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The ABCs of 401(h) Plans For USG Corporation Employees

'Employees of USG Corporation companies who are about to retire should understand the benefits of 401(h) plans as it is a good way to reduce the tax liability and to secure the medical costs for themselves and their families thus ensuring a better approach to the healthcare in retirement.'

It is important for USG Corporation retirees to understand the structure of 401(h) plans because the moneys that can be contributed and the time that can be saved on medical expenses will help to decrease the impact of the increasing healthcare costs and will help to establish a solid financial situation for the retirees and their families.'

In this article we will discuss:

1. The effects of the rising medical costs on health insurance premiums in 2023.
2. Basic information about 401(h) eligible retiree medical benefit accounts for USG Corporation companies' employees.
3. The pros and cons of using 401(h) plans for healthcare and retirement purposes.

The average increase in premium that health insurance plans have requested for 2023 is 10%; some plans have asked for an increase of between 5 and 14 percent. However, this year, 72 providers submitted their plans, and only four of them show a reduction in the prices. This is because the cost of health care is rising.

In their submissions for 2023, many insurers expect that the cost of health care will rise by 4 – 8 percent. The behavior of the costs reflects the prices that the plans pay for hospitals, doctors, and drug makers because of the inflation and the prices that the plans expect the patients to incur in the following year. The USG Corporation company employees who are eligible for 401(k) plans should learn how to optimize it to the maximum extent. Here is a summary of the most important information about these plans:

Summary of Discussion:

Retirees of USG Corporation should know that it is a retiree medical benefit account that is established within a defined benefit pension plan to pay benefits for illness, accident, and hospitalization for retired employees, their spouses, and their dependents. It is essential to comprehend that Sections 401(h)(1)-(6) of the Internal Revenue Code must be met in order for payments to be made.

Education

Internal Revenue Code section 213(d) defines medical expense as amounts paid for medical care (1). This includes costs related to:
I. Transportation mainly for and necessary to medical care, qualified long term care services or insurance (including Medicare Part B premiums and qualified long term care insurance premiums).

It is important for retired USG Corporation employees to know that the language of the plan document determines the schedule of distributions, the scope of coverage, and who is eligible for the plan. A 401(h) account cannot have discrimination in coverage, contribution, and benefit in favor of officers, shareholders, supervisory employees, or highly compensated employees. A 401(h) contribution is not permitted to exceed the total cost of providing the benefits, which must be amortized over the duration of prospective service.

In compliance with Section 1.401-14(c) of Treasury Regulation 1.401, a qualified 401(h) account must provide:
Pension benefits must take precedence over retiree medical benefits. The 401(h) medical benefits of the retirees must be placed in a separate account in the pension trust.

Except for key personnel, the account for the benefits of the employee, or the employee’s spouse or dependents, must be held in a separate account. Furthermore, this account can only be used to pay for the employee’s medical benefits. The contributions from the employer to the account must be reasonable and quantifiable.

Contributions to 401(h) accounts made during or after the tax year must be used to pay for medical plan benefits. These contributions are non-transferable and cannot be used for any other purpose. Furthermore, the plan must provide that any balance remaining in the 401(h) account must be reversed to the employer at the time of liquidation of the plan’s obligations for the retiree medical benefits.

USG Corporation retirees should be aware that the subordination requirement is incomplete until the plan demonstrates that the total contributions for retiree medical benefits do not exceed 25 percent of total contributions. The 25% includes the actual contribution to the life insurance part of the plan (but excludes the contribution to fund past service credits).

This restriction is meant to ensure that medical contributions are subordinate to pension contributions. It is also important for USG Corporation retirees to know that plan sponsors with overfunded, terminating defined benefit plans are allowed to make tax-free contributions (known as) to the related 401(h) accounts. Furthermore, there are restrictions that need to be taken into account, namely the amount transferred is not considered as a taxable reversion. The provision expires on December 31, 2025, or the asset transfer occasioned by December 31, 2025.

The Positives of 401(h) Plans

Deductible:

Employers can claim deduction on their tax returns up to a certain limit. There is no provision for the arrangement to be made for contributions that are beyond the total benefits cost.
Benefit is tax-free for retirees.

The funds are taxed on the way out, and the distributions are tax-free if they are made for the purposes of medical expenses.
The amount that can be contributed annually to the plan by employers is not restricted and can be anything from zero to 25%. They are not required to contribute, but they have the option to do so.

