(a)
The amount of excess earnings available at the end of a fiscal year of the retirement fund, shall, subject to the limitations in this section, be treated in the immediately succeeding fiscal year, for all purposes under this chapter, as appropriations, transfers, and contributions made to the retirement fund by the county and applicable districts. That treatment shall occur only to the extent that, in the immediately succeeding fiscal year, the county and applicable districts pay for an equal amount of health benefits for members heretofore or hereafter retired and their dependents or make contributions in an equal amount to an account established under Section 401(h) of Title 26 of the United States Code solely for the purpose of providing health benefits for retired members, their spouses, and dependents, and for the associated administrative and investment expenses.(b)
For purposes of this section, “excess earnings” means earnings of the retirement fund at the end of any fiscal year that exceed the total interest credited to contributions and reserves plus 1 percent of the total assets of the retirement fund.(c)
The board of supervisors or the board of retirement shall take any actions necessary and appropriate to ensure that the program provided by this section complies with all applicable federal and state income tax laws, including, but not limited to, establishing rules and procedures for establishing and maintaining an account under Section 401(h) of Title 26 of the United States Code.(d)
In accordance with Section 401(h) of Title 26 of the United States Code and Section 1.401-14(c) of the Code of Federal Regulations:(1)
The retirement system shall specify the medical benefits that will be available and shall set out the amount that will be paid.(2)
Medical benefits shall be subordinate to the retirement benefits when added to any life insurance benefits.(3)
A separate account shall be maintained for contributions to fund the medical benefits.(4)
The funds in the separate account may be invested with the funds for retirement benefits and the earnings shall be allocated to each account in a reasonable manner.(5)
Amounts contributed for medical benefits shall be reasonable and ascertainable.(6)
No part of the medical benefits account may be used for or diverted to any purpose other than providing medical benefits and paying necessary or appropriate expenses for the administration of the medical benefits account.(7)
Any amounts remaining in the medical benefits account after satisfaction of all medical benefits liabilities for all members, their spouses, and dependents shall be returned to the employer.(8)
If a member’s interest in the medical benefits account is forfeited prior to plan termination, an amount equal to the forfeiture shall reduce employer contributions to fund the account.(e)
Except to the extent allowed by Sections 401 and 420 of Title 26 of the United States Code, and related federal regulations, assets shall not be transferred or otherwise paid from the funds held by the retirement system for retirement benefits to a medical benefits account. Assets shall not be transferred or otherwise paid from a medical benefits account to the funds held by the retirement system for retirement benefits.(f)
This section shall not be operative in any county until the board of supervisors and the board of retirement of the county, by resolution adopted by a majority vote of each board, make this section operative in the county.(g)
This section is not intended, and shall not be construed to, affect the validity of any agreement entered into by a county and a retirement association whereby a county has agreed to provide and fund a health insurance program for retired employees and their dependents for hospital services, medical services, dental services, and optical services, prior to the effective date of this section.(h)
This section establishes a method of providing health benefits for retired members, their spouses, and dependents to the extent allowed under Sections 31592.2 and 31691. This section does not authorize duplicate benefits.(i)
This section may be made applicable in any county that has adopted Article 5.5 (commencing with Section 31610), in which case the Supplemental Retiree Benefits Reserve shall be substituted for the excess earnings described in this section. This section also may be made applicable to any arrangement established under Article 8.6 (commencing with Section 31694).
Source:
Section 31592.4, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=GOV§ionNum=31592.4..