How HCSP Works
The MERS Health Care Savings Program is an employer-sponsored program providing a tax-free medical savings account for post employment medical expenses. The account is available for use by your employees, their spouses, and any legal dependents, as well as a named beneficiary. The MERS Health Care Savings Program is not a Health Savings Account, Flexible Spending Account, or a traditional Health Reimbursement Account. It is a tax-exempt Section 115 Governmental Integral Part Trust, which ensures the assets are used for reimbursement of future medical expenses only.
There are two ways the program can be used:
- Traditional HCSP: Accounts are funded while the employee is actively employed. Contributions are invested, and any earnings accumulate tax-deferred. Upon separation of employment (regardless of age), the employee can use the account for tax-free medical expense reimbursement. This structure not only maximizes tax efficiency but also allows the employee’s money more time to compound, helping them build greater long-term growth through investment returns.
- HCSP Stipend Plans: Set employer contributions are made to the employee’s account while they are no longer working. While those contributions are being made, the employee can used their account for tax-free medical expense reimbursement. This structure ensures that the employee continues to receive new funds into their account post-employment, extending the value of their benefit and helping them manage health care costs throughout retirement.
Funding the Program
Contributions to your Health Care Savings Program are based on the provisions indicated in the Participation Agreement and include:
View Funding Details
Basic Employer Contributions are a flat dollar amount or a percentage of pre-tax wages, which have a vesting schedule.
Vesting can be:
- Immediate – the employee is fully vested upon participation.
- Cliff – the employee is fully vested upon completion of a stated number of years of service.
- Graded – the employee is partially vested in the account balance according to your adopted schedule. For example, the employee is 50% vested after 1 year and 100% vested after 2 years.
Mandatory Salary Reductions are a fixed-dollar or percentage of pre-tax wages withheld through payroll deduction. All employees in the specified division must make the specified contributions; it is not optional. These are not required to be reported on the employees’ W-2s.
Leave Conversion Contributions refer to leave time that is not used (either a portion or all) may be contributed to a participant’s MERS HCSP account. Some examples of leave include vacation, personal time, sick time, or severance pay. The leave conversion is deposited into participant accounts at a set time determined by your employer (i.e. annually, time of separation, or other time chosen by employer). If a leave conversion contribution has been selected by the employer, it is mandatory. Employees cannot choose how to receive their leave conversion. However, each division by define its own payout option.
Plan Advantages
There are many benefits of the MERS Health Care Savings Program (HCSP).
Cost-effective
Because we operate on a not-for-profit basis, HCSP is offered at no cost to employers, and our already low participant costs continue to decrease.
Unique Beneficiary Structure
HCSP allows participants to name both a primary and contingent beneficiary, a feature that is unique to MERS.
Sound Investments
The HCSP investment menu provides your employees with select investment options to design a diversified portfolio to match their investment needs.
Participant-outcome Focused
MERS employs behavioral economics to design a streamlined investment menu that guides participants to make decisions in their own best interest, while giving them the freedom to pursue their own investment choices.
Financial Wellness
HCSP participants gain access to a personalized online dashboard with free financial tools to help them make budgeting, planning, and retirement decisions all in one place. Retirement consultants are also here to give your employees straightforward guidance about their retirement and investment strategy, at no cost, so they can plan better for their future.
Fiduciary Responsibility
As the sole fiduciary for our retirement plans, MERS takes on the liability for selecting the investment options, monitoring fund performance, and ensuring fees are reasonable. Learn more about fiduciary responsibility.