USG Corporation employees who are interested in the possibility of maximizing their retirement benefits may be interested in knowing that contributions made to 401(h) accounts can be used to pay for qualified medical expenses that include spouses and children, and dependents. This enables retirees to go beyond the healthcare needs of the 401(h) plan and use the funds to support the medical costs of their relatives and friends. As we explained above, 401(h) plans are tax-compliant and flexible, and when used correctly, they can help retirees design a sound healthcare strategy that includes their families.

The Drawbacks to 401(h) Accounts

The plan itself is complicated and comes with expensive setup and management fees. Because it is not an IRS-approved plan, it operates with more time, administration, and supervision needed.
Employers have to keep the account open until all the retirees have used up their medical account benefits.
Actuaries are often needed to manage and supervise the account, but they can be hard to find.

The conclusion of the Pharmaceutical and Biotechnology Association (BPIA) indicated that its members raised the prices of arthritis and cancer medicines and other prescriptions by 5.6% at the beginning of this year. This means that a USG Corporation retiree with a 401(k) may be in a better position (h). Furthermore, a large number of pension plan sponsors may be inclined to fund retiree medical costs through 401(h) accounts. USG Corporation employees who are considering this plan are entitled to employer and/or employee contributions, as well as transfers of excess pension benefits, if permitted by the plan terms.

The contributions are deductible, the earnings are taxed on the accrual basis, and the withdrawals are tax-free for 401(h) accounts. Those USG Corporation retirees who are not very sure how their 401(h) works may benefit from seeking professional financial advice. We at The Retirement Group will help you get a free cash flow analysis and talk to a consultant who will help you identify which decision is most appropriate for you.

Anybody, whether male or female, can be compared to a chef in the kitchen. The chef has the responsibility of preparing meals for his guests and therefore has to make sure that everyone gets the food that they want. The chef also knows that the enjoyment of the meal is not only limited to the consumer’s plate but also the company’s plate as well. In this analogy, the chef represents the USG Corporation employees who are about to retire while the meal represents their retirement benefits. Just as the chef takes into account the diverse tastes and preferences of the guests, USG Corporation employees must consider the overall needs of their retirement.

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Like a buffet, the 401(h) plan is a menu of choices that can help the financial health of the employee and his or her dependents. With each course as a different aspect of their retirement plan, from pension benefits to medical expenses, the chef prepares the meal to ensure everyone gets something out of it. In the same manner, USG Corporation employees can choose the various components of the 401(h) plan to develop a full retirement plan that will benefit not only their financial situation but also that of their families. In the same manner that the chef’s attention to detail will improve the overall experience of the meal, the proper application of a 401(h) plan can positively affect the career of a USG Corporation employee and his or her family

Sources:

1. Health Affairs. 'Health Insurance Premiums: Average Family Premium Hits $23,968 in 2023.' Health Affairs , 2023, healthaffairs.org/doi/10.1377/hlthaff.2023.00996 .

2. MissionSquare Retirement. '401(h) Retiree Health Account.' MissionSquare Retirement , missionsq.org/products-and-services/401%28h%29-retiree-health-accounts.html .

3. Groom Law Group. 'IRS Rules that Payment of 401(h) Account Benefits to Pension-Eligible Active Participants Won't Jeopardize Plan Qualification.' Groom Law Group , 2023, groom.com/resources/irs-rules-that-payment-of-401h-account-benefits-to-pension-eligible-active-participants-wont-jeopardize-plan-qualification .

4. American Society of Pension Professionals & Actuaries. 'Retiree Health Accounts Under Section 401(h).' ASPPA , 2019, asppa-net.org/news/2019/4/retiree-health-accounts-under-section-401h .

5. Emparion. 'Pros and Cons of 401(h) Accounts Plans.' Emparion , 2023, emparion.com/pros-and-cons-of-401h-accounts-plans .

How does the retirement plan structure at USG Corporation impact both final average earnings participants and cash balance participants, especially regarding their eligibility and benefits accrued over time? In what ways does the differentiation between these two categories influence the retirement outcomes for employees of USG Corporation?

Retirement Plan Structure: USG Corporation's retirement plan differentiates between Final Average Earnings Participants and Cash Balance Participants. Final Average Earnings participants, who joined before January 1, 2011, accrue benefits based on their final average earnings and years of service, which can result in higher benefits for longer-serving employees. Cash Balance participants, who joined after January 1, 2011, have their benefits calculated based on a cash balance account, which grows with contributions and interest credits. These differences affect retirement outcomes, as Final Average Earnings participants may see higher pension payments if they have longer service or higher wages, while Cash Balance participants have more predictable but potentially lower benefits based on their account balance(USG Corporation_Retirem…).

