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Find answers to frequently asked questions about the HELPS Act following the 2022 Amendments.
By Tony Roda, Partner at Williams & Jensen
Below you'll find answers to frequently asked questions about the 2022 Amendments to the HELPS Act, part of the SECURE Act 2.0.
The Healthcare Enhancement for Local Public Safety Act, known as HELPS, is part of the existing federal tax law. It is found at Internal Revenue Code Section 402(l). HELPS allows eligible retired public safety officers to exclude from gross income up to $3,000 in annual distributions from a governmental retirement plan to pay qualified health care insurance or long-term care insurance premiums. HELPS was enacted as part of the Pension Protection Act of 2006.
Under the original HELPS Act, retired public safety officers would be eligible for the tax exclusion only if the payment of health care or long-term care insurance premiums was made directly by the governmental retirement plan to the provider of the health or long-term care insurance.
Under the original HELPS Act, in order to comply with the direct payment requirement, state and local retirement systems often had to directly pay numerous health care and long-term care providers and keep track of changes to premium amounts and payment deadlines for thousands and sometimes tens of thousands of retirees. This already challenging task was made even more difficult because insurance providers often are allowed to communicate only with the retiree policyholder and not with the retirement system making the premium payment. Information did not flow seamlessly, and inadvertent errors were being made. In addition, due to this complexity, some retirement systems made the decision to not implement HELPS, thereby resulting in retired public safety officers covered by these retirement plans being ineligible for the tax benefit.
Section 328 of the SECURE Act 2.0, now Division T of Public Law 117-328, modified the direct payment requirement under HELPS by making it optional and created an alternative to the direct payment method, namely allowing the retirement plan to make the distribution to the retired public safety officer. The retiree could then make the premium payment to the provider and remain eligible for the tax exclusion. This change is effective for distributions made after the date of enactment of the SECURE Act 2.0, which was December 29, 2022.
The SECURE Act 2.0 also provided that, in cases where the distribution is made to the retiree, the retiree must include with their tax return an attestation that the amount sought to be excluded from the pension distribution does not exceed the amount paid by the employee for qualified health insurance premiums for the taxable year.
Enactment of a change to the Internal Revenue Code often results in numerous practical questions for taxpayers. Congress cannot anticipate all of the practical, day-to-day questions that will arise under a new law, and under our lawmaking process is not tasked with providing the answers to those questions in federal statutory law. These practical questions are answered by the agencies of the Executive Branch that are responsible for implementing the law. In the case of tax law, the U.S. Department of the Treasury and the Internal Revenue Service have that responsibility.
Given that the change to the direct payment requirement is likely to raise a number of practical questions for governmental retirement systems and their retired public safety officers, we expect guidance to be provided by these agencies in the coming months.
NCPERS strongly supported and advocated for the change to the direct payment requirement. We also support further enhancements to HELPS as well as a new legislative proposal related to health care expenses of retired public safety officers.
NCPERS supports increasing the annual exclusion amount cap under HELPS and indexing that amount for inflation in future years. The current $3,000 annual cap has not been increased since its inception in 2006 despite significant increases in premiums for health care and long-term care insurance over that 17-year period.
We also will be working on new legislation introduced for the first-time last year by Senator Mike Bennet (D-CO), S. 4267 (117 th Congress). The bill, as introduced in the previous Congress, would create a new tax credit for retired first responders for health care premiums of up to $4,800 per year.
Below you'll find background information on the basics of the HELPS Act:
Public safety officers are law enforcement officers, firefighters, members of a rescue squad or ambulance crews, or chaplains of a fire or police department. Law enforcement officers include, but are not limited to, police, corrections, probation, parole, and judicial officers.
Those public safety officers who have separated from service as a public safety officer and have attained normal retirement age or who are separated due to a disability are eligible for HELPS. To take advantage of the tax exclusion, a retiree must be receiving his or her pension distribution.
The IRS has indicated that it will use the criteria for retirement established by the plan. For plans that do not have a “normal retirement age,” it would be reasonable to take the position that attainment of the requisite years of service (YOS) or combination of age and YOS for those plans using a “point system” would be deemed equivalent to “normal retirement age.”
The HELPS law says that an eligible retired public safety officer is “an individual, who, by reason of disability or attainment of normal retirement age, is separated from service as a public safety officer …” The IRS has indicated that this provision renders ineligible persons who took an early retirement with an actuarial reduction.
Qualified governmental defined benefit, IRC Section 403(a), Section 403(b), and Section 457(b) plans are covered by HELPS.
Both you and your spouse would be eligible to exclude up to $3,000 each to purchase health or long-term care insurance for a total exclusion of $6,000.
Under the current HELPS law, the term “qualified health insurance premiums” is defined as premiums for coverage for the eligible retired public safety officer, his spouse, and dependents, by an accident or health plan or qualified long-term care insurance contract. The original 2006 statute was amended to ensure that self-insured plans qualify under HELPS.
Treasury Notice 2007-7 states that there are no survivor benefits under HELPS.
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