Retiree Reimbursement Arrangement
A Retiree Reimbursement Arrangement (RRA) is a way for employers to help their retirees offset healthcare costs in retirement with tax free dollars. This can be a more predictable and cost-effective option for employers compared to offering defined benefit retiree health plans.
How it Works
The RRA is a cost-effective alternative to group retiree medical plans. Retirees most commonly use RRAs for reimbursement of Medicare premiums, but they can use their RRA to pay for expenses under Section 213(d) of the Internal Revenue Code, if the employer allows for it. All employer contributions to RRAs that follow IRS rules are 100% tax deductible to the employer and tax-free to the retiree.
The employer sets aside funds for the RRA and determines how much employees can use each year in retirement until it’s exhausted.
Rollover at retirement
If the employer also offers an HRA, and at retirement employees with an HRA have money remaining, the employer may let employees roll over that amount into their RRA.
Retiree uses benefit
Retired employees can use their RRA to pay Medicare premiums and other medical expenses. If the annual amount isn’t used, the employer may let retirees roll over the balance.