401(h) Plan Investment Options and Considerations
401(h) assets typically invest alongside the underlying qualified plan, with separate accounting and fiduciary care. Here's what design teams weigh.
Key takeaways
- 401(h) assets typically pool with the qualified-plan trust, separately accounted.
- An investment policy statement should address both the retirement and medical streams.
- Liquidity matters more than for the pure retirement stream — claims are paid currently.
- Fiduciary oversight extends to the 401(h) sub-account.
Pooled investment, separate accounting
The 401(h) sub-account's assets may be invested as part of the qualified plan's overall portfolio, but recordkeeping must keep the 401(h) component distinct. Many sponsors use a notional allocation methodology within a pooled portfolio.
Liquidity is different
Unlike pure retirement assets that pay decades out, 401(h) assets pay current retiree medical benefits. The investment policy should reflect a meaningful short- and intermediate-duration sleeve.
Fiduciary care
Plan fiduciaries owe the same duties to 401(h) assets as to retirement assets — prudence, diversification, and loyalty to the plan and its participants.
Frequently asked questions
Availability, tax treatment, and plan design depend on the facts and circumstances of the employer, plan document, participant group, and applicable law. 401h.com provides general educational information only — not tax, legal, actuarial, investment, or ERISA advice. Consult qualified tax, legal, actuarial, and plan professionals.
401h.com Editorial
401h.com
The 401h.com editorial team publishes plain-English explainers on 401(h) retiree medical benefit plans. Educational only — not tax, legal, actuarial, investment, or ERISA advice.
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