USG Corporation's Retirement Plan allows for different age-specific rules regarding early retirement. How do the "Rule of 90" and "Rule of 82" affect the financial planning of employees considering an early retirement option, and what should they consider regarding their long-term financial security?

Rule of 90 and Rule of 82: The "Rule of 90" allows employees to retire early without a reduction in benefits if their age plus years of service total 90, provided they retire at or after age 62. The "Rule of 82" permits early retirement with reduced benefits for those whose age and years of service total 82. Employees planning early retirement must consider these rules as they directly affect the amount of benefits they receive, making it important to assess how long-term financial security will be impacted, especially if they retire before age 62(USG Corporation_Retirem…).

Could you elaborate on the process through which employees at USG Corporation can change their beneficiaries within the retirement plan? What steps need to be taken, and what are the implications of these changes on the benefits received upon the participant's death?

Changing Beneficiaries: To change beneficiaries, USG Corporation employees must contact Your Benefits Resources™, where they can designate a primary and contingent beneficiary. If married, the spouse must provide notarized consent to name a different primary beneficiary. The process involves completing a form, and any changes affect who receives benefits upon the participant's death. Failing to update the beneficiary could result in benefits being paid to unintended individuals(USG Corporation_Retirem…).

As part of the retirement process at USG Corporation, how are pensionable earnings calculated? What factors are included in this determination, and how might they vary among different employees based on their roles within the organization?

Pensionable Earnings Calculation: Pensionable earnings at USG Corporation include regular pay, shift differentials, and bonuses but exclude items like nonqualified deferred compensation, severance, and stock awards. These earnings are used to calculate benefits based on formulas that take into account an employee’s service years and earnings over the 36 highest consecutive months of the last 15 years of participation(USG Corporation_Retirem…).

How does the automatic enrollment in the USG Corporation Retirement Plan work, and what options do employees have if they initially chose not to participate? What implications might this have for their retirement savings strategy?

Automatic Enrollment and Opting In: Employees at USG Corporation are automatically enrolled in the retirement plan unless they choose to opt out. If employees decide not to participate initially, they can enroll later by contacting Your Benefits Resources™. Failure to participate from the start could result in lower retirement savings due to fewer years of contributions(USG Corporation_Retirem…).

In the context of USG Corporation, what are the potential tax consequences for employees withdrawing their retirement benefits, especially regarding the mandatory withholdings? How might employees effectively manage these tax liabilities when planning for retirement?

Tax Consequences of Withdrawals: Employees withdrawing their retirement benefits from USG Corporation will face mandatory federal income tax withholdings, typically 20% for lump sum distributions, unless the distribution is rolled over into an IRA. Employees must plan for these taxes when withdrawing to avoid unexpected liabilities and ensure they maximize their after-tax retirement income(USG Corporation_Retirem…).

How do employees at USG Corporation access the necessary documents related to their retirement benefits, and what is the process for obtaining copies of these documents if needed? What are the responsibilities of the Plan Administrator in this process?

Accessing Retirement Documents: Employees can access documents related to their retirement benefits through Your Benefits Resources™ online or via phone. If additional copies are needed, employees can request them from the Plan Administrator for a small fee. The Plan Administrator oversees ensuring these documents are provided to participants as required by ERISA(USG Corporation_Retirem…).

What unique provisions exist for USG Corporation employees who experience a break in service? How do these provisions impact their accumulated benefit service and overall benefits upon reemployment?

Break in Service Provisions: USG Corporation allows employees who experience a break in service to retain their accumulated benefits if they are reemployed within one year. If reemployed after one year, their previous service may not count toward future benefits unless they were vested prior to termination. This can affect the total benefits an employee accrues if they leave and later return(USG Corporation_Retirem…).

What options do employees of USG Corporation have for managing their benefits if they return to work after retirement? How does this affect their pension benefits and the overall strategy for maximizing retirement income?

Returning to Work After Retirement: Employees returning to work after retirement at USG Corporation will have their pension payments suspended and recalculated based on additional years of service. This recalculation takes into account prior payments, meaning employees should consider the impact of returning to work on their long-term pension strategy(USG Corporation_Retirem…)(USG Corporation_Retirem…).

How can employees of USG Corporation contact their Benefits Resourcesâ„¢ for more information on their retirement plan options? Are there specific channels preferred for different types of inquiries, and what resources are available to assist them?

Contacting Benefits Resources™: Employees can contact Your Benefits Resources™ via the web or a toll-free number to inquire about retirement plan options. Different inquiries, such as changes to beneficiaries or requesting benefit estimates, can be handled through these channels. Resources such as detailed benefit estimates are available to help employees plan for retirement(USG Corporation_Retirem…).