Retiree Medical Plan

Many businesses maximize contributions to qualified retirement plans to benefit business owners, thereby providing a large, taxable retirement benefit. Under current law, all distributions from a qualified retirement plan are taxable as ordinary income, so, at best, such a plan provides only a tax-deferral and the risk of being in a higher tax bracket when benefits are paid than when contributions were made.

Healthcare expenses currently exceed 15% of the average retiree's cost of living, and that percentage is projected to grow to 25% or more over the next 25 years. A post-retirement medical plan allows employers to set aside funds now and claim a tax deduction, and for employees to receive those amounts tax-free after retirement. Therefore it makes sense that 15%-25% of an employee's post-retirement benefits should be in the form of a post-retirement medical benefit plan.

Key Features:

  • Employer contributions are tax-deductible;
  • Some plan investments grow tax-deferred;
  • Most plan benefit distributions are exempt from personal income taxes;
  • Plan benefits are in addition to retirement plan benefits; and
  • Most benefits distributed are free of income taxes.

These plans provide exceptional benefits to employees, with slower vesting and benefit accrual rules than those under qualified retirement plans. Health benefit plans are subject to non-discrimination rules that require that "non-highly compensated" employees benefit under the plan at a rate comparable to "highly compensated" employees. However, these requirements are much easier to satisfy than requirements imposed upon qualified retirement plans.

A Post-Retirement Medical Benefit Plan does not provide primary coverage under and is therefore not subject to the Affordable Care Act ("ACA"). No matter how your company chooses to comply with the ACA, you are still eligible for a post-retirement medical plan.

§§ 101, 105, 162, 419, 419A, 505, 4976 of the Internal Revenue Code impose additional limitations on health insurance plans.