Healthcare Enhancement for Local Public Safety (HELPS) Act

What Public Pensions Should Know About the Healthcare Enhancement for Local Public Safety Act (HELPS)

Fire and Rescue Team In the Pension Protection Act of 2006, NCPERS successfully lobbied Congress to approve the Healthcare Enhancement for Local Public Safety Retirees Act (HELPS). This act allowed a yearly pretax distribution of up to $3,000 from a governmental DB, 403(b), or 457(b) plan to retired public safety officers for use toward healthcare or long-term care insurance, provided the premium payments were made directly by the governmental retirement system to the provider of the insurance. HELPS took effect on January 1, 2007. It is found at IRC Section 402(l).

Understanding the Basics of the HELPS Act

Prior to HELPS, retirees paid for their health or long-term care premiums entirely with after-tax dollars. Since 2007, eligible public safety retirees have been able to use pretax dollars from their qualified pension plans to pay for some of their health premiums. For retirees who are in the 24 percent federal marginal tax rate bracket, this could be a tax savings of up to $720 per year.

Over the years, however, NCPERS learned that the direct payment requirement was an administrative burden for many retirement systems and even caused some systems to not implement HELPS, thereby rendering their public safety retirees ineligible for the tax exclusion. In the 117th Congress (2021-2022), H.R. 7203 was introduced by Rep. Steve Chabot (R-OH) and Rep. Abigail Spanberger (D-VA) to repeal the direct payment requirement. Also, Senators Sherrod Brown (D-OH) and John Thune (R-SD) introduced S. 4312, which would have made the direct payment requirement optional instead of mandatory. We are pleased to report that the SECURE Act 2.0 included the Brown-Thune legislation.

FAQs About the 2022 Amendments to the HELPS Act

In addition, there is growing recognition that the $3,000 annual cap under HELPS, which has not changed since its inception 17 years ago, needs to be increased. H.R. 7203 would have doubled the annual cap. There is also discussion of indexing the cap each year for inflation.

Finally, in the 117th Congress, S. 4267 was introduced by Sen. Michael Bennet (D-CO), who serves on the Senate Finance Committee. This bill would index for inflation the annual cap under HELPS as well as create a new and separate tax credit for retired public safety officers for their healthcare premiums of up to $4,800 per year. Building on our success on the HELPS direct payment requirement issue, NCPERS will advocate for these new proposals to enhance HELPS and create a new tax credit.

Understanding the Basics of the HELPS Act

Who are public safety officers?

Public safety officers are law enforcement officers, firefighters, members of a rescue squad or ambulance crews, or chaplains of a fire or police department. Law enforcement officers include, but are not limited to, police, corrections, probation, parole, and judicial officers.

Which public safety officers are eligible for HELPS?

Those public safety officers who have separated from service as a public safety officer and have attained normal retirement age or who are separated due to a disability are eligible for HELPS. To take advantage of the tax exclusion, a retiree must be receiving his or her pension distribution.

What if my pension plan doesn't use retirement age and, therefore, doesn't have a definition of “normal retirement age”?

The IRS has indicated that it will use the criteria for retirement established by the plan. For plans that do not have a “normal retirement age,” it would be reasonable to take the position that attainment of the requisite years of service (YOS) or combination of age and YOS for those plans using a “point system” would be deemed equivalent to “normal retirement age.”

If I took an early retirement with an actuarially reduced pension benefit, would I qualify for HELPS?

The HELPS law says that an eligible retired public safety officer is “an individual, who, by reason of disability or attainment of normal retirement age, is separated from service as a public safety officer …” The IRS has indicated that this provision renders ineligible persons who took an early retirement with an actuarial reduction.

What retirement plans are covered by HELPS?

Qualified governmental defined benefit, IRC Section 403(a), Section 403(b), and Section 457(b) plans are covered by HELPS.

What happens if both my spouse and I are eligible retired public safety officers?

Both you and your spouse would be eligible to exclude up to $3,000 each to purchase health or long-term care insurance for a total exclusion of $6,000.

What health or long-term care insurance premium qualifies for HELPS?

