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MERP (EE contribution)


Guest Tfuehrer

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Guest Tfuehrer

Does anyone have working knowledge or documentation on whether or not an EE may contribute to a MERP?

I have been writing a number of bridge plans, using a HDHP and traditional HRA. However, clients have inquired as to whether or not they can have the EE contribute (particularly for anything above an EE enrollment) to reduce the liability. I have seen some vague reference to this on the internet and was looking for better evidence.

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Yes, there can be employee contributions. Keep in mind that the employee contributions become plan assets. The employer needs to keep these dollars in a trust.

Keep in mind these plans must 1) meet non-discrimination testing for eligibility and benefits provided, 2) have a written plan document, 3) all participants need to be employees.

If I may make a suggestion. You may want to eliminate the MERP and just use the HRA and HDHP. Now, I don't know the exact details of your clients needs, but in many situations the HRA can accomplish much of what you may want to do without the additional issues you may face with the MERP.

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Guest Tfuehrer
Yes, there can be employee contributions. Keep in mind that the employee contributions become plan assets. The employer needs to keep these dollars in a trust.

Keep in mind these plans must 1) meet non-discrimination testing for eligibility and benefits provided, 2) have a written plan document, 3) all participants need to be employees.

If I may make a suggestion. You may want to eliminate the MERP and just use the HRA and HDHP. Now, I don't know the exact details of your clients needs, but in many situations the HRA can accomplish much of what you may want to do without the additional issues you may face with the MERP.

If a trust accomplishes an employer's ability to have an employee contribute, I see your point about simply going with an HRA. Although, and I assume this can detailed in the plan document, since a MERP is a year-by-year plan, the unused employee contribution would be forfeited to the employer, whereas in a traditional HRA the rollover feature would keep the contributions active until the employees is dismissed or retires (?).

Regarding the trust, does this need to be via the employer or can a TPA handle the trust for the employer? Ideally, I'd like to have the trust administered by a TPA and both contributions by the ER and EE deposited in the same account, all of which forfeited at the end of the plan year...any documentation to support doing that?

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You can max out the amount of money going into a HRA. For example, assume a $5,000 deductible health plan and the employer is willing to contribute $2,000 in to the HRA, with a maximum of $4,000 total of accumulation. Or you can have just the $2,000 only. There does not need to be a roll over feature.

Alot of what you may or may not want to do is dependent on the strategy of the employer. For example, what level of out-of-pocket do you want to create for the employee and the employer is the first issue I would look at. The HRA allows you to develop your own list of eligible expenses covered. Usually the employer will choose to match what the health plan covers. This usually results in lower costs to the employer, where the MERP tends to raise the employer costs.

What if you did a high deductible health plan (by the way, you do not need a HDHP for an HRA like you do for a HSA) with the HRA and a Section 125 program with fsa's? Seems like it might meet your clients needs and it would be easier to administer and communicate.

Yes, I would recommend the employer hire someone to administer the trust.

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Guest Tfuehrer

Can't a trust be simply a sub account at a bank (of either the employer and/or TPA), administered by a TPA?

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Maybe I am dense but I can't see how employees can make contributions to an arrangement without satisfying Code Section 125 (including the use-it-or-lose-it rule). How can putting the requirements in a trust get around this issue?

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Guest Tfuehrer
Maybe I am dense but I can't see how employees can make contributions to an arrangement without satisfying Code Section 125 (including the use-it-or-lose-it rule). How can putting the requirements in a trust get around this issue?

If I understand this right. The EE is not contributing to the arrangement but to a trust as a salary reduction and falls under the ERISA laws.

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Maybe I am dense but I can't see how employees can make contributions to an arrangement without satisfying Code Section 125 (including the use-it-or-lose-it rule). How can putting the requirements in a trust get around this issue?

If I understand this right. The EE is not contributing to the arrangement but to a trust as a salary reduction and falls under the ERISA laws.

Whether contributions can be made by employees on a pre-tax salary reduction basis is an Internal Revenue Code issue, not an ERISA one.

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leevena,

My comment was about the ability of employees to contribute to an HRA on a pre-tax salary reduction basis, which is governed by the Internal Revenue Code, of course. I do not know of any way for an employee to contribute and be able to carry over unused amounts. Can you give me an example of an arrangement that would permit this?

I also can't conceive of any HRA that is not subject to ERISA, whether there are employee contributions or not. An HRA is an employee welfare benefit plan and is subject to ERISA to the extent that the the employer is not otherwise exempt.

The only time that "employee" money can be used to fund an HRA is when they are on COBRA (and are generally no longer an employee). In such a case, ERISA's trust requirement MAY be triggered. But otherwise, no employee money is permitted.

What am I missing?

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This thread has addressed a few issues and products which may explain some of the confusion. The original question, and follow-ups, are about a MERP, not so much the HRA.

By the way, employees cannot contribute to a HRA, it can only accept employer money. The HRA is an employer fund to pay for benefits in a self-funded arrangement.

