Trust Account w/FSA AND VEBA

[Guest JTrini]

Good Morning -

I have newly-sold group, which is a Trust, which offers FSAs as part of the benefits package to the employers in the Trust. When we sold the case, we recommended the Trust set up one policy, rather than 20+ for each separate employer in the trust as they had been doing. This morning, we learned that there is a VEBA attached to the FSA (although it is not clear as to how the VEBA is funded at this time), and the Trust's outside legal counsel has advised that because of the VEBA, the Trust cannot set up one master policy, although FSA funds (all EE funded) from each employer can be comingled for purposes of claims payment.

Can anyone make sense of this for me? Naturally, we need an answer ASAP since we have a call with the group this morning. We still trying to track down internal legal counsel who has knowledge of both 125 and VEBA regs.

[Ron Snyder]

You have raised many issues. No, no one can help you make sense of this, because not enough information is provided.

Who are you? The TPA? The broker? An employee of a consultant that recommended this mess?

Problem #1: A trust that provides a multiple-employer FSA. This is a MEWA and requires registration with the DOL. Several states require that TPAs be licensed as such with the state insurance department before administering such an arrangement. There is no reason to use a VEBA trust for an FSA. A simple TPA claims payment account is quite sufficient for the purpose of providing such services. As a MEWA providing health reimbursement benefits, several states would close you down as an unauthorized health plan, so check with the state insurance department before accepting business in a state.

Problem #2: What does the "Trust set up one policy" mean? You have referred to an FSA only at this point. Are you referring to the underlying health insurance policy that would be available for premium reduction under the FSA? If so, what does it matter to you if each employer has its own coverage. No insurance carrier would look at this as a single group anyway. And if you self-insure any of the benefits, you will be closed down in any of the 50 states.

[Guest JTrini]

I received clarification on the issue this morning. The issue is a concern over discrimination under the VEBA (same benefits for all groups), if the ERs under the Trust select different internal HCRA maximums up to the max that the Trust will allow. Essentially, the Trust implements a $7500 HCRA max as the "master plan maximum". But, each ER under the Trust can choose their own HCRA max, up to the established $7500 Trust maximum. The concern has to do with whether or not this is considered discriminatory because the ERs may not all have the same level of benefits (the HCRA max). The goal was to allow the ERs in the Trust some level of independence while allowing the Trust to keep control and make their administration easier. The Trust itself is still fairly new and the ERs are still adjusting to a perceived lack of independence. Is there an issue?

Medical insurance does not play into this at all.

[Don Levit]

If the FSA funds are employee-pay-all, there are no discrimination requirements to be concerned about.

Don Levit