Broker Check

Retirees: Health Care and the ORP

January 03, 2023

An important feature of the Maryland Optional Retirement Plan (ORP) is the requirement to pay for your own premiums by taking distributions from the ORP, in order to maintain retiree health care through your employer.  This is a little-known rule that can cause major issues in retirement if not followed properly.

 

If you retire from a Maryland public higher education institution, you may have access to subsidized supplemental health care in retirement.  The type of plan and the amount that is subsidized varies greatly between the different colleges.  The retiree health care plan will supplement your Medicare coverage part A and B when you retire (and reach age 65).  Spouses are usually eligible, but you should check with your Human Resources department because the rules can vary greatly between institutions. 

 

If you are in the pension system, the State of Maryland will automatically deduct the premium from your pension check and pay the health care premium every month for you.  If you are in the Optional Retirement Plan, you will receive a bill and need to pay it yourself every month.

 

The State Retirement Agency requires that an ORP participant take at least one annual distribution from the ORP plan as long as they maintain health care through the college they retired from. 

 

This rule requires some practical considerations before you retire, such as the following:

 

Will you stay on the retiree health care plan after retirement with the college?

If you can remain on your spouse’s coverage or if you want to find your own supplemental plan, then this rule may not matter to your retirement plan.  You’d then have the freedom to roll over the ORP plan at retirement or liquidate without worrying about losing the benefit.

 

How can I ensure my ORP payment will last?

If you do want to maintain health care coverage through your previous employer, you will need to make sure the payment from the ORP lasts the rest of your life.  One very practical way to do that is to create a lifetime annuity payment from your TIAA account.  By giving up control of the money (they require you use at least $10,000), they will guarantee a monthly paycheck for the rest of your life. 

 

Fidelity DOES NOT offer an annuity option from the ORP.  If you call Fidelity and they offer an annuity, it means the money is leaving the ORP and you will lose your health care benefit.  If you work with Fidelity, a more practical solution is to make sure there is enough money in the account to take a small enough distribution to last the rest of your life.

 

Why is it important to keep the ORP open for health care coverage in retirement?

You will need to keep the ORP open in order to maintain health care coverage through your previous employer.  If you have a financial advisor that doesn’t understand the rule, they may encourage you to consolidate or roll the money out of the ORP plan.  Usually this is not bad advice, but once your money leaves the ORP, it cannot go back. Make sure anyone that is giving you financial advice understands the rules around the ORP and how it can impact your health care coverage.

 

If you have more questions about health care coverage in retirement and the ORP, please feel free to reach out to us or your Human Resources department.