Pension Protection Act of 2006:
Rules for Retiree Insurance

Under the Pension Protection Act of 2006, Section 845, retired public safety officers who meet eligibility requirements may now have a tax exclusion from gross income for up to $3,000 per year for health and dental insurance premiums paid directly from the Plan. This exclusion is effective for tax year 2007.

The IRS has recently issued guidance in their instructions for Forms 1099-R and 5498 regarding the $3,000 health insurance tax exclusion for qualified retired safety officers. The IRS advises that no special reporting is required for the deduction.

As a result of this IRS guidance, applications with LAFPP are no longer an eligibility requirement for members to claim the deduction. Those members who have already submitted applications will not be affected by the new guidance and need not take any further actions to be eligible to claim the exclusion.

The following is a summary of the rules:

What does the law provide? The law says that qualified public safety employee retirees may deduct insurance premiums paid from the retirement benefits for health care or long-term care up to $3,000 per year.
Who is a qualified public safety employee?

All retired Los Angeles firefighters and police officers who retired on or after achieving eligibility for normal retirement or who retired on a disability retirement meet the definition.

Vested members who left prior to being able to retire are not covered.

If you worked as a police officer or firefighter but retired from the City in a different employment category you are not covered.
Does it cover only my individual premiums or does it apply to family members? The retiree can use the exclusion for his or her own premium or the premium to cover a spouse or a dependent. A dependent has to be someone for whom you can take a deduction on your tax return.

Your individual tax advisor or accountant should be consulted on qualification as a dependent.
Is a domestic partner a spouse? No. A domestic partner is not a spouse. A spouse must be a person to whom you are legally married.

A domestic partner may be claimed as a dependent if he or she otherwise qualifies as a dependent for tax purposes.
If I am legally married to another retired member of the Fire & Police Pension Plan, do we each get to claim a $3,000 deduction? Yes, as long as your individual premiums are at least $3,000 per year.
Is there any rules about how the premium is paid? Yes, the pension plan must pay the premium directly to the provider of the health or long-term coverage. Money paid directly by the retiree does not count. As such, Health Insurance Premium Reimbursement participants are not qualified for this tax benefit.
I heard that I can claim the $3,000 deduction from several plans. Is that true? No. The total that can be claimed by a retiree for premiums paid for the retiree, spouse and dependents is the actual amount of the premium, up to $3,000 from all sources.
When I die, if I have survivors, do they get to keep deducting the premiums for their health care from survivor pensions? No, the benefit dies with the retired member.
Are all insurance plan covered in this program? No. The coverage is limited to the plans maintained by the City or the employee organizations.
How will the income paid for insurance be reported to the IRS? Each calendar year, the November 30 payroll transmittal (for December pension distributions) contains the final year-to-date dental and medical premium deductions for the year. You should include these amounts (up to the combined $3,000 maximum) as a taxable income exclusion on your individual tax returns starting with the 2007 tax year.
Who do I call if I have questions? Please contact the Medical and Dental Benefits Section at (213) 978-4560 or (800) 787-2489, ext. 84560 between 8:00 AM and 5:00 PM.