FAQs

Part E: Tax and Pooling Advantages

What are the tax advantages of the Plan? Top

The Trustees have structured the Plan to obtain three separate tax breaks:

  • Neither employer contributions nor employee contributions to the Trust are taxable income to you;
  • The Trust itself will accrue earnings on a non-taxable basis (which increases your benefits); and
  • Your benefit payments from the Trust will not be taxed when you receive them.

This is better tax treatment than a pension plan (e.g., CalPERS) or your deferred compensation 457 plan. Benefits from those plans are taxed upon receipt, after you retire. But the post-retirement medical expense reimbursement benefits that Eligible Retirees receive from this Retiree Medical Trust will not be taxable income.

What are the advantages of a pooled account over an individual Employee Account system? Top

The Trust is generally designed so that contributions are held and invested collectively in a “pooled account.” (The Trust provides the individual Employee Accounts (discussed in Part D) for limited purposes.) There are certain advantages to pooling funds, including:

  • Higher investment assumption is reasonable. This Trust is different than an individual “Health Savings Account” (“HSA”).  This Trust invests the pooled account on a long-term time horizon. The Trustees do not move the investments in a pooled account to a more conservative earnings assumption as a given retiree ages, since the pool is always gaining more funding, and does not have a limited life span. Contrast that to a retiree over age 55 with an individual HSA and no more funding, who generally moves to a more conservative investment portfolio as he/she ages. Actuarial studies clearly demonstrate that the Trust’s plan design produces greater aggregate benefits to beneficiaries.
  • Lifetime benefit payments. The pooled part of the Plan is designed to provide a monthly stream of benefit payments for the retiree’s lifetime,1 plus a continuing benefit payment stream to the Surviving Spouse during retirement years, until his or her death.  This will become very important in a retiree’s later years, when an individual HSA might run out.

1The Plan is designed to provide monthly reimbursement benefits to Eligible Retirees until death.  However, benefits from the Trust are not vested, and the Trustees reserve the right to modify and/or terminate benefits as necessary to preserve the financial soundness of the Trust.