How the PG&E RMSA Works, How Long It Lasts, and What Your Spouse Gets

For many PG&E employees, the Retiree Medical Savings Account, or RMSA, may be one of the least understood, and yet potentially most valuable, parts of their retirement benefits. 

I’ve found most PG&E employees have heard of it, and plenty have even seen a six-figure balance on an estimate. 

But what that number really means, and how it will help pay for healthcare after they retire, is where things can start to get a bit fuzzy.

Think of the RSMA as a book of coupons for your retirement health insurance. I'll admit that comparing a six-figure benefit to mere discounts sounds a little silly, but it's the explanation that seems to make the most sense.

See, your RMSA works a bit differently from your 401(k). PG&E establishes a notional account that pays a percentage of eligible retiree medical premiums, and only PG&E can contribute to it. The account has no cash value, so you can’t withdraw the balance, you can’t invest it yourself, and you can’t leave what’s unused to your children (kind of like a coupon—more on this later).

Who Qualifies for PG&E Retiree Medical

Before you start worrying about how much is in your RMSA, you need to settle whether or not you're going to qualify for retiree medical coverage at all. 

Eligibility for current PG&E employees generally requires reaching age 55 while still employed by PG&E and having at least 10 years of credited service. Grandfathered provisions and employment history can change that, so you need to verify your individual eligibility before deciding to leave.

I like to call age 55 a golden handcuff. Granted, as far as handcuffs go, these are some of the nicest ones you'll ever wear.

If you’re 53 or 54, already have the service and you’re thinking about another job, the difference between leaving today and waiting could be pretty significant. Once you separate after meeting the requirements, you don’t have to begin using the benefit immediately, so you could go work somewhere else and just preserve it for later.

That doesn’t mean everyone should stay until 55. If you hate your job and you’re two years away, retiree medical may not be enough reason to stay, but something like 3 months away should at least justify a bit more thought.

How Your RMSA Is Built

PG&E credits $5,000 per year to the employee’s RMSA for each qualifying year worked beginning at age 45, or later if hired after 45. An eligible spouse or registered domestic partner receives a separate RMSA with corresponding $5,000 annual credits, and both accounts receive 4.5% annual compounded interest.

The employee also receives additional service-related credits: $1,000 for each year of credited service beyond 15 years, credited at retirement, plus a lump-sum credit of up to $7,500 prorated from 10 through 25 years. But the spouse’s RMSA doesn’t receive either one.

The PG&E handbook gives an example of an employee retiring at 62 after 32 years of service with a beginning RMSA of approximately $153,209, while the spouse’s was approximately $128,709. This creates a gap of about $24,500 before a dollar has been used.

Why I Call It a Coupon Book

Suppose you see $150,000 on your estimate. It’s tempting to think, “I have another $150,000 for retirement.” It’d be better to think, “I have up to $150,000 worth of coupons that can help me buy eligible health insurance over time.”

Before Medicare, the RMSA works like a 55%-off coupon toward eligible premiums, and once you’re on Medicare, it’s a 30%-off coupon.

If your pre-Medicare premium is $2,000 a month, the RMSA covers $1,100 and you pay $900. If your Medicare-related coverage costs $600 a month, the RMSA covers $180 and you pay $420.

At first glance, that looks backward. 

Your benefit percentage dropped from 55% to 30%, yet your RMSA is being used at $180 a month instead of $1,100. The underlying premium became dramatically less expensive, which is why an RMSA can last much longer after Medicare, so don’t let the percentages fool you.

How Long Will It Last?

The balance alone won’t tell you whether your RMSA lasts until 75, 85 or 95, because you aren’t choosing how much to withdraw. The amount used depends on the eligible premium and the applicable percentage.

Let’s say you have $100,000 remaining and, on Medicare, about $200 a month is being used. That’s $2,400 a year, so if nothing changed, $100,000 ÷ $2,400 = about 42 years. Now change the annual usage to $12,000 and the same $100,000 represents a little more than eight years.

