The Trustees have structured the Plan to obtain three separate tax breaks:
- Neither employer contributions or 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 benefits Eligible Retirees receive from this Retiree Medical Trust, to reimburse them for medical expenses after they retire, will not be taxable income.