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Frequently Asked Questions
The International Association of Fire Fighters (IAFF) Medical Expense Reimbursement Plan (MERP) provides tax-advantaged reimbursements of medical expenses that fire fighters incur during retirement. The IAFF MERP is governed by fire fighter fiduciary trustees with advice from professional service providers. Since its inception in 1999, the Plan has grown to almost 15,000 active and retired fire fighter participants, disbursing over $7 million annually in benefit payments. Endorsed by the IAFF and open to any IAFF Local, the IAFF MERP is the retirement medical funding solution for fire fighters throughout the United States.
The following questions and answers are for review purposes only and do not provide all the details of the Plan. Exact specifications are provided in the Plan Document.* If there are discrepancies between the information provided here and the Plan Document, the terms of the Plan Document will prevail.
*The IAFF Medical Expense Reimbursement Plan of the Washington State Council of Fire Fighters Employee Benefit Trust restated effective August 1, 2023, and as amended thereafter (the “Plan Document”).
What Are the Tax Advantages of the IAFF MERP?
The IAFF MERP assets are held in the Washington State Council of Fire Fighters Employee Benefit Trust (Trust), which received a determination letter from the IRS as a tax-exempt voluntary employees’ beneficiary association (VEBA) under Internal Revenue Code Section 501(c)(9). If your IAFF Local joins the IAFF MERP, your employer will deposit funds on your behalf while you are working, to pay for medical expenses after you retire, pursuant to terms negotiated in your collective bargaining agreement.* The Plan provides a triple tax advantage not available from other savings and retirement vehicles: (1) contributions on behalf of employees are pre-tax, which reduces your taxable income and reduces your taxes during your employment; (2) contributions to the Trust are pooled for investment and receive tax-free investment earnings due to the structure of the Trust as a VEBA; and (3) the IAFF MERP provides tax-free medical expense reimbursement benefits to Eligible Retirees and their Beneficiaries, as long as the expenses are tax deductible medical expenses.
*If your IAFF Local does not collectively bargain, there are ways for your Local to join the IAFF MERP. Please contact the IAFF MERP Consultant for more information.
What Are the Advantages of a Monthly Benefit Level From the IAFF MERP Compared to an Individual Account Plan?
In the IAFF MERP, Eligible Retirees receive a lifetime* monthly benefit from a large, pooled investment fund that is professionally invested for the benefit of plan participants. In an individual account plan, retirees typically invest their own funds more conservatively as they approach retirement in order to preserve the principal for medical expense reimbursement after retirement. In the IAFF MERP, the pooled investment fund continues to receive contributions from younger active employees during your retirement, which allows the IAFF MERP to have a more aggressive investment allocation over a longer time horizon than you can safely invest your own individual account after retirement. Actuarial studies have shown that this pooled investment arrangement allows you to receive a higher monthly benefit level, for a longer period of time, than you could safely achieve with your own individual account investments. The monthly benefit also lasts for your lifetime, while an individual account might run out when you need it most.
*The IAFF MERP is designed to provide benefits for the lifetime of Eligible Retirees. The Board of Trustees of the IAFF MERP have authority to increase, decrease, or terminate benefits and change the terms of the Plan at any time.
What Is the Basic Operation of the IAFF MERP?
Based upon collective bargaining (or a Special Agreement for IAFF Locals without collective bargaining), the employer makes mandatory monthly or per pay period contributions on behalf of all employees in an IAFF Local bargaining unit, or eligible class. These contributions can be employer or employee funded or a combination. After retirement, Eligible Retirees, who have contributed for at least five years and attained all eligibility requirements, are entitled to reimbursement of medical expenses up to their monthly benefit level. Each retiree’s monthly benefit level is unique and dependent upon the total contributions made during his or her employment. (See the Contributions section below for the benefit formula.) Employees that contribute for a longer period of time and/or at a higher monthly contribution rate will have a higher monthly benefit level after retirement.
What Types of Medical Expenses Are Reimbursed by the IAFF MERP?
The IAFF MERP provides reimbursement toward the cost of post-retirement “Covered Expenses” paid by participants, on or after the date the participant becomes an Eligible Retiree under the Plan. “Covered Expenses” are generally tax-deductible medical expenses and include the following:
Premiums for health, dental, or vision insurance plans.
Medical expenses excludable from gross income under Internal Revenue Code Section 213(d) (i.e., tax-deductible payments for medical services and supplies, including co-pays and deductibles).