Same account, with a very different runway.

That’s why retirement age is so important. Someone retiring at 60 potentially has five years of relatively expensive private insurance before Medicare, and those years can result in substantially larger withdrawals. Someone working until 67 avoids those years altogether, may continue receiving eligible RMSA credits while working, and reaches retirement already Medicare eligible. They’re benefiting in two ways at once, building the coupon book while avoiding the most expensive years in which they could use it.

I’ve seen longtime PG&E employees whose RMSA benefits appear capable of extending well into their 80s and sometimes their 90s, particularly when they work beyond 65. Now that’s an observation from historically working with PG&E retirees, so it’s worth noting that your account could behave differently. Premiums change, plan choices change, and once your RMSA is depleted you become responsible for 100% of the applicable premium cost.

Working Longer Has Its Own Price

Does that mean you should work until 65? No. Not necessarily, anyways.

Healthcare is one factor in a retirement decision, but it shouldn’t dictate the whole thing.

I’ve seen people get so focused on maximizing their benefits that they forget what they’re even maximizing them for. If you’re financially secure, tired of working and ready to retire at 60, five years of higher healthcare costs may be a perfectly reasonable price to pay for five more years of retirement. If you’re 64 and thinking about going for another six months, understanding how Medicare and your RMSA interact could be very important.

The goal is to understand the financial tradeoff before making any decisions.

Your Spouse Has a Separate RMSA

When an eligible PG&E employee retires, PG&E can establish separate RMSAs for the employee and an eligible spouse or registered domestic partner. Your RMSA is yours, and your spouse’s is theirs.

The balances usually differ, because the spouse’s account doesn’t receive the employee’s additional service-related credits. Timing plays a role here, too. The 2014 handbook says the spouse or registered domestic partner must be married to the employee, or in a registered domestic partnership, on the employee’s retirement date. The funding formula then bases the spouse’s $5,000 annual credits on the employee’s qualifying PG&E employment from age 45, and it does not state that those credits are limited to the number of years the couple has been married. Someone might have worked at PG&E for decades and only recently married, and it would be easy to assume otherwise. If you marry, remarry or enter a registered domestic partnership after you retire, though, the new spouse or partner does not receive an RMSA under these rules.

The bigger planning issue is an age gap. Let’s imagine you’re 65 and ready to retire, and your spouse is 58. You are Medicare eligible immediately, and your spouse has another seven years to go, drawing much larger dollar amounts from an account that started smaller. Your RMSA could last decades while your spouse’s is depleted much faster. That’s why I wouldn’t tell a couple, “You have $250,000 of RMSA benefits, so healthcare is taken care of.” I want to know whose account the money is in and when each person is likely to use it.

Weighing Your Spouse’s Coverage Against Your Own Retirement

So, should you keep working until your spouse reaches Medicare? For the majority of people, I don’t think you should look  at the healthcare benefit in isolation. Yes, retiring at 65 with a 58-year-old spouse could mean seven years of expensive pre-Medicare coverage, their RMSA used considerably faster, and more of those costs eventually landing on you.

But what’s your alternative? You’re already seven years older than your spouse, so working another seven years means retiring at 72. Is maximizing your spouse’s RMSA worth giving up seven years of your own retirement? Maybe, for someone, but I don’t think math alone answers that question. The majority of Americans retire without anything resembling the PG&E RMSA and still have to figure out how to pay for healthcare before Medicare.

You should understand the costs, and then decide whether you’re willing and able to pay for it. The purpose of retirement planning is to use the benefits you’ve earned to help create the retirement you want.

What Happens When You Die

The accounts are tied to the individual, so if you die with money remaining in your RMSA, that balance is forfeited under the 2014 handbook. Your surviving spouse may continue using their own RMSA, subject to the plan’s survivor eligibility rules and limitations, and the unused balance isn’t inherited by your children.

