Termination of an HRA

[Guest Hillda]

If an employer decides to terminate an HRA for retirees, what can the employer do with any remaining acount balances as of the termination date?

Must the employer continue the HRA until all participant accounts are depleted?

IRS guidance indicates that a participant has the right to receive cash under the arrangement, payments made to all participants in the current year and future years must be included in gross income. (IRS Rev Rul 2006-36).

[Guest jrzgrl]

We looked into terming ours and were told the money would go back to the insurace company.

[jmor99]

I hope no employers are sending HRA dollars to an insurance carrier, or TPA, etc. Isn't the whole idea behind HRAs is that "funding" is ghost money? The only dollars that should be going to the insurance carrier or TPA are the fees for admin of the program and dollars to pay incurred claims.

[leevena]

If by HRA, you mean a Health Reimbursment Arrangement, then you need to check your plan document. To begin with, a HRA is an employer controlled, self-funded account. The money does not go to any insurance company, and the account does not need to be funded until claims are submitted.

Whoever told Jrzy girl that the money goes to the insurance company was either confused by the question, or does not know what they are talking about.

As for the question...Must the employer continue the HRA until all participant accounts are depleted?--the answer is no. Any dollars not used, whether funded or not, revert back to the employer. Beware, there are technical/legal issues that need to be followed when terminating this type of a plan, such as notification dates, submittal of claims dates, etc.

Hope this helps.

[Guest jrzgrl]

My broker told me that. I can add that to the list of why we are going to replace them.

[jmor99]

Hillda: Better look at the plan document. Some HRAs have a "spend down" provision (regardless of COBRA) and also may have a rollover provision. Keep in mind that an HRA is nothing more than an old fashioned MERP (medical expense reimbursement plan) like your grandfather used to have except it's been dusted off, given a new set of clothes and lipstick, added a rollover provision if desired and now it's called an HRA. Just so we can have something new under the sun.

It's nothing more than another health plan (sec. 105). What does their current health plan allow?

To answer, you'd have to look at the plan document. Do the same for the HRA.