BOSTON, January 27, 2004 - A 65-year-old couple retiring today, with no access to an employer-sponsored health care plan, needs an estimated $175,000 to fund out-of-pocket medical expenses in retirement, despite recent positive legislative changes, according to Fidelity Investments.

In its second report on the issue, "Retiree Health Care Accounts: The Next Step Toward a Workable Solution," Fidelity provides employer strategies for navigating today's changing health care benefits environment. The report primarily explores potential retiree health care account solutions that may help employers assist their workers in saving for what is likely to be their single biggest retirement expense.

"Research indicates that few pre-retirees are prepared to meet medical costs in retirement and most have given little thought to the possibility that they could face paying for future health care expenses not covered by Medicare," said Brad Kimler, senior vice president, Fidelity Health and Welfare Consulting. "The situation is cause for concern, at a time when many employers are being forced to contemplate how, and even whether, they can continue to offer retiree health care benefits in the face of increasing costs."

The report provides an in-depth analysis of the retiree health care shortfall that America faces as more than 76 million baby boomers close in on retirement¹. Highlights include:

•		Factors and trends contributing to the increase in the retiree health care savings goal estimate
•		Ten key features of an "ideal" retiree health care account
•		Major categories of retiree health care accounts available today

Factors and trends

Recent health care trends have converged to create a financial situation poised to affect many employers and their workers in the coming years, particularly in retirement. In fact, in Fidelity's view, health care expenses are one of the five major threats to an individual's retirement income security. With retiree health care coverage on the decline; rising health care costs that continue to outpace the Consumer Price Index (CPI); and a workforce that is largely unprepared in terms of savings; it is crucial that workers begin to plan and save for retiree medical expenses as part of their overall retirement strategy.

Just as the growth of defined contribution plans enabled workers to prepare for retirement, Fidelity believes that a dedicated, tax-efficient, account-based solution is needed to help employers manage retiree benefits costs, while also enabling workers to prepare for this significant financial liability.

An example of an employer moving toward this solution, Deere & Company, is currently working with Fidelity to develop a proposal for a unique account called a Retiree Medical Benefits Account (RMBA), which functions much like a 401(k) for health care.

"Our aim in supporting the creation of a RMBA is to help future retirees better understand medical costs and encourage them to plan and save to meet their own needs in retirement, beyond what Medicare and/or employer-sponsored retiree benefits provide," said Mert Hornbuckle, vice president, Deere & Company Human Resources. "In addition, the tax advantages offered by this new account will give employees an added incentive to save."

Ten Key Account Features

Identifying a viable retiree health care account solution is the first step employers need to take in building their benefit offering. To help them assess the existing account structures, Fidelity defines ten key account features that should be considered in the evaluation process, including funding flexibility, tax treatment, portability, contribution limits, investment options, covered expenses, plan access, eligibility, vesting and survivor benefits.

To give employers a sense of the account design that would deliver the greatest benefit per dollar spent, Fidelity advances its view of an "ideal" retiree health care savings account, based on the ten key features. While such an account does not exist under current legislation, Fidelity details further regulatory changes that could lead to its creation. However, until changes are enacted, the right solution may lie in compromise and cost-sharing between employers and their workers.

"It is important that employers do not think in terms of an all or nothing approach when considering whether they can afford to offer their workers retiree health care benefits," said Kimler. "Rather, by incorporating some of the recent thinking about health care consumerism with an account strategy, employers may create viable solutions that will help their employees fund their future retiree health care costs."

Existing Retiree Health Care Accounts

To help employers select the retiree health care account that will best accomplish their objectives, Fidelity provides a comparison chart of the major account categories currently available and evaluates them against the ten key features that maximize an account's value for plan sponsors, active employees and retirees. The chart provides design reviews for seven account types, including Dual Purpose Profit Sharing/Retiree Health Care Plans and the recently created Health Savings Accounts (HSAs).

"Currently, there is no available account option that delivers the ideal combination of tax benefits, funding flexibility, portability and investment options," said Kimler. "However, it is our hope that future regulatory changes will encourage the evolution of accounts, leading to a workable solution: an account that involves employees in benefits decisions, promotes health care consumerism, allows for measured employer contributions, and complements the balance of an employer's retirement benefit offering."

About Fidelity Workplace Services^SM

Through Fidelity Workplace Services^SM, Fidelity Investments provides human resources administration and employee benefits solutions to more than 16.7 million participants in nearly 12,000 retirement, pension, health and welfare, payroll and stock plans as of December 31, 2003.

About Fidelity

Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of $1.8 trillion, including managed assets of $988.3 billion as of December 31, 2003. Fidelity offers investment management, retirement planning, brokerage, human resources and benefits outsourcing services to 18 million individuals and institutions as well as through 5,500 financial intermediaries. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, one of the largest mutual fund supermarkets and a leading online brokerage firm. For more information about Fidelity Investments, visit www.Fidelity.com.

¹"Boomers at a Glance," American Association of Retired Persons (AARP), May 2001.

# # #

Fidelity Employer Services Company LLC, 82 Devonshire Street, Boston, MA 02109.

Defined contribution products and services are offered by Fidelity Investments Institutional Services Company, Inc.