If you have $75,000 left, it would certainly be nice if your spouse could add it to their account. But that $75,000 was never sitting in an investment account waiting to be inherited. 

The best way to think about it is you can use the coupons for their intended purpose, but you can’t cash them in, transfer them or leave them to your heirs. I’d rather have a valuable benefit with limitations than no benefit at all.

No Double-Dipping

Now what if both spouses work for PG&E? Well, longtime PG&E employees may recognize an expression from pension conversations, where someone who retired young and later returned to work was said to be “double-dipping.” There is no ability to double-dip on the RMSA. If there were a loophole here, believe me, a room full of PG&E engineers would've found it by now. 

The handbook says an employee can have only one, either a retiree RMSA or a spousal RMSA, and never both.

When both spouses work for PG&E, each person’s own employee RMSA may be particularly valuable, because it can include the service-related credits that aren’t available to a spouse. A PG&E employee who is also eligible for a spousal RMSA may elect the spousal RMSA instead of their own, and that election is described as one-time and irrevocable. So don’t add every number you see together and assume that’s all that you’ll have. Determine which account applies to each person, and compare the applicable benefits before making an election.

Use the Estimator, and Understand What It’s Telling You

PG&E’s Retiree Medical Savings Account Estimator is the best place to start, because healthcare costs change too quickly for a static example to stay useful. Run it alongside current medical cost estimates, then look past the final number and ask yourself:

• What is my RMSA balance at retirement?
• How much could be used each month before Medicare, and how many years until I get there?
• What happens to that monthly usage once I’m Medicare eligible?
• How old is my spouse, and what does their RMSA look like?
• How sensitive is the estimate to higher future healthcare costs?

I won’t tell someone, “Your RMSA will last until you’re 92.” Healthcare costs aren’t set in stone, insurance plans change, regulations change and PG&E’s benefit rules can change, so treat a 25-year projection as an estimate rather than a commitment.

The RMSA Has Limits, But Don’t Underestimate It

Occasionally I’ll hear someone complain about PG&E’s retiree medical benefit. My response is a little tongue-in-cheek, because I pay all my own healthcare costs. I’m both the employer and the employee, and nobody is handing me a 30% or 55% coupon. I sometimes tell clients it’s like having a pebble in your shoe, at least you have a shoe while the rest of us walk on rocks.

Historically, RMSA funds have been tied to PG&E-sponsored retiree medical coverage, and in my view, that limitation has been the biggest frustration with the benefit. Some employees felt they could find comparable or better insurance elsewhere, sometimes at a better price, and couldn't put their RMSA toward it. The recent contract talks included changes that would have let eligible retirees use the benefit on a broader selection of plans outside PG&E's traditional options, which would've been a big improvement. A coupon is worth more when you have more places to use it.

Unfortunately, the contract wasn't approved for other reasons, but this idea was well received, so hopefully it will be included in the final agreement when it is approved. Until then, I'll stand by my pebble comparison. It may still be a little uncomfortable, but you've got a shoe, and plenty of us are still walking on rocks.

I haven’t reviewed the final implementation rules, so I won’t speculate about which plans will qualify or when the changes take effect. If you’re a PG&E employee or retiree who has received updated RMSA documentation, I’d be happy to review it.

Put the RMSA in Its Proper Place

Your RMSA is yours, and your spouse’s is theirs. The balances can differ, the accounts can be used at different rates, a younger spouse may use theirs faster, your unused balance doesn’t transfer at death, and two PG&E careers don’t let you stack every available RMSA together. 

The limitations are real, but so are the benefits. Your pension provides income, your 401(k) provides savings and potential growth, Social Security adds another income source, and your RMSA helps pay eligible medical premiums. The goal is to understand what that benefit can do for you and incorporate it into the rest of your retirement plan.

For many PG&E employees, once they finally understand the RMSA, the reaction is usually the same: “That’s better than I thought.” In retirement planning, finding a benefit that’s better than you thought is usually a pretty good problem to have.