Premium Tax Exclusion
The Federal Pension Protection Act of 2006 (PPA) establishes a $3,000 income tax exclusion for eligible retired public safety officers who elect to use a portion of their distributions from an eligible retirement plan to directly pay for qualified health insurance premiums. "Qualified health insurance premiums" for purposes of PPA include premiums for health, accident and long-term care insurance.
As permitted by the PPA, the System's Board of Trustees has established this concept as a distribution option for qualified retirees. It is important to note that by taking this action, the retirement System's Board of Trustees and its administration are not providing tax advice to MFPRSI retirees. Individual retirees will need to consult with their personal tax advisors for guidance on claiming the exemption on their tax filing on Federal Tax Form 1040.
The PPA and the IRS guidance stipulate that the following conditions apply:
- The program is limited to retired public safety officers who retired directly from employment. Term-vested retirees and beneficiaries receiving benefits are not eligible for the program.
- The retiree must have retired at normal retirement age (age 55 or older) or on disability retirement.
- The insurance premium must be paid directly by the retirement plan on behalf of the individual to the retiree's insurance plan (including the City if it administers the plan, then the City must submit payments directly to the retirement plan).
Therefore, the retiree must direct MFPRSI to withhold the funds from their monthly retirement benefit payment and to pay the insurance on their behalf. The form below provides this option to the retiree. Payments from MFPRSI to the insurance provider or City will be made monthly by reducing the retiree's monthly distribution