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Whereas this is in the Cafeteria Plan forum (ie Section 125) and whereas the original post never suggests otherwise, why are these answers skewing away from Section 125 context? Chaz is exactly right that Section 125 needs to be taken into account given the location of the posting and the lack of anything saying it's not applicable in this situation. If an answer is to be given out of the context of a Section 125 this it needs to expressly say so.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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Whereas this is in the Cafeteria Plan forum (ie Section 125) and whereas the original post never suggests otherwise, why are these answers skewing away from Section 125 context? Chaz is exactly right that Section 125 needs to be taken into account given the location of the posting and the lack of anything saying it's not applicable in this situation. If an answer is to be given out of the context of a Section 125 this it needs to expressly say so.

Calm down skippy. To begin with, many questions are posted to incorrect boards, so I tend to ignore that. So if I am guilty, I am sorry. As I read the original question is appears to be focused on the MERP product along with the HDHP and HRA. Second, the post by Chaz is not correct, MERP contributions by an employee do not need to be in a 125 plan. So it becomes a strategy and design issue as to whether you use a 125 plan. Third, there was discussion about whether you could or should put it into a 125 plan.

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My original post was questioning the accuracy of the last part of this phrase regarding rolling money over (which was not discussed): "Although, and I assume this can detailed in the plan document, since a MERP is a year-by-year plan, the unused employee contribution would be forfeited to the employer, whereas in a traditional HRA the rollover feature would keep the contributions active until the employees is dismissed or retires (?)."

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My original post was questioning the accuracy of the last part of this phrase regarding rolling money over (which was not discussed): "Although, and I assume this can detailed in the plan document, since a MERP is a year-by-year plan, the unused employee contribution would be forfeited to the employer, whereas in a traditional HRA the rollover feature would keep the contributions active until the employees is dismissed or retires (?)."

The issue of rolling money over (my post of Oct 30 2007, 03:33 PM) is referring to a HRA, not the MERP. Since HRA's cannot accept Employee money, only Employer, there would be no Employee money to rollover. Hope this answers your question.

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Wish I could, but I don't have one and I don't believe one exists. I have been working in the EE benefit field for 25 years and have learned many of this over time. If you would like to, you can always go to the IRS and review Section 105, or any other section that you like.

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Guest Tfuehrer
Wish I could, but I don't have one and I don't believe one exists.
It's funny/frustrating that you say this. Seems to me that clarity of a tax vehicle such as section 105 and 125 would be appropriate and helpful.
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Wish I could, but I don't have one and I don't believe one exists.
It's funny/frustrating that you say this. Seems to me that clarity of a tax vehicle such as section 105 and 125 would be appropriate and helpful.

You bring up a good point, but as I said, I don't have a single link. My guess is that it has to do with money. If I were to develop a site as a single source for all questions about a subject, say Section 125 plans, how would I get compensated for my time, work, and knowledge? Sorry.

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I cannot see what benefit and employee would gain by contributing to a MERPon an after tax basis. Can someone (leevena, in particular) please explain?

Also Why would an employee contribute to a MERP where "the unused employee contribution would be forfeited to the employer"?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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I have never seen a situation where the employee would contribute to the MERP. If I were to guess, the only scenario I could see it worth while in is as a FSA type of a program. Remember, an FSA is a 105, so prior to 125 plans, I guess you could have used it as an FSA.

Recently I have seen the MERP being used in groups where the employer want to provide top of the line benefits. For example, a physician group I know of has a Health Reimbursement Arrangement (HRA) that the employer funds. It leaves about $2,000 of OOP for the employees. However, the physicians have an employer funded MERP for the additional $2,000.

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  • 4 years later...

Hi - this is my first posting. I am new to the benefits world and am trying to teach myself the nuances of an HRA, MERP, and Health FSA for comparison purposes. From what I've been reading, a MERP is a very generic term for any plan that provides medical reimbursements and the HRA is a specific type of MERP that was coined by IRS Notices 2002-41 and -45.

I'm interested in learning about one particular (alleged??) distinguishing factor between a general MERP and an HRA: that a MERP can accept employee contributions but an HRA can only accept employer contributions. That's why this posting caught my attention.

It looks like a MERP can accept employee contributions - see Reg. 1.105-11 (governing self-insured medical reimbursement plans) at subpart -11(i) where it says "a medical plan subject to this section may provide for employer and employee contributions." It goes on to tell us that the tax-favored treatment is governed by 104 and 105. It looks like an employee contribution into a MERP is a completely separate concept from the tax favored treatment in 125. It is equally clear that the HRA rules described in the IRS Notices do not allow employee contributions.

Can anyone offer any more comments/insight about a MERP accepting employee contributions? ERISA trust requirement triggered?

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New2EB: You've got it right. A MERP can be in, or outside, a 125 plan, just as most other health benefit plans (except HRAs, which are specifically excluded from any connection to a 125 plan as noted in IRS Notice 2002-45). Employee contributions are fine for a MERP, as you've discovered in section 105.

I'm not so sure ERISA trust requirements are triggered by employee contributions to a MERP. It seems to me that employee contributions become employer assets with no trust requirements, in the same manner as employee paid FSA accounts. Both MERPs and FSAs are employer self insured medical reimbursement plans. It is only when plan assets LEAVE the employers control (such as transfer to a TPAs bank acccount with no connection to paid claims) that ERISA asset trust requirements are triggered.

By the way. Excellent first post. You've done better than a lot of the long time posters.

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