Health FSA a "funded" plan?

[Guest malmka]

In the past, our FSA administrator sent us a monthly list of paid FSA claims and we paid that amount. They recently required us to change our funding method. Now, after each payroll, we send an amount equal to the employee FSA contributions. The administrator then pays claims from the contributions. Would this now be considered a "funded" plan?

[E as in ERISA]

It might depend on the specific arrangement with the administrator -- in terms of what happens with excesses and shortfalls -- see the preamble to the 419 regs. But then again, just because it is funded for 419 purposes, that doesn't mean that it is "funded" for ERISA purposes.

[jaemmons]

If the contributions are sent to an account which is NOT part of the employer's general assets, then you have a funded plan for ERISA purposes. I would lean more towards an unfunded arrangement if the FSA admin continued the way they had been handling the claim reimbursements, but since they are asking for a change in the "funding", without other details to the contrary, I believe you may have a funded arrangement.

[MGB]

How can an administrator "require" you to send money? Whether there is a fund set aside should be based on the plan's provisions, not what an outside administrator wants you to do.

[Guest malmka]

The administrator wanted us to either give them a deposit or fund by contributions. In the past, the administrator had paid claims with their money and had to wait for our payment. They were no longer willing to do that and indicated that it was not in line with industry standards. If this new arrangement is considered a funded plan, I assume we will need to file a Schedule H with our 5500 and an auditor's opinion will be required.

[JanetM]

You can do what we do. TPA runs the checks on wednesday for all the FSA reimbursements. They tell us the amount and we transfer the amount to the account. TPA mails the checks and everyone is happy.

[jaemmons]

Sounds to me that you had a funded arrangement all along. Whether or not the payment of claims with the administrators own money is legal, is beyond my realm of expertise (although it smells bad) but I guess it could be looked at as an indirect segregation of plan contributions from your general assets, which would make it a funded plan.

As such, if it the plan covers above 100 participants a Schedule H is required WITH an auditors opinion. Could be costly, since it may involve a full blown audit on the trust side.

[Kirk Maldonado]

I've never heard of an FSA administrator asking for that in 20 years of working with cafeteria plans. I can't think of any justification for that request.

My guess is that their bank cuts them a sweet deal if they keep enough money in the account, and they are trying to pump up their account balance.

I'd get a new administrator if I were you.