Risk-shifting in HCRA

[Guest slrogers]

I recently noticed on my employer's enrollment form that part of the agreement they make you sign states that if you should terminate employment during the year any "negative" balance that you may have in your Health Care Reimbursement Account will be deducted from your final paycheck. Is this legal?

I used to do administration on these plans 10+ years ago and I remember that, at the time, you could not do this. I'm wondering if this has changed.

Thanks for your response.

SR

[QDROphile]

Nothing has changed that would make what you describe less questionable. The employer is taking a risk with this practice but there is an argument that it is permissible.

[mbozek]

Legal is a rather odd term in the context of a 125 plan because even after 25 years the IRS has never issued final regs on whether cafeteria plans are required to adhere to the rules for insured plans in order for the payments to be exempt from income under 105(b). Prop. reg 1.125-1 A-17 states that "medical care reimbursements must be provided pursuant to an an employer provided accident and health plan as defined in 105(e) and 1.105-5. This means that the reimbursements must be provided under a benefit that exhibits the risk shifting and risk distribution characteristics of insurance. A benefit will not exhibit these characteristics if the ordinary actuarial risk of the insurer is negated either under the terms of the benefit or by any related benefit or arrangement, including arrangements outside of the 125 plan." Logically a 125 plan that requires participants to reimburse the employer for benefits previously paid would be treated as a self funded plan under 105h and not an insured plan. But since this is not a final reg an employer is not required to follow it.

There is a separate question of whether requiring repayment would violate state labor laws if there was no consent by the employee since such a payment would not be permitted under a plan subject to ERISA.