Premiums for long-term care insurance that are tax deductible under Internal Revenue Code Section 7702B.
You can contact the Trust Office, or view IRS Publication 502 for more details on tax-deductible medical expenses.
Are There Any Other Sources for Contributions to the IAFF MERP?
Yes. Your collective bargaining agreement (or Special Agreement) can also provide that all members of the bargaining unit or eligible class will transfer a designated percentage of accrued sick and/or vacation leave, or cash-in-lieu of insurance opt out incentives,* to the IAFF MERP at retirement or annually. Leave transfers and other mandatory Lump Sum Transfers to the MERP are also transferred pre-tax and can be added to your Individual Account or used to purchase additional monthly benefits after retirement.
Note: There can be no option for employees to receive the leave transfer or Lump Sum Transfer as cash. However, if the bargaining agreement provides for mandatory leave transfer at a percentage less than 100%, then the percentage of the leave transfer that is not subject to mandatory transfer to the IAFF MERP can be paid out as cash. For example, if the bargaining agreement provides for 50% of accrued leave to be mandatorily transferred to the IAFF MERP, the remaining 50% of the leave transfer can be cashed out to the employee. Your bargaining agreement can also designate that the employee can elect whether to transfer the designated percentage of leave to the IAFF MERP or to their deferred comp plan (i.e., IRC 457 plan), as long as there is no option to receive that portion of the leave transfer as cash.
*There may be other sources for employer lump sum funding that are allowable. Please ask the IAFF MERP Consultant.
What If My IAFF Local Doesn’t Have Collective Bargaining?
There are some options for participation for IAFF Locals that do not have collective bargaining. Learn more about How to Join or see separate informational bulletin “Considerations for Non-Bargained IAFF Locals Interested in MERP Participation.”
IAFF MERP Participation and Eligibility
Does Every Member of the IAFF Local Have to Participate?
Not necessarily. The collective bargaining agreement could designate a defined class of employees represented by the IAFF Local for participation. However, once the bargaining agreement designates the defined class or the bargaining unit for participation, no employee in that bargaining unit or defined class can opt out or individually elect his or her contribution rate. For example, your collective bargaining agreement might provide that only new hires will contribute to the IAFF MERP or only employees hired after a particular date will contribute to the IAFF MERP. You could also provide a different contribution level for different classes of employees, as long as there is not a higher contribution level for management employees. It is possible for an IAFF Local to have more than one eligible defined class.
Who Is Eligible for Monthly Benefits?
Employees are eligible for monthly benefits after: a) they have earned five years of Active Service (i.e., an employee for whom contributions have been made to the IAFF MERP for at least 60 months); b) attain age 53; and c) cease all employment with all Participating Employers. If you qualify for a retirement or disability retirement prior to age 53 per your retirement system’s guidelines, you do have the option to take an actuarially reduced benefit level prior to attaining age 53.
What Happens If I Separate From Service Before I Earn Five Years of Active Service?
If you separate from service without earning at least five years of Active Service (i.e., less than 60 months of contributions to the MERP), you are eligible to receive a Short Service Benefit. This means you can receive reimbursement of Covered Expenses until you have recouped back all of the contributions made on your behalf. The Trust Office will credit your contributions to your Accumulated Benefit “bank” for reimbursement of Covered Expenses. The Short Service Benefit starts immediately after you cease employment with all Participating Employers.
Note: You may be able to attain eligibility for monthly benefits or increase your monthly benefit Ievel (if you are already eligible for monthly benefits), by self-payment of contributions with after tax dollars for up to 18 months, as permitted by the federal law known as COBRA. At retirement, you may also use your leave transfer or Lump Sum Transfer to purchase Active Service on an actuarial basis, which may allow you to reach five years of Active Service to be eligible for monthly benefits, or you can purchase extra Active Service Units to increase your monthly benefit level.
What Happens If I Promote Out of the IAFF Local?
If you promote out of the IAFF Local, your contributions to the IAFF MERP will cease, unless your employer and management association have a collective bargaining agreement providing for continued contributions, or your employer has a Special Agreement or Council Resolution to continue contributions to the Plan for unrepresented employees that promote out of IAFF MERP participation. Employees in a management association that is not an IAFF Local cannot participate in the IAFF MERP unless the employees have previously made contributions to the Plan as a member of an IAFF Local bargaining unit. Any Active Service and benefit level earned from contributions prior to your promotion will be saved to calculate your eligibility and monthly benefit level after your retirement (i.e., you do not lose any previously earned eligibility).
