Retiree Medical Trusts™

Overview

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Retiree Medical Trusts™, in the public and private sector, seamlessly integrate federal and state tax and labor law, as well as federal and state benefits law, to develop a pre-funding vehicle for retiree health care costs for public sector employees. These Trusts are a cost-effective, flexible and highly tax-favored method to help employees save for future retiree medical expenses, during their active careers.

A Retiree Medical Trust program takes advantage of the power of collective financing to provide medical reimbursement benefit payments on a monthly basis, similar to an annuity, but the benefit is not vested; instead, the benefit level is variable, up or down.

These trust programs obtain tax-exempt status, either as an “Integral part trust” or a “VEBA,” depending on the sponsoring party. They are structured to enable financing with monthly tax deductible employee or employer (or combination of both) contributions. These funds are in turn used to reimburse claim dollars for medical expenses upon retirement. No taxes are due on these reimbursements.

Issues concerning these Trusts that arise with the IRS include:

  • Contribution and eligibility rules
  • Permissible benefits
  • Death benefit issues
  • Application of COBRA
  • Trust expansion possibilities
  • Definition of "definitely determinable" benefits