ER contributions to a Cafeteria Plan

[Guest Joe Vasko]

If an employer, who already sponsors an FSA Plan, wishes to contribute a set dollar amount to each employees Health Care Reimbursement Account, can this be based on single and family coverage? For example, can the employer contribute a higher dollar limit to an employee who elects family vs single coverage.

Also, does the employer amount count against the Health Care FSA dollar limit?

Thanks, Joe

[papogi]

Yes. Differences in contribution based on coverage level is allowed.

I'm assuming there is no cash option to the employee for the employer amount. If there is no cash option, then each employee should be given the right to contribute up to the max out of their own paycheck. The employer amount should be kept separate from the employee amount in this regard.

[Guest Joe Vasko]

Thank You.

[GBurns]

I read you post to indicate that this employer wishes to set up an HRA in addition to the FSA that is already in place. Am I correct?

Assuming that the employer will now have 2 separate and different plans, 1 HRA and 1 FSA:

1. The employee CANNOT contribute to the HRA. HRAs must be employer funded ONLY. NO employee salary reductions are allowed.

2. There CANNOT be a cash option in a HRA.

3. The employer contributions to the HRA does not affect the contributions to the FSA whether from the employees or not and does not affect the FSA limit.

4. Pay attention to the "Ordering Rules" regarding which of the plans pays for which expense and which plan pays first etc.

5. Recheck Revenue Ruling 2002-41 and Notice 2002-45 to see whether or not you would be violating those rules by basing the employer contribution on health plan participation rather than on other allowable status.

[papogi]

Good clarification. I originally assumed this was to be an employer-funded health care FSA, but it appears that it could be an HRA.