IAFF MERP Contributions and Benefits
What Is the Minimum Monthly Contribution Amount?
The minimum monthly contribution amount is $75 per month. There is no maximum contribution level, except for management employees who cannot contribute more than rank-and-file firefighter employees.
How Is the Monthly Benefit Level Calculated?
For each $25* contributed to the IAFF MERP during employment you earn one Active Service Unit (ASU). For example, if the participant’s Local has negotiated a monthly contribution of $75, he/she will receive 3 ASUs for each monthly contribution. After your retirement, your total Active Service Units are multiplied by the Unit Multiplier (UM) to determine your monthly benefit level. The monthly benefit formula is:
Monthly Benefit Level = Total ASUs x Current Unit Multiplier**
The Unit Multiplier is an actuarially calculated factor set by the Trustees, and adjusted periodically, with the help of the Trust actuary based on demographic and financial data of the IAFF MERP. The Unit Multiplier is currently set at $0.41.***
*Contributions that result in partial ASUs are possible. Please contact the Trust Consultants at DiMartino Associates for more information.
**The Trustees will adjust the Unit Multiplier (up or down) periodically to account for changes in investment returns, demographics, and other actuarial factors. This adjustment is normally done with advice from the Trust actuary in order to maintain the sustainability of the IAFF MERP and lifetime benefits for the long run. Monthly benefit levels from the IAFF MERP are not vested.
***The Board of Trustees may, in its discretion, adjust the Unit Multiplier up or down, for some or all current and/or future Beneficiaries at any time.
Can I Make Additional Contributions to the IAFF MERP to Increase My Monthly Benefit Level?
Only in very specific circumstances. The IRS prohibits individuals from electing to contribute more, or less, than other employees in his or her bargaining unit or defined class. However, you may convert your Individual Account balance into ASUs in order to increase your monthly benefit level, and COBRA contributions are available for 18 months when your IAFF MERP contributions cease due to termination of employment or reduction of hours (e.g., leave without pay).
What If I Don’t Use My Full Benefit Level Every Month?
Any unused benefit will rollover from month to month into the Accumulated Benefit “bank.” Accumulated Benefit funds can be accessed at any time for reimbursement of Covered Expenses.
What If I Return to Work After Commencing My IAFF MERP Benefit?
Federal law requires that the IAFF MERP suspend reimbursement benefits to any Eligible Retiree that returns to any employment (e.g., full-time, part-time, etc.) with any Participating Employer. However, the IAFF MERP will credit to the Accumulated Benefit any monthly benefits that were unused during reemployment with a Participating Employer, which can be used after the retiree ceases this employment. Employment with an employer that is not participating in the IAFF MERP does not impact benefit eligibility and the retiree can continue receiving benefits during that employment.
Are There Benefits for My Surviving Spouse and Surviving Children and How Long Will Those Survivor Benefits Last?
There are survivor benefits for Surviving Spouses and Surviving Children up until the child(ren) reach age 26. The benefit for a Surviving Spouse is equal to 50% of the Eligible Retiree’s monthly benefit level, in addition to any balance in the Accumulated Benefit and/or Individual Account.
Members who retire on or after March 15, 2023, have the choice at retirement of whether their Surviving Spouse will have a monthly benefit for the spouse’s lifetime or until the spouse reaches Medicare eligibility. A retiree who elects a lifetime surviving spouse benefit will have their monthly benefit actuarially reduced. The monthly benefit level will be higher if the retiree chooses the surviving spouse benefit that terminates at Medicare eligibility.
What Is an Individual Account in the IAFF MERP?
The Individual Account refers to the individual bookkeeping account maintained by the IAFF MERP in the name of the Employee or Eligible Retiree. The Individual Account is generally funded by Lump Sum Transfers (i.e., sick/vacation leave transfers, cash in-lieu, etc.) and/or Retiree Contributions. The expenses covered from an Individual Account are the same as for the monthly benefits (i.e., reimbursement of “Covered Expenses”). However, there are two important differences:
- Claims can be in any amount up to the retiree’s Individual Account balance;* and
- Claims from the Individual Account are paid only until the Individual Account balance is exhausted (not for lifetime).
*There is a 20% reserve held to avoid overdraw of the Individual Account balance.
Will Everyone Have an Individual Account?
No. Generally, only participants for whom a transfer of accrued leave or other Lump Sum Transfer is made to the plan on their behalf will have an Individual Account.
Can an Eligible Retiree Receive Both Monthly Reimbursement Benefits and Individual Account Benefits?
