you to set aside funds into a health savings account, health reimbursement Healthcareaccount, or flexible spending account. Each of these instruments allow tax savings for approved medical expenses (2). For an illustration of the how the deductibles work for the plans, click here.

Both types of plans have preferred providers and higher cost out of network provisions. The out of pocket maximums are different for each plan (5).

As faculty and staff increased participation into the HSA1 and HSA2 plans to 74% (6), the potential costs covered by the university run as high as $19,454 (7). As a means to help preserve the reasonable nature of the plan, Purdue gathers information on costs for lab work, specialists, doctors, and other medical services. The employees may then compare services by the Castlight program, saving the university and participant money (8). The program is convenient and easy to use (click here for more information.)

What is the different between the two high deductible plans?

Aside from the premiums and deductible amounts, coinsurance levels are different as well. For example, a test for a preferred provider is 20% coinsurance for the HSA1 and 25% coinsurance for the HSA2. Many of the excluded services are the same (3,4). The out of pocket maximum for the HSA2 is higher than the HSA1 (5).

Which plan should I choose?

Numerous factors need consideration to answer this question. Here are a few to start:

–    Current state of health: Consider how much you have paid in and the cost of care. Estimate how costs may change as you move from one plan to other. Purdue ran examples for illustration purposes.

Healthcare drs–    Future healthcare needs: Like a retirement analysis, planning for future healthcare can be done with the health savings account. As we get older, more healthcare is needed, so why not save money to cover future obligations? In the event actual needs are less than expected, the funds may be used for retirement (click here for more information).

–    Cash flow: Monthly cash flow varies from household to household. Funding the PPO option may be a desirable option when compared to the larger deductibles of the HSA1 and HSA2.

Once enough accumulation takes place in an HSA, it may be a good fit for additional asset accumulation while taking care of current healthcare needs. If it is a participant’s first year for an HDHP plan, one may jump-start an HSA account with funds from an IRA (click here for more information).

Additional Resources

Purdue University also set up the Center for Healthy Living that “provides the preventive care services that are vital to protecting your health, and treats your illnesses and your ongoing conditions (9.)” Medical services supplied by the center include treatment for common illnesses, primary care and wellness, conditional management, and tier 1 labs.

Faculty, staff, retirees, and family members covered by the Purdue Health Plan, HSA1, or HSA2, or J-1 Visa Plan Participants may receive services at the center. Employees who are benefit-eligible but not covered by a Purdue medical plan may receive preventive care, primary care, and treatment of common illnesses for $40 per service.

Wrap up

As you look ahead to the next benefit enrollment period, you will be able to track your expenses for 2016 and gain a better idea of what to expect beyond 2017. Look at your healthcare spending in the same way you look at retirement spending. The way you spend and save, and the savings vehicles used, will likely change over time. The right plan for one household may not be the correct selection for another.

If you have questions regarding your healthcare planning, contact your human resources representative or an advisor, or send me an email at ncarmany@thewatermarkgrp.com.

 

Sources:

  1. Lewin, :uis. “2015 Purdue Medical Benefit Programs.” Letter to Members of the Board of Trustees. 17 Sept. 2014. MS. West Lafayette, IN.http://www.purdue.edu/bot/meeting-documents/2014/sept/aic/health care plan.pdf
  2. “HDHP vs. PPO Plans.”HDHPs vs. PPOs. Web. 18 Apr. 2016. <http://www.bcbst.com/manage-my-plan/health-accounts/ppo-plan.page>.
  3. Purdue University: Health Plan Plus H.S.A. 1. Plan Description Coverage Period: 01/01/2016 – 12/31/2016. West Lafayette. <http://www.purdue.edu/hr/Benefits/currentEmployees/Medical/pdf/2016/Purdue_Health_Plan_Plus_HSA_1_SBC.pdf>
  4. Purdue University: Health Plan Plus H.S.A. 2. Plan Description Coverage Period: 01/01/2016 – 12/31/2016. West Lafayette. 5. <http://www.purdue.edu/hr/Benefits/currentEmployees/Medical/pdf/2016/Purdue_Health_Plan_Plus_HSA_2_SBC.pdf>
  5. “2015 and 2016 Medical Plan Coverage Comparison.” Medical Plan Coverage Comparison. Web. 19 Apr. 2016. <http://www.purdue.edu/hr/Benefits/currentEmployees/Medical/employeeCosts.html>.
  6. “Through the Years: A Look at Our Medical Premiums.” Human Resources: CONNECT (2015). Print. <http://www.purdue.edu/hr/newsletter/Connect/connect_10_15/medical_premiums.html>
  7. “2015 and 2016 Annual Employee/Employer Medical Plan Contributions.” Annual Employee/Employer Medical Plan Contributions. 2015. Web. 19 Apr. 2016. <http://www.purdue.edu/hr/Benefits/currentEmployees/Medical/ContributionChart.html>.
  8. “Castlight – Benefits – Purdue University.” Castlight – Benefits – Purdue University. Purdue University, 2015. Web. 19 Apr. 2016. <http://www.purdue.edu/hr/Benefits/castlight/castlight.html>.
  9. “Welcome to the Center for Healthy Living.” Center for Healthy Living. Purdue University, 2015. Web. 19 Apr. 2016. <http://www.purdue.edu/hr/CHL/>.
  10. “Cost and Eligible Clients.” – Center for Healthy Living. Purdue University, 2015. Web. 19 Apr. 2016. <http://www.purdue.edu/hr/CHL/Services/costs.html>.

Purdue: Road to Retirement and Social Security Changes

I help Purdue faculty make the most of their benefits and 403(b) retirement plan.
Contact Information: ncarmany@thewatermarkgrp.com, 317-805-0840

Article Outlining the Social Security Changes

http://www.forbes.com/sites/investor/2016/01/31/social-security-changes-you-need-to-know-about-before-its-too-late/#7e1f9e9f6343
Road to Retirement Workshops

http://www.purdue.edu/hr/Benefits/currentEmployees/retirement/roadToRetirement.html

http://www.purdue.edu/hr/Benefits/currentEmployees/retirement/retirementReadiness.html

http://www.purdue.edu/newsroom/purduetoday/releases/2016/Q1/purdue-benefits-announces-spring-date-for-road-to-retirement.html

 

Higher Ed Retirement Plan Investment Options and Insights

I help Purdue faculty make the most of their benefits and 403(b) retirement plan.
Contact Information: ncarmany@thewatermarkgrp.com, 317-805-0840

TOPICS
1. Fidelity Higher Ed Faculty Study.
a. https://workplace.fidelity.com/sites/default/files/Fidelity%20Higher%20Ed%20Faculty%2055_Exec%20Summary_FINAL_101413.pdf
2. Global market caps
3. Lopsided nature of employer retirement plans

Sources:
http://www.businessinsider.com/map-countries-scaled-to-equity-market-capitalization-2015-8
http://www.nuveen.com/Home/Documents/Default.aspx?fileId=56087

Purdue Benefits Planning

 

I help Purdue faculty make the most of their benefits and 403(b) retirement plan.

Vlog Introduction.
Topics:
Purpose of the Vlog- Who is it designed to help.

Interaction- Videos, future blog roll out, one-on-one interactions

Background- Why work with Purdue University Faculty?