Under new IRS guidance, a qualified pension plan may use surplus assets in its Section 401(h) retiree health account to pay medical benefits for eligible phased retirement participants (plus their spouses and dependents). Employees age 59½ or older who receive pension benefits under the program are considered retired for this purpose, even if they continue working and remain enrolled in their employer’s health plan. Such an arrangement doesn’t jeopardize the plan’s tax-qualified status. This revenue ruling involved participants who weren’t key employees. Generally, key employee medical expenses must be paid from individual accounts.
