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Is a written document required for HRA


Guest SWH

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Okay. Have a client who is reimbursing for medical insurance, co-pays and dependent day care from a basket of funds that consists of only employer money. No ee money involved. They set this up without any input from us -- their frame of reference was Pub 15-B.

Employees are NOT given cash for unused amounts, but those amounts can roll to the next year.

There is no "formal" document on this just a blurb in the benefit information that they give to new employees.

First of all, not quite sure how to handle the situation as a whole. Wouldn't the choice of medical costs vs daycare put me in a cafeteria type of document world with total EMPLOYER funding? Could I do an HRA in this type of situation (as opposed to an HSA -- which they don't want)?

Then, my original question before I started with the fact that Pub 15-B (on page 6 of the 2008 version) says that the exclusion from taxable income rule "applies to contributions you make to an accident of health plan for an employee.." It goes on to state that the exclusion "also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are...[for] payments or reimbursements of medical expenses..." The next subheading states that "[t]he plan may be insured or noninsured and does not need to be in writing."

This is where I am getting hung up. Any help or comments would be appreciated?

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There is no statement in pub 15-b that i saw that stated either way, but I feel like the depependent care should be written document too. I also am not sure on how to tie the dependent care and medical reimbursement together under one pool of money. I almost think that the two pools of money need to be separated and have a document on the depedent care and a document for an HRA OR a cafeteria type of document that will let them choose (with no cash election amount, of course) which benefit they want, but then I don't know if I can do the HRA under that type of document? Why do people always come up with the odd and obsene at year end? ;)

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All monies are paid from general assets of employer -- like a cafeteria FSA -- except there are no employee monies involved. Not that it gets us out of ERISA, just clarifying.

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An amazing number of FSAs do not comply with the exemption from the trust requirement even though the benefits are paid from general assets and "employee money" has nothing to do with it. I venture that most FSAs that have third party administrators who handle disbursements are noncompliant.

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Okay. Have a client who is reimbursing for medical insurance, co-pays and dependent day care from a basket of funds that consists of only employer money. No ee money involved. They set this up without any input from us -- their frame of reference was Pub 15-B.

Employees are NOT given cash for unused amounts, but those amounts can roll to the next year.

There is no "formal" document on this just a blurb in the benefit information that they give to new employees.

First of all, not quite sure how to handle the situation as a whole. Wouldn't the choice of medical costs vs daycare put me in a cafeteria type of document world with total EMPLOYER funding?

No cafeteria plan would be necessary for a choice merely between two tax-free benefits. If the HRA qualifies under 105h and the day care reimbursement under 129--and those are the only two choices an employee has, no cash or other taxable benefit choice--you do not need to comply with IRC section 125.

Could I do an HRA in this type of situation (as opposed to an HSA -- which they don't want)?

Yes, an HRA can be limited to paying medical insurance premiums and co-pay. An HRA needs to meet the requirements of IRC section 105h.

Then, my original question before I started with the fact that Pub 15-B (on page 6 of the 2008 version) says that the exclusion from taxable income rule "applies to contributions you make to an accident of health plan for an employee.." It goes on to state that the exclusion "also applies to payments you directly or indirectly make to an employee under an accident or health plan for employees that are...[for] payments or reimbursements of medical expenses..." The next subheading states that "[t]he plan may be insured or noninsured and does not need to be in writing."

This is where I am getting hung up. Any help or comments would be appreciated?

Treas Reg § 1.105-11(b)(1)(i) requires 'a separate written plan' where there is no insurance involved and an employer reimburses employees their health expenses, like co-pays. Where a publication contradicts regulations, I'd do what the regulations provide.

And as QDROphile mentions, ERISA requires a written plan document. "Every employee benefit plan shall be established and maintained pursuant to a written instrument." ERISA § 402(a)(1).

For the day care benefit, "a dependent care assistance program is a separate written plan of an employer for the exclusive benefit of his employees to provide such employees with dependent care assistance". IRC § 129(d)(1).

John Simmons

johnsimmonslaw@gmail.com

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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http://www.dol.gov/ebsa/publications/ghpfi...sibilities.html

There's a DOL link. You don't need a plan document as long as the you are taxing reimbursements. If you are doing this on a pre-tax basis, you'll need plan docs to satisfy the IRS.

Matthew, where does the DoL state that a plan document is not required if after-tax dollars are at play? and how do you get around the written plan requirements of ERISA § 402(a)(1) for any employee benefit plan subject to ERISA?

John Simmons

johnsimmonslaw@gmail.com

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

I was mistaken, namely about safe harbor rules, I looked it up this time. Although, my off the cuff statement could be true depending how the "benefits"/"reimbursements"/"compensation" are classified.

Here are the tests whether an ERISA plan exist:

(1) whether a plan exists; (2) whether the plan falls within the Department of Labor’s (DOL) safe-harbor provision; and (3) whether the plan was established or maintained by employer with the intent to benefit employees.

Additionally, courts will look at facts surrounding:

* Representations made by employers in internal documents,

* Representations made orally by the employer,

* The employer’s intent,

* Whether a fund has been established to pay benefits,

* How any benefits are paid, and

* The employee’s reasonable understanding of the program.

Still though, it seems like this is a small employer with under 100 lives, just make a document, store it, and forget about it. No one will ever know

P.S. - I don't like it when people make me look things up, that's for paying people only.....ahhh well, serves me right for butting my head in where I'm not an expert.

Another P.S. - for test one, whether a plan exists, that seems to be regulated by the states.

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Matthew,

ERISA § 402(a)(1) provides that "Every employee benefit plan shall be established and maintained pursuant to a written instrument."

ERISA § 3(3) defines the term employee benefit plan as meaning "an employee welfare benefit plan or an employee pension benefit plan or a plan which is both an employee welfare benefit plan and an employee pension benefit plan."

ERISA § 3(1) defines employee welfare benefit plan (and welfare plan) as meaning "any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or ... ."

DoL Reg § 2510.3-1(j) exempts certain group and group-type insurance programs where the ER makes no contributions, participation is completely voluntary, the ER does not endorse the program (though the ER may allow the insurer to advertise, and collect premiums through payroll deductions paid over to the insurer), and the ER gets no kickbacks or other remuneration than perhaps reasonable compensation for the payroll deductions/remittances.

An HRA is an employee welfare benefit plan. It is a "program ... established or maintained by an employer..., to the extent that [provides] for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, ... ." Because the ER makes contributions--indeed the ER is the sole source of funding of an HRA--then the DoL Reg § 2510.3-1(j) does not apply. Ergo, ERISA applies to HRAs (unless exempted as noted below) and requires that the plan be in writing.

DoL Reg § 2510.3-3 exempts from ERISA plans without EEs--i.e., where the owner (and possibly spouse) of the employer are the only participants. Also, ERISA § 4(b) exempts the plans of governmental and church plans, plans maintained outside of the United States primarily for the benefit of persons substantially all of whom are nonresident aliens, and plans maintained solely for the purpose of complying with applicable workmen's compensation laws or unemployment compensation or disability insurance laws. If not for that, ERISA applies and requires an HRA document.

John Simmons

johnsimmonslaw@gmail.com

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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