Source: United States Senator for South Dakota John Thune
U.S. Sens. John Thune (R-S.D.), Sherrod Brown (D-Ohio), Chuck Grassley (R-Iowa), and Mark Warner (D-Va.) introduced legislation that would simplify the way in which retired first responders can make tax-free withdrawals from their retirement accounts to go toward qualifying health insurance premiums. Under current law, retirement plans must make direct payments to a qualifying insurance plan in order for the premium payment to be excluded from a retiree’s gross income – up to $3,000 per year. This bipartisan bill would make the requirement optional and allow retirement plans to instead make distributions directly to the retiree who can then transmit the payment to the qualifying insurance plan while obtaining the tax benefit.
“We owe a great debt of gratitude to our retired police officers, firefighters, and other first responders who dedicated their lives to protecting our communities and keeping our friends, families, and neighbors across South Dakota safe,” said Thune. “Currently, it is extremely difficult for retired first responders to utilize an existing benefit that helps cover certain health care expenses, which is why I introduced this legislation that would ensure these retirees can make tax-free withdrawals from their pension and direct those amounts to qualifying insurance premiums.”
“Too often fire fighters are forced to retire early and have no access to affordable health insurance. We owe it to our fire fighters and EMS providers to help them access quality healthcare after making a career’s worth of physical and mental sacrifices for our communities,” said Edward Kelly, general president of the International Association of Fire Fighters. “This legislation ensures our retired fire fighters can access their hard-earned retirement income to pay for health insurance costs. The IAFF thanks Senators Brown, Thune, and Warner for their commitment to supporting our retirees and helping them to maintain a healthy and secure retirement.”
“In 2006, Congress enacted the HELPS Retirees Act, which provided a modest tax benefit to help retired public safety officers afford health insurance by allowing the use, on a pre-tax basis, of up to $3,000 annually from their pension funds health care and long-term care insurance,” said Patrick Yoes, national president of the Fraternal Order of Police. “However, too many public safety officers were ineligible or lost their eligibility for this benefit because of the law’s ‘direct pay’ requirement. This means that the public pension system must pay the health or long-term care insurance company directly in order to exclude these payments from the employee’s gross income. Officers whose pensions are or came to be administered by third parties could not take advantage of this tax break. We are very grateful to Senators Brown and Thune for introducing legislation which repeals this direct pay requirement and provides a modest increase to the benefit.”
The direct payment that retirement plans must comply with under current law in order for retired first responders to exclude the withdrawal from gross income has proven to be an overly burdensome requirement. This legislation would alleviate this burden on retirement plans, including the South Dakota Retirement System, and allow them to make distributions to retired first responders without rendering the retiree ineligible for the tax exclusion.