HRA vs 401K explanation

[Guest SLK]

I am trying field a question as to why an ER cannot move money as they choose from 1 benefit to another. For instance, there is a cap of $1,500 on the HRA and once the cap has been reached, the ER would like to contribute the rest to the 401K account as a profit sharing contribution for that participant only.

I'm trying to find something in writing that explains the differences in these plans and how they are developed as a benefit plan and the EE cannot choose how the "benefit money" is allocation (Health care, retirement, ect....) How you cannot aggregate all plans of the employer 401K or othewise, for non descrim testing.

Anyone have any ideas?

Thanks!

[Ron Snyder]

I don't know that it would be impossible to structure such an arrangement. Drafting may be tricky, and there are certainly 2 sets of nondiscrimination tests to run (1 for the HRA and 1 for the 401k), but it may be possible to create such a plan.

That may explain why you are having a hard time. There are a myriad of articles about DC health plans (of which the HRA is 1 type) on http://www.definedcare.com/.

[Don Levit]

slk:

Is there a $1,500 cap, because the deductible on the group plan is $1,500?

If so, would the employer be willing to consider different HRA balances for each employee, thus "rewarding" the lower-claims users with lower group premiums, due to higher deductibles?

If this was the case, would there be "discrimination" in assessing different premiums, based on participants' various HRA balances?

Don Levit