I have been told that it is permitted under the Internal Revenue Code for an active employee to contribute, on a pre-tax basis, toward the cost of retiree health insurance.

I do not believe that this is true.

Can someone supply me with information on this topic? Rulings or documents that I could find would be appreciated.

Thanks!

Ben Schutzenhofer

Can not use a cafeteria plan for active employees to pay for retiree coverage because it is a deferral of compensation. Can use retiree benefits under Code § 401(h) to make transfer to pay for retireemenet benefit. But not really employee contributions.

Yes. You can use a Cafeteria Plan to fund post-retirement medical benefits on a pre-tax basis. there are numerous PLRs and Rev. Rulings on this subject. A few that I had hard copies on hand are 199902016 and 9513027.

Here are a few additional facts:

1. This a public employee plan; the provider of retiree health benefits is not the employer.
2. The pension plan that covers these employees is run by the state and is not fully funded (so the pension funds cannot be used to pay for retiree insurance premiums, as I understand it).

Based on all of these facts, can an active employee pay a portion of his/her salary, on a pre-tax basis, to fund retiree benefits?


Thanks,

Ben Schutzenhofer