Yes, an Eligible Retiree may receive both monthly reimbursement benefits and Individual Account benefits. This will often happen when the collective bargaining agreement provides for mandatory sick or vacation leave transfers. Each time a leave transfer or other Lump Sum Transfer is received by the IAFF MERP, the participant will have the option to use those funds to purchase additional Active Service Units to increase his or her monthly benefit level. This process is called “conversion” of the Individual Account balance and is also available annually during the investment selection period. If the funds are converted to ASUs at retirement, the participant also has the opportunity to purchase the additional Active Service needed to attain eligibility for the monthly benefits.
Are There Investment Earnings on Individual Account Balances?
Yes, Individual Account balances are allocated investment gains and losses monthly when the account balance is over $1,000. There is no daily allocation of investment earnings; monthly investment earnings are posted to the Individual Account balance after reconciliation at the end of each month. Individual Account balances of $1,000 or less will generally be credited to the retiree’s Accumulated Benefit “bank” and do not receive any allocation for investment earnings due to the increased likelihood of using up the final balance within the month.
Do I Get to Choose the Investment for My Individual Account?
Yes. Employees and Eligible Retirees have six different investment options for the balance of their Individual Account, which have been selected by the Board of Trustees in consultation with the IAFF MERP’s professional investment adviser. Selection of one of these investments can be made either: (1) within 30 days of receipt of the Portfolio Selection Form upon initial establishment of the Individual Account, or (2) during the annual investment selection period. The investment selected during these two periods will remain in place until the next annual investment selection period. If the participant does not select an investment, a default investment, based upon the employee’s or retiree’s age, is selected on the participant’s behalf.
What is the Difference Between the Individual Account and the Accumulated Benefit “Bank”?
The Individual Account is generally funded by Lump Sum Transfers and receives a monthly allocation for investment earnings (either a credit or a debit). The Accumulated Benefit “bank” generally includes any unused monthly benefits and does not earn investments gains or losses. The Accumulated Benefit is also credited with all contributions made on an employee’s behalf when the employee does not attain eligibility for the monthly benefit.
IAFF MERP Financial Information
How are the IAFF MERP Assets Invested?
The investment of the IAFF MERP’s Pooled Account is professionally managed by the IAFF MERP’s investment adviser. The Pooled Account is invested approximately 70% in the stock market and 30% in fixed income (i.e., bonds and bond equivalents). The IAFF MERP’s target rate of return is 6.75% over a 20-year time horizon. The Individual Accounts are invested in one of the six investment selections, which include a cash or cash equivalent investment; a fixed income (bond) fund; a stock and bond fund that has a static allocation of approximately 30% stocks and 70% bonds; and 3 target date funds with varying stock and bond allocations that change over time as the target date approaches.
Has the IAFF MERP Ever Changed the Unit Multiplier?
Yes, the Unit Multiplier has changed three times since the inception of the IAFF MERP. The first was a reduction after the global financial crisis of 2008. A second reduction was in 2012 when the investment performance assumption was reduced from 7.5% to 7.0%. The most recent change was an increase in July of 2015. The IAFF MERP’s actuary and the Board of Trustees review the Unit Multiplier approximately every three years to ensure the Unit Multiplier is set at a level that will allow the plan to remain viable over the long term.*
*The Board of Trustees may, in its discretion, adjust the Unit Multiplier up or down, for current and future Beneficiaries.
Is My Benefit Guaranteed or Vested?
No. Like most deferred compensation plans and all defined contribution retirement vehicles, your benefit is not guaranteed or vested. The Unit Multiplier (UM) of this Plan can change over time, even after you retire and are receiving a benefit. In other words, once you retire, if the UM goes up, your monthly benefit will increase, and if the UM goes down, your monthly benefit will decrease. The Trustees reserve the right to modify the terms of the Plan to preserve the financial stability of the Trust, including adjusting the Unit Multiplier up or down, for some or all current and/or future beneficiaries.
My IAFF Local Has Reviewed the Information and Wants to Participate, Now What?
Contact the IAFF MERP Consultants at DiMartino Associates to schedule an informational session or to obtain more information at 206-623-2430 or moc.c1695657292niram1695657292id@ts1695657292urTFF1695657292AI1695657292.
IMPORTANT: The Trust must approve your CBA, MOU, or similar language before participation can begin.
*For questions not covered in this FAQ or the Navigating MERP ppt, contact Becky Wallen at DiMartino Associates