VEBA/HRAs are a valuable, fully tax-sheltered vehicle through which employees can be reimbursed for eligible medical expenses. The cost of administering both the VEBA Trust and claims reimbursement can be incurred by the employer or the employee. While the fee for claims administration is straightforward – typically a flat per participant per month fee – the cost of providing fiduciary services or the investment platform fee is defined by basis points (sometimes also called “bps”).
Employees with VEBA balances can determine “when” they access their account for reimbursable expenses. Many save their balances for use in retirement when health care expenses are generally greater than during employment. With larger and larger VEBA balances in play, it’s important to understand what plan administration costs are charged based on these balances.
What’s the definition of a Basis Point?
100 basis points equals 1.00% so each basis point is 0.01% or a 0.0001 multiplier. Basis points are assessed on the VEBA balance at a snapshot in time. For example: an employee with a $10,000 VEBA balance and an annual asset based fee of 35 bps, would pay the following: 10,000 X 0.0035 \ 12 = $2.92 per month. As the same employee’s VEBA balance changes during the year, so would their asset based fee after calculation.
There are other fees also charged based on the asset balance, for example fund expense ratios. A reliable and transparent VEBA/HRA administrator will clearly report these fees separately. If asset based fees are combined, the VEBA participant and employer cannot determine the true performance of a fund versus the cost of VEBA/HRA administration. When administration fees are included in the expense ratio of the fund, they simply reduce the performance of the underlying investments. This lack of transparency can lead a participant to think they are not being charged for a service when in fact they are.
If you would like a benchmark of your current VEBA administration fees or have any VEBA questions in general, please contact:
Karni Adamson is a Senior Sales Relationship Manager with BPAS VEBA & HRA/HSA Services