This article is a section taken from MA for People Who Are Age 65 or Older or People Who Are Blind or Have a Disability (MA-ABD), a part of the revisions and additions to the Minnesota Health Care Program Eligibility Policy Manual.

Retirement Funds and Retirement Plans

Retirement funds are cash and other assets held by a person for use during retirement. A retirement plan is an arrangement to provide people and their spouses with income during retirement. Employers, insurance companies, the government or other institutions such as employer associations or trade unions may set up retirement plans.

When retirement funds and retirement plans are not excluded, they must be evaluated individually to determine their specific conditions, how payments are or can be made, and restrictions or limitations, if any, on withdrawal.

Types of Retirement Plans

Individually-Purchased Individual Retirement Arrangements

An individual retirement arrangement is an umbrella term used to describe a personal retirement savings plan that provides the owner tax advantages for setting aside money for retirement. Individual retirement arrangements can be in the form of a trust, an account, or an annuity. Individually-purchased individual retirement arrangements are generally purchased by a person from an insurance company, bank or financial planner. Common individually-purchased individual retirement arrangements include:

  • Traditional Individual Retirement Accounts (IRA)
  • Roth IRAs
  • Spousal IRAs

Employer-Sponsored or Union-Sponsored Retirement Plans

These retirement plans fall under one of the following three categories: defined-benefit plans, defined-contribution plans, and employer-sponsored retirement arrangements.

  • Defined-Benefit Plans. This is a retirement plan (also referred to as a pension plan) that promises a specified monthly benefit at retirement. The plan may state the promised benefit as an exact dollar amount. More commonly, however, the plan sponsor calculates a benefit through a plan formula that considers certain factors such as salary and years of service. There are three types of defined benefit plans: traditional plans, cash balance plans, and defined-benefit Keogh plans
    • Traditional plans. A type of defined-benefit retirement plan offered by both private and public employers. These types of retirement plans are often referred to as a pension. Examples of traditionally defined benefit plans include:
      • Federal Employee Retirement System (FERS)
      • Military pension (Air Force, Marine Corps, Navy, and Coast Guard)
      • Minnesota State Retirement System (MSRS)
      • Minnesota Teachers Retirement Association (TRA)
      • Public Employees Retirement Association (PERA)
      • Railroad Retirement
      • Traditional plans offered by public and private employers
    • Cash balance plan. A defined-benefit plan that defines the benefit in terms that are more characteristic of a defined contribution plan. Employers bear the financial risk of cash balance plans and are required to maintain sufficient funds to pay future benefits. The unique feature of a cash balance plan is that the employee’s account shows benefits as a lump sum – the “cash balance” of the account – rather than as periodic payments the employee will receive during retirement.
    • Defined-benefit Keogh plan. A tax-deferred pension plan available to self-employed individuals or unincorporated businesses for retirement purposes. A Keogh plan can be set up as either a defined benefit or defined contribution plan, although most plans are defined contribution plans.
  • Defined contribution plans. A defined contribution plan is a retirement plan that does not promise a specific amount of benefits at retirement. In these plans, the employee or the employer (or both) contribute to the employee’s individual account under the plan. These contributions generally are invested on the employee’s behalf. The employee will ultimately receive the balance in the account, which is based on contributions, plus or minus investment gains or losses. The value of the account will fluctuate due to the changes in the value of the investments purchased with the contributions added to the employee’s individual account. Distributions start at retirement age, but participants can also take distributions if they change jobs or in certain emergencies. Participants can choose to take distributions as a lump sum, annual installments or as an annuity. The following are examples of defined contribution plans:
    • 401(k) plans
    • Roth 401(k) plans
    • 403(b) plans
    • 457 plans
    • Thrift Savings Plans (TSPs)
    • Employee Stock Ownership Plans (ESOPs)
    • Profit sharing plans
    • Defined-contribution Keogh plans
  • Employer-Sponsored IRAs. An employer-sponsored IRA is an individual retirement arrangement that an employer establishes for an employee. The following are examples of employer-based IRAs:
    • Simplified Employee Pension (SEP) IRAs (available to employees and self-employed individuals)
    • Savings Incentive Match Plans for Employees (SIMPLE) IRAs (available to employees and self-employed individuals)
    • Deemed IRAs
    • Payroll Deduction IRAs

When an IRA is held in the form of a trust, account or annuity, the IRA is the plan that meets the federal government guidelines to receive certain tax advantages and the trust, account or annuity is the vehicle used to fund the IRA (retirement plan). IRAs held in the form of a trust or account must be evaluated as a retirement plan using the policy in this section. IRAs held in the form of an annuity (or an annuity account for an annuity in the accumulation phase), must be evaluated as an annuity using the policies in Medical Assistance for People Who Are Age 65 or Older and People Who Are Blind or Have a Disability (MA-ABD) Annuities.

Retirement Funds Not Held in a Retirement Plan

Funds that a person intends to use for retirement, but that are not placed in a retirement plan are treated differently. Retirement funds not in a retirement plan are evaluated as liquid assets. For example, funds held in a bank account a person intends to use for retirement, are treated as a liquid asset, not as a retirement plan.

Evaluation of Retirement Funds

Each specific retirement plan establishes the circumstances under which retirement funds are available. Some retirement plans allow for disbursements of retirement funds due to disability or other circumstances. The value of a retirement plan is the amount of funds that a person can currently withdraw. If there is a penalty for early withdrawal, the plan’s value is the amount of funds available after the penalty deduction. However, any taxes due as a result of the withdrawal are not deductible when determining the plan’s value.

Legal Citations

Minnesota Statutes, section 256B.056, subdivision 1a

CREDIT: The content of this post has been copied or adopted from the Minnesota Healthcare Programs Eligibility Policy Manual, originally published by the Minnesota Department of Human Services.

This is also part of a series of posts on Minnesota Healthcare Eligibility Policies.