Why does PEO say it's illegal to offer a Health FSA for worksite emplo

[Guest bosco]

Can anyone give me some insight on why a PEO organization would tell me it's illegal for them to offer Health FSA to their worksite employees? If they are the common-law employer and are providing benefits, why wouldn't it be okay?

[Ron Snyder]

The PEO firm is apparently confused. Retirement plans have a similar proscription, the "exclusive benefit rule" found in IRC 401(a)(2). Welfare plans are not subject to such a requirement.

If your PEO is located in a jurisdiction that does not have an employee leasing company act and the health plan is self-funded (or partially self-funded), it would be a MEWA. While MEWAs are not "illegal", they are subject to various state regulatory requirements that the PEO does not comply with.

Your PEO probably doesn't understand the subtleties and nuances of government regulation. Few of them do.

[Kirk Maldonado]

I hate to be skeptical, but it could also be that they don't want to go through the hassle of setting one up, so that the easiest way to avoid the situation is to tell you that it is illegal.

[mroberts]

PEO's tend to be fundamentally unsound, especially when it comes to benefits. True, they can save a little firm a decent amount of premium on medical insurance in the right instances, however, I've also found that many are operating in complete chaos. Kirk may have hit the nail on the head.