401(h) Retiree Medical Account Administration

A 401(h) account lets a defined benefit or money purchase pension plan pre-fund retiree health benefits with tax-deductible employer dollars that come out tax-free for retirees. Admin316 assumes full fiduciary administration of the 401(h) account so you can offer this benefit without carrying the compliance burden.

On this pageWhat it is How it works The six rules Who it fits How we help

What Is a 401(h) Account?

A 401(h) account is a separate retiree-medical account held inside a qualified pension plan. Internal Revenue Code Section 401(h) lets a defined benefit (or money purchase) pension plan pay sickness, accident, hospitalization and medical expenses for retired employees, their spouses and their dependents — funded with tax-deductible employer contributions that come out tax-free to the retiree.

In plain terms: it is one of the few structures in the Code where an employer gets a current deduction for pre-funding future retiree health costs, the money grows inside the pension trust, and the retiree is never taxed on the benefit. That combination is why 401(h) accounts appear in professional practices, hospitals, municipalities, and closely held businesses that already sponsor a defined benefit or cash balance plan.

How a 401(h) Account Works, Step by Step

1. It rides on a pension plan

A 401(h) account cannot stand alone. It is a feature written into an existing defined benefit, cash balance, or money purchase pension plan document.

2. The employer contributes

Contributions earmarked for retiree medical benefits are deductible to the employer in the year made, subject to the subordination limit below.

3. Assets sit in a separate account

Section 401(h) requires the medical benefit dollars to be accounted for separately from retirement benefit dollars, even though they are invested in the same trust.

4. Retirees draw tax-free benefits

The account reimburses qualifying medical, hospitalization, sickness and accident expenses for retired participants, spouses and dependents — tax-free to them.

5. Nothing may be diverted

Assets cannot be used for any other purpose, and cannot revert to the employer, until every liability under the 401(h) account has been satisfied.

6. It is tested and reported annually

Subordination is tested each year, key-employee accounts are tracked separately, and the account is reported through the pension plan's Form 5500.

The Six Rules That Make or Break a 401(h) Account

Requirement	What it means in practice
Subordinate to retirement benefits	Aggregate contributions for medical benefits (together with any life insurance protection) generally may not exceed 25% of total contributions to the plan other than contributions to fund past service credits. Blow the 25% and you put the entire plan's qualified status at risk — not just the medical account.
Separate account	The plan must maintain a separate account for the medical benefits. Key employees must have individual separate accounts under Section 419A(d), and their benefits are limited to amounts in those accounts.
Definitely determinable & reasonable	The benefit formula must be written into the plan document and be objectively determinable — not discretionary year to year.
Non-diversion	Before satisfaction of all liabilities, no part of the account may be used for anything other than the retiree medical benefits.
Reversion only at the end	Any amount left after every liability is satisfied returns to the employer — and is taxable then. This is why funding assumptions matter.
Non-discrimination	The medical benefits cannot discriminate in favor of highly compensated employees, and forfeitures must be applied to reduce future employer medical contributions.

Where sponsors get hurt. The most common 401(h) failures we see are mechanical, not strategic: the 25% subordination calculation is never actually documented; key-employee sub-accounts are never established; medical dollars are commingled with retirement dollars in the trust accounting; reimbursements are paid to someone who is not a retiree, spouse, or dependent; or the plan document language was never updated when the pension plan was restated. Each of those is an administrative fiduciary failure — and administrative fiduciary failures are exactly what Admin316 takes over.

Who Should Look at a 401(h)

Employers that already sponsor a defined benefit or cash balance plan and are also paying retiree health costs out of operating cash.
Professional practices (medical, dental, legal) with older owners and a stable census.
Municipalities, hospitals, and nonprofits with legacy retiree health promises.
Businesses that want a deductible way to pre-fund a benefit they are already informally providing.

It is not a fit for every employer — without an underlying pension plan there is nothing to attach it to, and the 25% limit means the medical piece can never be the main event. A short review tells you quickly which side of that line you are on.

How Admin316 Fits

Admin316 does not sell investments and does not replace your actuary, advisor, or recordkeeper. We step in as your 3(16) Plan Administrator and 402(a) Named Fiduciary, take the administrative fiduciary responsibility off your officers, and run the annual mechanics of the 401(h) account — subordination testing, separate and key-employee accounting, benefit substantiation, participant notices, Form 5500, and corrections when something has already gone sideways.

Educational information only. This page is not legal, tax, investment, or actuarial advice, and does not create a fiduciary or attorney-client relationship. Section 401(h) rules are technical and fact-specific; confirm any design with your ERISA counsel and actuary before acting.

Want the details for your plan?

Tell us where to send it and we'll come back with a plain-English read on whether a 401(h) account fits your pension plan, what the 25% subordination math looks like for your contribution level, and what administration would actually involve.

Want this looked at for your plan?Tell us what to cover and pick a time. Thirty minutes, no cost — we come back with a plain-English read on where the administrative and fiduciary liability sits in your 401(h) retiree medical account today.

