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Prudential Financial in the summer of 2022 will stop contributing to the medical savings accounts of current retirees, according to a letter sent this month.
In addition, Prudential retirees must now use all the money accumulated in accounts over 20 years, rather than their lives. And any remaining balance goes to Prudential.
Pamela Faccone, a Newark-based employee for 31 years from 1987 to 2018, said she felt “shocked and betrayed”.
“Like many other loyal employees, I saved for retirement, but built this account into my short and long term plans. Trying to correct my course at this late stage is like asking an aircraft carrier to go around in circles, ”said the 63-year-old. She relied on these so-called RMSA funds of $ 94,000 for health care premiums and medical expenses for the rest of her life.
Prudential’s announcement comes just after Vanguard also changed its medical accounts for retirees. Based in Malvern, Pa., Vanguard initially cut benefits entirely on one day’s notice, but reversed the decision after an outcry from employees.
Current Vanguard retirees and those who retire by the end of next year will keep their medical accounts. But anyone hired since the start of 2020 is not eligible for the allowance.
The move is no surprise to the experts. Large employers have struggled for years to limit health care benefits to meet rising health care costs, said Tricia Neuman, senior vice president of the Henry J. Kaiser Family Foundation and executive director of its program on Medicare Policy.
“We see a model of employers looking for ways to limit liability and in many cases the change saves money but shifts costs to retirees,” Neuman said.
The percentage of large companies providing health care benefits to retirees has declined steadily over time, to 27% in 2021 from 66% in 1988, according to Kaiser’s annual survey of employer health benefits.
“This is part of a pattern of lowering retiree health premiums over many years,” Neuman said. “Employers are reducing their liability and contributions for retiree health benefits and generally shifting the costs” onto workers.
READ MORE: 2021 Kaiser Survey on Employer Health Benefits
Prudential released a statement on Wednesday with some changes to the initial benefit freeze.
“Following an evaluation … we decided to phase out one component, the Medical Savings Account for Retirees (RMSA), over a period of 10 years. To give our retirees time to plan and prepare, we communicated the decision well in advance of mid-2022, the release said.
In response, “Some retirees have reached out to express concern about their ability to fully utilize their account balance within the 10-year time frame. We have given careful thought to their comments, and earlier this morning we announced our decision to extend the phase-out period from 10 to 20 years. We have also broadened the scope of eligible health care expenses to include past expenses, as of the retiree’s retirement date, as well as other employer-sponsored, after-tax paid coverage.
James and Ramona Musso both worked in the Prudential offices in Iselin and Roseland, NJ, for 72 years combined. Ramona, 57, made a buyout in 2020 with assurances that her $ 81,000 in RMSA money was part of a total separation package. James, 64, retired in 2017 with a balance of $ 125,000 in his RMSA.
“This is the reason why I left the company. They let us go with the RMSA, ”said Ramona Musso. “I wouldn’t have left without it as part of the package. They moved to Lewes, Del., Where they retired believing they would never have to work again.
Prudential manages more than $ 1.7 trillion in assets as of November and has operations in the United States, Asia, Europe and Latin America.
CEO Charles Lowrey has pledged to realize $ 750 million in savings by the end of 2023, as well as embark on a stock buyback plan, which Wall Street liked. The company recently sold Prudential Retirement and part of its annuity business. Today, her focus is on life insurance, annuities, mutual funds and investment management.
Investors pushed the share price up from $ 42 in March 2020, the start of the pandemic, to $ 107 per share.
Prudential set up RMSAs after its IPO in 2001 and funded retiree medical savings accounts in a manner similar to Vanguard. Money accumulated in the accounts each month so that when employees retired they used the funds to pay for health care premiums and medical expenses.
In cases like the Musso’s, the value of longtime employee accounts has reached hundreds of thousands of dollars over the decades. This is in part because Prudential credited the accounts with a 4% annual interest rate.
This also stops under the new benefit.
A former employee wrote in the Pru Crew Facebook group: “I understand the need to cut costs, but putting in place a plan that will likely result in a loss of money for retirees seems at odds with the emphasis by the company about saving and planning for retirement.
Faconne also wrote a letter to executives at Prudential, saying, “I was proud to work for a company that values ethics and delivers on its promises. I feel fooled for believing the hype. They changed the rules in the middle of the game, ”adding,“ It’s not too late to do the right thing. “
Based in Newark, NJ, Prudential Financial [symbol: PRU] employs tens of thousands of people around the world, including sales offices in Lancaster, Pittsburgh, Chalfont, Dresher, Willow Grove and Scranton, Pa., as well as in New Jersey towns such as Woodbridge and South Plainfield.
Nicknamed “Mother Pru” and “the Rock”, the 145-year-old company was once considered a paternalistic employer. Today, many Prudential retirees – and current workers – are taking to social media to speak out against the financial services company for ending its generous medical retirement accounts.
Retirees by next summer must use the RMSA balance within 20 years – extended for 10 years after the employee complaint. Prudential expanded eligible expenses to include deductibles, co-payments, and coinsurance, or eligible medical expenses listed in IRS publication 502, such as contact lenses and glasses, dental services, and appliances. hearing.
These can be paid for using RMSA money even after the benefits freeze in mid-2022.
But retirees aren’t the only ones angry. Current employees, particularly those transferred as part of Prudential’s sale of its retirement business to Great-West’s Empower, do not receive anything under the benefit amendment. Employees who are not of retirement age may have to forfeit accumulated money.
What can workers do?
Another vehicle that large employers offer as a way to shift medical expenses to workers is health savings accounts. But these also offer tax advantages.
HSAs “take your pre-tax money and pay tax-free money,” said Ann Kavanaugh, a former Vanguard financial advisor, but only for medical bills. These can include everything from glasses, home medical care, hand sanitizer, and other costs.
HSAs are best “when you have a high deductible health plan. If you’ve chosen a high deduction health care plan and are under age 65, you can save a substantial amount of money with HSAs ”if your health holds up, Kavanaugh said.
Workers with high-deductible health plans can contribute $ 3,600 per year for individual plans and $ 7,200 for family plans, according to the latest IRS 2021 contribution tables.
Still, Americans have been slow to embrace HSAs, perhaps because they are more useful for those with high-deductible health care plans.
The number of accounts has grown to around 31.2 million, with $ 87.3 billion in total assets at the end of January 2021, up 6% since the end of 2020. This is according to the latest report and the latest figures of the Plan Sponsor Council of America.
“Even employees who have an HSA often don’t understand how they work or how contributions can go up, and most have no idea the cost of health care in retirement,” the report found.
Theresa Rossi said she trusted her former employer Prudential to be “fair and ethical.” This account was part of our retirement plan, we are not rich people. It will be financially devastating for most of us. It is very disappointing that Prudential is taking advantage of the most vulnerable sector for its results, ”said Rossi, who worked from 1978 to 2012.
“I have always been proud to be a part of Prudential. I certainly don’t feel that way today.
In Prudential’s plan documents, similar to Vanguard’s, the company includes legal language indicating that it can change or terminate its policies and benefits “without notice or consent from any member, employee or former employee.”
But Prudential’s focus on retirement could complicate its plans to cut its retirees’ benefits.
For financial services companies such as Prudential, “they take care of retirement planning,” said Robert Field, professor of law and health management and policy at Drexel University. “It could be a black spot for them if the public thinks they are not taking care of their own retirees.