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HRA plan document requirements

Guest parrot87

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Now, now boys . . .

If this employer has an arrangement, understood by all, to give up to $100/year to each employee to reimburse for health care expenses, and includes the payment in income--assuming I have my facts straight from this "interesting" post--there is no need for it to be in writing. Lots of employer practices are not in writing. What the IRS needs for a plan to be a non-taxable medical reimbursement plan is immaterial (or irrelevant--I never knew the difference), since this is not being treated as a non-taxable benefit.

The CEO probably has the authoirty to begin such a program, but, on a practical level, that depends on company and Board policy. If a shareholder complained about the expense, I doubt that it's a policy that would be overturned by a court--after all, employee compensation is not set by the Board (except for management types), and this is a form of compensation (and an inexpensive one, at that).

If you're not making this a non-taxable benefit, then do what you want--as per company/board policy. It is, however, a good idea to put it in writing--even if just a summary page in an employee handbook, or a pay envelope stuffer--so that there are no surprises or disagreements which might lead to employee discontent and mistrust. And, there may be a state law to be concerned about, since insurnace (& this is self-insurance) and health plans are traditionally the provence of the state.

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I don't think George was getting uppity so much as he seems exasperated with this thread.

For importance of properly signed documents for purposes of keeping the reimbursements out of the taxable income of the employees, take a look at the IRS' positions expressed in its Coordinated Issue Paper UIL No. 105.06-05 issued March 29, 1999. You might want to take note of the cases cited in the CIP by the IRS--yes, the IRS has litigated the lack of signed documents, and won in court.

Sieve's instincts that

It is, however, a good idea to put it in writing--even if just a summary page in an employee handbook, or a pay envelope stuffer--so that there are no surprises or disagreements which might lead to employee discontent and mistrust.
is in my opinion required by ERISA. Even without the the tax angle, it seems that the practice of reimbursing health expenses is an 'employee welfare benefit plan', requiring systematic administration rather than being exempt as a mere payroll practice. DoL Reg § 2510.3-1; ERISA Reg § 402.

You may also find that the US Supreme Court's musings on the subject of an ERISA written instrument within the context of who inside an organization has authority to change the ERISA written instrument interesting, Curtis-Wright Corp v Schoonejongen, 514 US 73, 115 S Ct 1223, 131 L Ed 2d 94 (1995).

John Simmons


Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Guest parrot87

Thanks for the on-topic relevant post, nice to finally get one.

Anyway, that's what I figured on a practical level, but just to be sure of the technicalities...how would the IRS treat this situation IF the person who signed the document was the CEO (in my scenario)? Its not like the IRS goes auditing cafeteria plans and cafeteria-like plans (i.e. 105), but if they were auditing the company...Gburns claims that the 105 plan would be null and void IF the signer of the plan did not have authority to do so under company by-laws. Furthermore, the IRS might go after the company or CEO for fraud.

What I'm questioning is first, that a board resolution is required since implementing the 105 plan would be considered day to day operations since the reimbursements have been being made for quite some time, and this merely makes the already in place practice more efficient, something I would hope any CEO would do. Is there something in place that is unique to health insurance that makes adopting a section 105 plan the providence of board activity? Is there an IRS release clearly stating rules for who signs the 105 document?

Secondly, if someone does sign without the authority of the board, does the plan automatically become null and void? So during the course of an IRS audit, Gburns is saying the IRS would check all the board minutes to make sure that the 105 plan was approved by formal measure, and if it wasn't, declare it null and void, then go after the taxes on $100 reimbursements on people that make less than $40,000 per year???? I would say no, a legitimate 105 plan with a CEO's signature instead of the board secretary signature doesn't fail the "sniff" test in my opinion. How exactly, on a practical level, would the IRS try to grill this company?

Thirdly, JSimmons seems to imply that it would only be an issue IF the board attempted to deny a legitimate claim due to not knowing about the 105 plan (which is impossible in my scenario since the reimbursements have been approved and functioning for quite some time). I'm not sure if this is a discrimination issue (in DoL terms) or an IRS issue. Also, why would a board want to do this and welcome a pile of headaches...I mean, its a $100 we're talking about?

I still feel that practically speaking, one could say that this was done out of "normal" operations. Is there a case or regulation that sets precedent otherwise? This would be for PA.

P.S. - saw your post mr. simmons after this one, thank you. Are you refering to this?


This is dealing with retroactively seeking tax deductions, which again, we are not trying to do. Is there a particular section about signatures? I did not see it.

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John --

There's that Mr. Simmons stuff again!! Blast it . . . !! :P

You're probably right about the writing requirement. No, I'll take that back. You are right. As usual. Gotta git up early in the mornin' to get one by yer anteneys!! :o

Of course, as you and I both know, there are plenty of ERISA welfare plans out there without docs. At least if there were some little written procedure, then that would be sufficient--although, come to think of it (and without looking it up), I'll bet that it would have to contain the claims procedure and the ERISA rights statement, at a minimum, so that it met SPD requirements!!!

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