NCPA - National Center for Policy Analysis


May 26, 2005

A consortium of universities has joined mutual fund company Fidelity Investments and insurer Aetna Inc. to create the Emeriti Program, a new type of retirement savings plan for faculty and staff members. It is similar to a 401(k) plan, except that the money can be used only to pay medical expenses after retirement.

Before retirement:

  • The employee contributes an unlimited amount each year using after-tax dollars.
  • The employer also contributes on the employee's behalf, with no tax consequences for the employee; the amount is determined by a formula set by the employer.
  • Fidelity invests the money in "lifecycle" mutual funds that become more conservative as the employee ages; earnings are not taxed.

After retirement:

  • The employee enrolls in Medicare.
  • Aetna offers the employee a choice of three supplemental health insurance policies whose premiums are paid with tax-free withdrawals from the Fidelity investment.
  • Fidelity also allows the employee to withdraw money tax free for some out-of-pocket medical expenses.

The average couple retiring this year at age 65 will need $190,000 to pay for health care costs over their lifetimes, says Fidelity.

Source: Debora Vrana, "Colleges Test New Health Program: School employees will be able to pre-fund supplemental coverage for use in retirement," Los Angeles Times, May 25, 2005.


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