Limits Under a Medical Expense Reimbursement Plan

[Guest Edward McElroy]

I seem to recall that there were limits as to the amounrt of benefits that could be reimbursed under a Medical Expense Reimbursement Account. I recall that these amounts were either $50,000 or 15% of compensation. Additionally, where in the Code are these amounts set out? Any assistence would be appreciated. Thanks. Ed

[Lori Friedman]

I'm not familiar with the 15%/$50,000 numbers, but aren't you asking about a cafeteria plan medical FSA? If yes, nothing in I.R.C. Sec. 105, which governs medical FSAs, sets a specific annual limit. The maximum election is a matter for the plan sponsor to determine.

There are several cautions against setting a very high election limit:

1. If the plan covers key employees or HCEs, a very high amount can cause nondiscrimination problems under both the cafeteria plan rules and I.R.C. Sec. 105(h).

2. The entire elected amount must be available throughout the period of coverage. An employee can receive a huge reimbursement early in the year and then quit.

3. Well-intended employees might elect enormous amounts that they end up losing at year-end.

What amount is reasonable? What amount is too high? Again, that's for the sponsor to decide.

[Guest Edward McElroy]

I'm not really looking at a situation under an FSA. I'm looking at a situation where an employer adopts a MERP that will reimburse him up the greater of $50,000 or 15% of compensation per year. You need to comply with Code Section 105. The MERP does not exclude employees with less than 3 years of service. Can employer, after he and wife incoprorated business in 2004, but before first common law employee is hired, amend the MERP to incorporate the 3 year requirement. Thanks. Ed

[Lori Friedman]

So you're asking about a self-insured health benefit arrangement? (Forgive me if I seem dense. I'm just trying to make sure I understand your questions.)

[Guest b2kates]

yes, a Merp can always add the service requirement before other employees become eligible.

But look at 105(h) for discrimination issues.