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NOWOTNY KNOWS SQUAT! Part 4 - Adding Post-Retirement Medical Expense Plans to Your Pension Plan

My Dad, Willy Wolfgang Nowotny (of blessed memory) would have turned 87 a few days ago (March 6). In prior articles I have discussed his great adventure not unlike many other immigrants in coming to the United States from East Germany. He was a great athlete in his youth and was slated to compete for the U.S. in the 1956 Olympics, but his citizenship paperwork did not get approved in time. He adopted a love for the national pastime, baseball; partly because my Mom and Dad lived in an apartment complex where a number of players on the Washington Senators lived. He was part greatest fan and part greatest critic. He famously was known to say, "I know that I never played the game but..." He could be a harsh critic when I didn't play my best but he always let you know when you had a great game. One sport that my Dad had never seen me compete in was powerlifting. In this article I wanted to pontificate one last time about my lifelong love affair with the Iron. At around age 40, I gravitated back to the one thing that I had muscle memory for, heavy squats and deadlifts. It was satisfying to achieve personal records, but I made the mistake of looking at the Masters level performance for my age and weight bracket and thought that I could be a contender. I picked a meet near his home that conveniently coincided with my visit. I had not competed in almost thirty years. I took my Dad to watch me compete and had the best meet of my career with personal bests in every lift - squat, deadlift, and bench press. The total for the three lifts placed me in the top five lifters for my age group and weight class at that time. On that day, there was no comment from Dad, "I know that I never played the game but…” Ich bin Ein Berliner, Pop!

This blog is part of a series directed to life insurance agents and advisors regarding valued added strategies that are niche and powerful strategies to increase assets under management (AUM) or to sell more life insurance. These strategies are not "run of the mill" strategies that every "Tom, Dick and Harry” are using to get in the client's door in order to attract and maintain the client's interest. This segment focuses on the 401(h) Plan for post-retirement medical expenses. The strategy is a powerful solution that is unique and rarely known and implemented as a result of its uniqueness. This strategy will not only get you in the client's door but help you to remain in front of clients.

What is a 401(h) Plan

IRC Sec 401(h) provides for specific accounts to be created for the purpose of paying for post-retirement medical expenses during retirement. The post-retirement medical plan may be attached to a defined benefit plan or money purchase plan. the Plan is designed to alleviate the financial burden of accidents, and hospitalizations for plan participants and their dependents in retirement. These costs may include nursing home care. the 401(h) plan is funded with tax deductible contributions. These funds may be invested on a tax-deferred basis. However, these funds, unlike retirement plan distributions may be distributed to pay medical expenses on a tax-free basis. The planning need is enormous, and the planning opportunity is enormous. Very few small business plans (if any) take advantage of this planning benefit largely because most businesses adopt prototype pension plan documents that do not adopt this benefit. The plan may be restated as an individual plan and adopted. The funding level of contribution into the 401(h) plan is significant.

From a business development perspective, the discussion of the 401(h) plan is important and will be seen as a high value planning idea. The planning discussion in itself will separate the advisor from his competition and open the door for the discussion of other planning topics with a client or prospective client.


Very few if any small business pension plans offer a 401(h) plan which is an excellent benefit that allows a business owner to make significant additional tax-deductible contributions for post-retirement medical expenses. The contributions may be invested on a tax deferred basis. Distributions for post-retirement medical expenses receive tax-free treatment. The reason is simple. Most pension plans use "cookie cutter" prototype plans that do not offer this type of ancillary benefit which must be "snapped" onto a defined benefit plan or money purchase plan. Get out there and stir up the water and start talking to clients about the tremendous planning possibilities of a 401(h) plan. Let us train you so that you can achieve your personal best.


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