For many hardworking public sector employees, the dream of retirement often collides with one big question: How will I afford health insurance premiums? Rising health care costs have made this concern more pressing than ever. In fact, in a study released by EBRI, a 65-year-old man will need to have saved $166,000, and a woman will need to have saved $197,000 just to cover the majority of health care costs throughout retirement.

This financial reality often forces employees to postpone retirement, waiting until Medicare eligibility at age 65. But here’s the good news: employers have the power to help bridge that gap—without adding to their budget.

A Smarter Way to Use Accumulated Leave

By reimagining accumulated leave payouts, you can transform a standard benefit into a strategic advantage. Instead of a taxable cash payout, consider leveraging two powerful tools:

• Special Pay Plan (SPP) – A tax-deferred retirement plan that saves employees and employers up to 7.65% in FICA taxes.
• Retiree Health Reimbursement Arrangement (HRA) – An employer-funded, tax-free account that reimburses retirees for eligible medical expenses, including health insurance premiums.

Together, these plans create a winning combination: one bucket for general retirement spending and another dedicated to health care costs—completely tax-free.

How It Works

Imagine an employee retiring with $25,000 in accumulated leave. Instead of a taxable payout, those funds are split:

• $12,500 to HRA: Tax-free reimbursements for premiums and medical expenses.
• $12,500 to SPP: Tax-deferred savings for any purpose, with potential investment growth.

This approach doesn’t require additional employer funding—it simply reallocates dollars already budgeted for leave payouts.

The Bigger Picture

Offering solutions like HRAs and Special Pay Plans isn’t just about numbers. It’s about delivering on your promise to support employees through every stage of life. By bridging the gap between retirement and Medicare, you help employees retire with confidence—and reinforce your organization’s commitment to financial wellness.

Daybright makes it simple. We specialize in helping employers design benefits that work harder for their people. Because when employees feel secure about their future, everyone wins. It’s that simple. To learn more about how we can help, contact us today.

Want to learn more about the Special Pay Plan? Learn how Hillsborough County Public Schools saves almost $2 million annual with a Special Pay Plan.

This post is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

• Category: News
• Tag: Employee Benefits, Public Sector Retirement