401(h) vs Section 115 Trust: Public-Sector Retiree Medical Funding
Public employers sometimes weigh Section 115 trusts for retiree medical funding. Here's how that compares to the 401(h) framework.
Key takeaways
- Section 115 trusts are public-sector vehicles for governmental purposes.
- 401(h) sits inside a qualified pension or annuity plan.
- Use case overlap exists but governance and rules differ.
- Public employers evaluate both alongside OPEB obligations.
Section 115 trusts in brief
Section 115 of the Code excludes from gross income amounts derived from the exercise of essential governmental functions. Public employers sometimes establish irrevocable trusts under §115 to fund OPEB (other post-employment benefits), including retiree medical.
How the framing differs from 401(h)
401(h) requires a qualified pension or annuity plan host. §115 trusts stand alone in a public-sector context. Governance, accounting, and applicable laws differ accordingly.
Where each tends to fit
Private-sector sponsors typically choose between 401(h), VEBA, and HRA structures; public-sector sponsors often weigh §115 trusts as part of the same conversation. The right choice tracks the sponsor's regulatory home.
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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