IAFF-FC: Financial Services

What is the Post Employment Health Plan?

The Post Employment Health Plan (PEHP^®) is a unique employee benefit plan (Internal Revenue Code Section 501(c)(9) VEBA) designed to allow the employer, upon adopting the plan, to invest money for the payment of (post employment) qualified medical expenses that participating former employees will incur.

Depending on how the employer elects to fund the program, the PEHP plan will cover the reimbursement of medical insurance premiums and may also provide reimbursement for the out-of-pocket cost of qualified medical expenses such as prescription drugs, doctor co-pays and eyeglasses.

What are some benefits to the employer?

All employer contributions to the plan are not subject to FICA taxation (or the Medicare tax for employee groups opting out of Social Security for employees hired after 1986). Employers may elect to fund the plan solely with employees' unused sick leave and/or unused vacation leave. They may also fund the plan with an annual ongoing contribution for each employee. Since these contributions are not subject to FICA taxation, the long-term payroll tax liability of the employer will be reduced. When employers invest reserves to fund the PEHP, they lower their payroll tax burden while at the same time they provide employees with a post employment health care benefit.

What are the benefits to the employee?

The principal advantage of the PEHP to the employee, their spouse and their qualified dependents is that the amounts contributed to the plan by the employer, investment earnings on the contributions, and the amounts distributed to them for the reimbursement of qualified medical expenses (as determined by IRC 213(d)) are free from federal income and FICA taxes!

What type of expenses can PEHP pay for?

Depending on how the program is funded by the employer, employees may immediately access their PEHP account upon separation of service or retirement in order to pay for qualified medical expenses.

Qualified medical expenses are defined by the Internal Revenue Code under Section 213 (d). An example of qualified medical expenses include: health insurance premiums, Medicare Part-B premiums, Medicare supplemental insurance premiums, qualified long-term care premiums and out-of-pocket medical expenses such as prescription drugs, eye glasses and doctor co-pays.

How The Employer Funds The Program

Employers have the option of funding the PEHP program solely with accrued employee sick and/or vacation leave and may also elect to make an annual ongoing contribution for each eligible employee.

Ongoing contributions to the plan are made by either an equal dollar amount (e.g. $25 per pay) or equal percentage of salary (e.g. 1% of salary) for each employee.

For employers who wish to fund the program with an ongoing contribution, the minimum annual ongoing funding requirements for the plan are $120 or 1/2 of 1% of salary for each eligible employee, depending on the type of account. To comply with the tax code, the plan must be funded only by the employer and no employee contributions are permitted. There are no contribution limits to the plan.

Employers often elect to fund the program exclusively with all or a portion of employees' accrued sick and/or vacation leave. As an example, if the employer has established a dollar value on the amount of accumulated sick and vacation leave for retiring employees, all or a portion of this amount may be contributed to the PEHP program on a tax-free basis. This would enable the employee to maximize the use of their accumulated sick and/or vacation leave money to immediately use for the reimbursement of medical insurance premiums upon separation from service or retirement.

From the employer's perspective, paying these accumulated compensated absences to employees in the form of a PEHP benefit instead of cash may help the employer reduce their recognized unfunded payroll tax liabilities. Most importantly, the employer provides their employees with tax-free money for health care costs after leaving employment.

Getting PEHP Started

The first step for the Affiliate Leader is to request information from IAFF-FC at the following email: info@iaff-fc.com then make the request for this benefit to the employer.

The first step for the employer is to determine how the PEHP program will be funded. Once the funding is determined and the plan is adopted by the employer, the employer simply sends the periodic contributions on behalf of the employees to the program. Employers have no tax reporting requirements associated with the program. Upon the plan being established, employees have several convenient methods of making investment allocation changes to their account.

Employees may simply call the PEHP Service Center at 1-877-677-3678 or access their account via the Internet by contacting the Nationwide Retirement Solution’s web site at www.nrsforu.com. Employees will also be provided with quarterly statements to report their account activity.

When the employee separates from service or retires, the employer simply notifies Nationwide Retirement Solutions of this event thus making the employee eligible to access their PEHP account to help pay for health care expenses. Former employees, their spouse and qualified dependents may then submit claims (up to their account balance) to Nationwide Retirement Solutions for the reimbursement of qualified health care expenses.