Defined Benefit Plan + 401(h): How the Strategy Works
Defined benefit plans paired with 401(h) sub-accounts can help employers formalize and pre-fund a defined stream of retiree medical benefits.
Contents
Key takeaways
- DB plans provide the qualified-plan chassis 401(h) requires.
- The 401(h) sub-account is a designed feature, not an add-on bolt.
- Actuarial integration is essential.
- Communication to participants matters as much as design.
DB plans as the chassis
Traditional defined benefit plans provide the qualified-plan structure that a 401(h) sub-account attaches to. The DB plan defines the retirement-benefit stream; the 401(h) sub-account defines the retiree medical-benefit stream; together, they are valued, funded, and reported as one plan.
Designing the medical stream
Plan designers describe the eligible retiree class, the qualifying medical benefits, the reimbursement or premium structure, and the procedures for claims. Each choice has actuarial and compliance consequences.
Integrating the actuarial work
A unified valuation models both benefit streams under consistent assumptions. The incidental-benefit test sits inside that valuation rather than living as a separate exercise.
Communicating it well
Participants need to understand what they are entitled to and how to access it. Summary plan descriptions, claim procedures, and ongoing participant communications carry that load. Poor communication is a quiet source of avoidable disputes.
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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