National Conference on Public Employee Retirement Systems

The Voice for Public Pensions


Retiree Medical Trust 2022 Update: Frequently Asked Questions

CREATING A RETIREE MEDICAL TRUST: A Fresh Look at a Proven Solution

How Employers and Employees Can Use Pre-Tax Dollars to Fund Their Retiree Medical Expenses
2022 Edition

Frequently Asked Questions about RMT

Frequently Asked Questions

 Who should read this report?
 Public sector employers, public pension plan administrators and trustees, and union officials who care about the rising cost of health care and its effect on retirees.

 What benefits are available under an RMT?
 In general, an RMT would reimburse participating retirees toward the cost of post-retirement healthcare expenses. Healthcare expenses are broadly defined and could include: 
• out-of-pocket healthcare-related costs
• health insurance premiums (including Medicare, Medigap, and long-term care insurance)
• costs of dental care, vision care, or hearing aids
• prescription drug expenses.

 Who receives RMT benefits?
 RMT benefits are paid to retired employees who participated in the RMT program during active employment. RMTs also can be set up to  provide benefits to surviving spouses and children.

 How much are RMT benefits? 
  RMT benefit amounts vary depending on several factors, including: 
• the amount of contributions
• the length of time in which contributions are made
• investment income
• administrative expenses. 

Once the trustees define these factors, they can assign benefit levels. Currently, RMTs provide monthly benefits up to $1,300 per month, for life, to career employees (20 years of service).

 When do RMT benefits begin? 
 RMT benefits begin after participants have retired and have met the specific eligibility rules outlined in the RMT plan document.

 How long do RMT benefits last?
 RMT trustees can choose from several options for the duration of benefits. RMTs can be designed so that the benefits last for the life of the participant and the surviving spouse; this is by far the most common plan design and the distinguishing and most valuable aspect of RMTs. However, the plan could be designed to offer benefits for a shorter period, such as until retirees reach Medicare eligibility age.

 Can individuals elect whether to participate in an RMT, like a cafeteria or 401(k) plan? 
 No. An entire eligible employee group or bargaining unit must elect to participate in an RMT to take advantage of all the tax benefits.

 Is it permissible to transfer sick or vacation leave to an RMT?
 Yes. However, to transfer accumulated sick leave, your bargaining unit must negotiate a transfer of all or part of that sick leave to this plan upon retirement. That amount will then not be considered taxable income. Retirees could draw the sick leave transfer for spouses as needed. 

 What are the tax advantages of RMTs?
 There are three distinct tax advantages:
• Employee contributions are made with pre-tax money, which means it will not count as taxable income
• The RMT itself accrues earnings on a non-taxable basis
• The RMT benefits are tax-free to the retiree (unlike pension benefits, which are taxable)

This means that the money contributed to an RMT is never taxed. It is a tax avoidance program, not tax deferred like a pension plan. Retirees generally pay taxes on their pension benefits, but RMT are not taxable income.

 What is the legal structure of RMTs?
 A RMT assets are held in a trust, legally separate from the employees and the employer. The trust is controlled and administered by a board of trustees, composed of employee and/or employer representatives. The board designs the RMT plan, selects a professional investment manager and investment vehicles, and decides on distribution options. 

 Are RMTs regulated by federal law?
 Yes, RMTs are regulated by federal law and also may come under state law, depending on structure. In either case, the RMT trustees are charged with fiduciary responsibility to administer the RMT for “the exclusive benefit” of the participating employees. If the trustees fail to do so, they are subject to civil and criminal penalties

For more information about Creating a Retiree Medical Trust: A Fresh Look at a Proven Solution, read the full report. 



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