Frequently Asked Questions

  1. 1. Q – How does a Retiree Medical Trust (RMT) plan compare to a defined benefit pension plan?

    A – The main difference is that the RMT is a fixed cost program (i.e., the contributions are set in bargaining or by employer resolution). Also, the benefits paid must be for reimbursements for medical expenses (such as health insurance, hospital care, pharmaceutical, eye glasses and doctor visits) up to a maximum amount, unlike retirement income, for which there is no restriction on how disbursements are spent.

    Nonetheless, there are important and valuable similarities to a defined benefit plan, most notably the provision of lifetime benefits, regardless of tenure in the plan; and collective pooled assets.  Benefits may also be designed to include survivor benefits for the surviving spouse for life, and for surviving dependents.

  2. 2.  Q – What are some RMT operational differences that differ from a pension plan?

    A – Major differences include:

    If experience (investment return and the demographic behavior of members) is different than expected, anticipated benefit levels can be reduced or increased.  Benefit levels and COLA increases are pre-planned and predicted -  but not guaranteed.

    There is no amortizable past service liability to finance, only future cash flow reimbursements.

    Both employer and employee contributions are tax sheltered into the RMT, and retiree health cost reimbursement benefits are tax free coming out.  Pension benefits are generally taxable.

    Future (as yet to be hired) participants can also be recognized as contributors.

    Employees can transfer accumulated sick and vacation leave into the Trust to increase their benefit level.

  3. 3.  Q – What are some of the noteworthy RMT design characteristics?

    A – A brief list follows:

    Reimbursement maximums depend primarily on the year of retirement or years of participation as a member of the trust vs. years of employee service.

    Employees can and often contribute a large proportion of the cost.  Many RMT plans are sponsored by unions or associations of employees and not by a municipal jurisdiction.

    Reimbursement maximums are generally actuarially designed to increase over the years; either uniformly for all retirees or the reimbursement maximum benefit can be frozen for each cadre of retirees with each subsequent cadre receiving a larger frozen amount.  This recognizes longer participation in the program and growing dollar contribution accumulations.

  4. 4.  Q – Can a RMT be installed with immediate benefits for retired employees who don’t contribute?

    A – It is not clear if the IRS would approve of this scenario. It may be preferable to have retirees demonstrate participation for a period of time (for instance: three to five years), before being eligible to receive benefits, if this can be done on a mandatory basis. This time period also enables the trust fund to build assets, which produce investment return that help finance benefits.

  5. 5.  Q – How is the maximum monthly reimbursement amount determined?

    A –  The RMT plan trustees (like the trustees of a pension plan) hire an actuary to review the current asset level, program design, future expense and contributions to customize the RMT financial model.  The actuary then determines an appropriate starting benefit level, based on the financial model.

    The program is designed based on service and age eligibility, surviving spouse benefits, retirees COLAs (cost of living adjustments), etc. for eligible retirees in order to determine the maximum monthly reimbursement.

  6. 6.  Q – How can the actuary predict the maximum allowable reimbursable benefit if contributions are negotiated periodically vs. a pre-established percentage of pay?

    A –  The Board of Trustees gives the actuary the expected future contribution income based on anticipated negotiated revenue streams.

  7. 7.  Q – What steps do I take to establish a RMT?

    A – The jurisdiction and/or employee leadership should establish/arrange/negotiate a financing stream of recurring contribution income from the jurisdiction and/or from the employees and then appoint a Steering Committee or Board of Trustees to implement the plan. 

    During this phase, it may be helpful to retain the advice of experienced legal counsel and/or actuaries to help with bargaining language and to project approximate benefit levels, which can help “sell” the concept to union members who may be contributing their own salary. In any event, legal counsel should be obtained to help draft a plan, and actuarial advice will be necessary to set prudent benefit levels. Learn more

  8. 8.  Q – If a Board of Trustees oversees the program which is union sponsored, does the contributing jurisdiction need to report GASB liabilities?

    A – This is dependent on various facts and circumstances, and consultation with your accountant and attorney is important. GASB may not apply at all, or it may require only the reporting of the fixed contribution amounts.

    Learn more about GASB

  9. 9.  Q - What are implementation dates for GASB 45?

    A – Compliance dates for GASB 45 depend on the district or county office size.  

    2007-08 fiscal year: Districts/COEs with total revenue of $100 million or more must comply in the fiscal year after December 15, 2006.  

    08–09 fiscal year: Districts/COEs with annual revenue between $10 million and $100 million must comply in the fiscal year after December 15, 2007.  

    2009–10 fiscal year: Districts/COEs with annual revenue less than $10 million must comply in the fiscal year after December 15, 2008.

    Figures based upon 1999 fiscal year measurement of revenue

  10. 10. Q – Do you have a representative list of jurisdictions/unions that have implemented an RMT ? 

    A -  Currently, there are about twenty Retiree Medical Trusts that operate on the West Coast that cover public sector employees.  Representative examples include:

    The Santa Monica City Employees Coalition Benefit Trust

    Washington State Council of Fire Fighters Employee Benefit Trust

    Irvine Employees Benefit Trust

    North State Public Safety Retiree Medical Trust

    Community College Employees Benefit Trust

    For examples of RMT implementation, learn more