Request a meeting →

We Work Alongside Leading Recordkeepers & Plan Providers

What Admin316 Does For Your 401(h) Account

401(h) Accounts Carry Fiduciary Rules Most Employers Overlook

Under Internal Revenue Code Section 401(h), retiree medical benefits must remain subordinate to the plan’s retirement benefits, be held in a separate account, be reasonable and definitely determinable, be non-discriminatory, and be impossible to divert to any other purpose until every liability is satisfied. Miss any one of these and the entire pension plan’s qualified status — not just the 401(h) account — is exposed.

The 25% Subordination Limit

Separate Account Recordkeeping

Annual Filing & Testing

Admin316 Assumes Your 401(h) Administration

Admin316 serves as your 3(16) Plan Administrator and 402(a) Named Fiduciary for the pension plan that houses your 401(h) account. We handle the subordination testing, separate-account tracking, key-employee accounts, participant notices, and Form 5500 reporting, working alongside your existing actuary, advisor, and recordkeeper.

3(16) Plan Administration

402(a) Named Fiduciary

Works With Your Existing Team

Responsibilities We Handle on Your Behalf

From the 25% subordination calculation to substantiating that only qualifying medical expenses are reimbursed, Admin316 takes over the administrative fiduciary obligations tied to your 401(h) account and the pension plan that holds it.

Participant Notices & Form 5500

Contribution Monitoring & 25% Testing

Compliance Coordination Year-Round

7 Responsibilities Admin316 Handles For Your 401(h) Account

When Admin316 administers your 401(h) retiree medical account, these responsibilities are removed from your plate entirely.

Subordination (25%) Testing

We track aggregate contributions each year so medical contributions stay within the 25% limit relative to contributions for retirement benefits, and we document the calculation for audit.

Separate Account Accounting

Section 401(h) requires a separate account for retiree medical benefits, plus individual accounts for key employees under Section 419A(d). We maintain and reconcile both.

Participant Notices & Disclosures

We prepare and distribute the ERISA notices tied to the pension plan and its retiree medical feature, so retirees, spouses, and dependents get accurate, timely communication.

Form 5500 & Schedule Reporting

The 401(h) account is reported through the pension plan's Form 5500. We assemble, review, and file it on time with the correct schedules and actuarial attachments.

Benefit Payment Substantiation

We confirm that reimbursements go only to retired employees, their spouses, and dependents for qualifying sickness, accident, hospitalization, and medical expenses — the only permitted uses.

Non-Diversion & Reversion Controls

No 401(h) asset may revert to the employer until every liability under the account is satisfied. We build the controls and documentation that keep that rule intact.

What You Gain When Admin316 Manages Your 401(h) Account

Admin316 brings over 25 years of exclusive ERISA expertise to 401(h) accounts, reducing liability, protecting the plan’s qualified status, and improving governance without disrupting your actuary, advisor, or recordkeeper.

Reduce Liability

We assume the administrative fiduciary responsibilities that make profit sharing plan sponsorship personally risky, protecting your business owners and HR team from direct IRS and DOL exposure.

Save Time

Your team no longer manages contribution tracking, participant allocations, or annual filings, Admin316 handles every administrative obligation tied to your profit sharing plan.

Preserve Advisor Relationships

We coordinate with your existing advisor and recordkeeper without replacing or disrupting those relationships, we plug in as the fiduciary layer that was missing.

Improve Plan Governance

Admin316 creates a documented, defensible governance structure for your profit sharing plan, reducing audit risk and giving your organization a clear fiduciary framework year-round.

client reviews

Admin316 Client Result

Plan Sponsor · Admin316 Client

Over $142,000 in Client Penalties Avoided

"Admin316's analysis of our DOL filings uncovered excessive fees and saved our company more than $142,000 annually."

"Admin316 has made managing our retirement plan significantly easier. Their team is responsive, knowledgeable, and proactive about the administrative responsibilities that used to take time away from our internal team. Having experienced professionals helping oversee the plan gives us greater confidence that important details aren't being overlooked."

Racheal Admin316 Client

"Working with Admin316 has taken a tremendous amount of administrative work off our plate. They understand the responsibilities that come with sponsoring a retirement plan and help make sure things get handled correctly and on time. The biggest benefit for us has been having a team we can rely on instead of trying to manage everything internally."

Ron Admin316 Client

"Admin316 brought structure and accountability to the way we manage our retirement plan. They helped us better understand who was responsible for what and took over many of the administrative responsibilities our team had been handling. Their knowledge and responsiveness have made them a valuable partner to our organization."

Scott Admin316 Client

"One of the best things about working with Admin316 is knowing there is a team focused on the details of our retirement plan every day. They are proactive, accessible, and willing to explain issues in plain English. It has allowed our management team to spend less time worrying about plan administration and more time running our business."

Paul Admin316 Client

"Admin316 helped simplify what had become a complicated and time-consuming responsibility for our company. Their team has been professional, responsive, and easy to work with. I especially appreciate having a clear process and knowing exactly who is responsible for getting things done."

Ryan Admin316 Client