October 1, 2018 at 12:00 PM
Air Canada recently announced it was introducing a voluntary buyout program that will allow eligible retirees and surviving spouses to exchange their life insurance and retiree health benefits for a cash settlement and a Health Service Spending Account (HSSA), respectively. At the request of our membership, we’ve put together the memo below for your review.
The material below does not constitute advice and you should consult with a financial professional or lawyer if needed.
WHAT IS AIR CANADA OFFERING?
Air Canada is offering eligible retirees and surviving spouses:
To permanently exchange their company paid life insurance policy for a taxable cash settlement (the amount depending on your current coverage)
To permanently exchange their Air Canada retiree health benefits for a Health Service Spending Account (HSSA), which would receive an annual deposit of $450 and an additional $450 for eligible dependents (to a max of $900)
The Decision Guide sent to you by the Company will contain further information on the offer.
Things to keep in mind when evaluating this offer?
A good starting point is to evaluate your personal needs and the level of coverage afforded to you by the existing plans. Then, consider whether the buyout option sufficiently addresses these needs, as you will no longer be participating in the life insurance or retiree benefit plans if you opt out.
With respect to your retiree benefits, the purpose of these plans is to provide comprehensive health and drug coverage during your retirement years. In addition, in the event of your death, your eligible surviving spouse or eligible children will continue to be enrolled in the plan.
Basic Health Benefits
The Basic Health Plan is 100% employer paid and the cost of the Voluntary Supplementary Health Plan (which supplements the basic plan) is paid by the member. In terms of plan design, the Basic Health Plan provides coverage in the areas of prescription drugs, hospital care, flu vaccinations, vision care, chiropractor services, physiotherapy, speech therapy, dental surgical procedures, and private duty nursing, among other areas. The Voluntary Supplementary Health Plan provides all of the benefits offered under the Basic Health Plan plus enhanced coverage.
You might want to review your benefits usage and ask yourself whether $450 (the amount that would be deposited annually into your HSSA if you opted out of the retiree benefits plan) adequately replaces your benefits coverage. For instance, if you currently participate in the Voluntary Supplementary Health Plan, you would have an overall lifetime maximum of $75,000 for extended health care and drugs and a co-payment of 80% for the first $500 of eligible expenses per individual or family and 100% coverage thereafter. Opting out of this plan for a $450 health care spending account would be a very significant shift, as you would have substantially less coverage for critical items like prescription drugs.
Life Insurance Plan
With respect to the life insurance component of the offer, eligible retirees and surviving spouses are being offered a taxable lump sum if they opt out of their employer paid life insurance plan. The amount of the lump sum varies. There are a number of things to consider when evaluating this offer, including tax implications, estate planning (ie. the impact on your beneficiaries) and the availability and price of a life insurance policy if you were to purchase one after opting out.
The buy-out program sounds like an offer to ‘tailor my benefits plan to my own needs.’ Isn’t this ‘flexibility’ a good thing?
Not necessarily. Your current retiree benefits plan (either the Basic Health Plan or the Voluntary Supplementary Health Plan) is comprehensive and designed to suit your overall needs in retirement. It is important that you consider your personal needs and the level of coverage provided to you under the existing plans. These retiree benefit plans may be fixed, in that they do not allow for you to alter them, but this is not necessarily a bad thing. These plans are all-encompassing and designed to suit a broad array of needs, whether it is prescription drug needs, dental needs, diabetic needs, vision care needs and so forth.
The limits are also quite generous, depending on the area and whether you participate in the enhanced plan or not. In contrast, the Health Care Spending Account option may allow for ‘choice’, in the sense that you can spend all of your annual limits on a particular need (ie. vision care), but this may leave you with no funds for prescription drugs or dental care. If you get sick and require medication or dental services, you could find yourself in a very difficult position and ultimately paying out of pocket for benefits that your retiree plan provided.
Should you require further information, please send your email inquiries to:
Patrick Rettig – Unifor National Representative, Pensions, and Benefits
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