Under the current HELPS law, the term “qualified health insurance premiums” is defined as premiums for coverage for the eligible retired public safety officer, his spouse, and dependents, by an accident or health plan or qualified long-term care insurance contract. The original 2006 statute was amended to ensure that self-insured plans qualify under HELPS.

Would my surviving spouse and/or dependents, who are not eligible public safety officers, be able to continue to use the $3,000 HELPS tax exclusion?

Treasury Notice 2007-7 states that there are no survivor benefits under HELPS.

FAQs About the 2022 Amendments to the HELPS Act

Below you'll find answers to frequently asked questions about the 2022 Amendments to the HELPS Act, part of the SECURE Act 2.0.

What is the Healthcare Enhancement for Local Public Safety Act (HELPS)?

The Healthcare Enhancement for Local Public Safety Act, known as HELPS, is part of the existing federal tax law. It is found at Internal Revenue Code Section 402(l). HELPS allows eligible retired public safety officers to exclude from gross income up to $3,000 in annual distributions from a governmental retirement plan to pay qualified healthcare insurance or long-term care insurance premiums. HELPS was enacted as part of the Pension Protection Act of 2006.

What is the direct payment requirement under HELPS?

Under the original HELPS Act, retired public safety officers would be eligible for the tax exclusion only if the payment of healthcare or long-term care insurance premiums was made directly by the governmental retirement plan to the provider of the health or long-term care insurance.

Why did Congress amend HELPS in the recently enacted SECURE Act 2.0?

Under the original HELPS Act, in order to comply with the direct payment requirement, state and local retirement systems often had to directly pay numerous healthcare and long-term care providers and keep track of changes to premium amounts and payment deadlines for thousands and sometimes tens of thousands of retirees. This already challenging task was made even more difficult because insurance providers often are allowed to communicate only with the retiree policyholder and not with the retirement system making the premium payment. Information did not flow seamlessly, and inadvertent errors were being made. In addition, due to this complexity, some retirement systems made the decision to not implement HELPS, thereby resulting in retired public safety officers covered by these retirement plans being ineligible for the tax benefit.

How did the SECURE Act 2.0 modify HELPS?

Section 328 of the SECURE Act 2.0, now Division T of Public Law 117-328, modified the direct payment requirement under HELPS by making it optional and created an alternative to the direct payment method, namely allowing the retirement plan to make the distribution to the retired public safety officer. The retiree could then make the premium payment to the provider and remain eligible for the tax exclusion. This change is effective for distributions made after the date of enactment of the SECURE Act 2.0, which was December 29, 2022.

The SECURE Act 2.0 also provided that, in cases where the distribution is made to the retiree, the retiree must include with their tax return an attestation that the amount sought to be excluded from the pension distribution does not exceed the amount paid by the employee for qualified health insurance premiums for the taxable year.

Should we expect regulatory guidance from the Treasury Department and the Internal Revenue Service on the recent change to the direct payment requirement?

Enactment of a change to the Internal Revenue Code often results in numerous practical questions for taxpayers. Congress cannot anticipate all of the practical, day-to-day questions that will arise under a new law, and under our lawmaking process is not tasked with providing the answers to those questions in federal statutory law. These practical questions are answered by the agencies of the Executive Branch that are responsible for implementing the law. In the case of tax law, the U.S. Department of the Treasury and the Internal Revenue Service have that responsibility.

Given that the change to the direct payment requirement is likely to raise a number of practical questions for governmental retirement systems and their retired public safety officers, we expect guidance to be provided by these agencies in the coming months.

Will Congress be considering any additional changes to HELPS?

NCPERS strongly supported and advocated for the change to the direct payment requirement. We also support further enhancements to HELPS as well as a new legislative proposal related to healthcare expenses of retired public safety officers.

NCPERS supports increasing the annual exclusion amount cap under HELPS and indexing that amount for inflation in future years. The current $3,000 annual cap has not been increased since its inception in 2006 despite significant increases in premiums for healthcare and long-term care insurance over that 17-year period.

We also will be working on new legislation introduced for the first-time last year by Senator Mike Bennet (D-CO), S. 4267 (117^th Congress). The bill, as introduced in the previous Congress, would create a new tax credit for retired first responders for healthcare premiums of up to $4,800 per year.