"Corporate Savings Account"

[Guest Quicksilver]

We have a local company maketing the follow plan. Any ideas on what they are doing? I do notice that they do not mention any tax advantage.

The advantages of the Corporate Savings Account vs. other savings and reimbursement accounts include:

The CSA is owned and controlled by the business owner, not the insurance company or the employee.

The CSA provides benefits for the business owner, other reimbursement accounts specifically EXCLUDE the owner.

The CSA allows for two levels of reimbursement, one for the owner and one for the employee.

The CSA is a custom benefit plan with unlimited options. Other savings and reimbursement accounts are pre-packaged with only one or two options.

[GBurns]

Why do you think that it is even an HRA?

It probably is just a section 105 MERP, which have been around for decades. They probably did not mention any tax advantages because the tax advantages might be different for each employer depending on corporate structure, plan design etc.

[Guest Quicksilver]

Why do you think that it is even an HRA?

It probably is just a section 105 MERP, which have been around for decades. They probably did not mention any tax advantages because the tax advantages might be different for each employer depending on corporate structure, plan design etc.

Thanks for the reply

We do the 105 MERP all the time, but the reimbursement is the same for all participants. They are selling this with enhanced benefits for the owners.

[GBurns]

How can the reimbursement be the same for all participants?

[Guest Quicksilver]

Meant to say the maximum limit is the same for all participants

[Guest taxesquire]

isn't a 105(h) MERP an HRA? I've had at least 3 people have MERPS that denied that they were HRAs, but when I reviewed the doc.s, they were HRAs.

To me, the arrangement sounds like an HRA - maybe the enhancement for owners is that the HRA covers deductibles and copays for other insurances like dental and vision and cancer, etc. If the owners make employees pay the full premiums for those other coverages, the employees are less likely to participate than the owners (who will only offer the insurances in which they are interested), so they get the most benefits.

[Guest Quicksilver]

isn't a 105(h) MERP an HRA? I've had at least 3 people have MERPS that denied that they were HRAs, but when I reviewed the doc.s, they were HRAs.

To me, the arrangement sounds like an HRA - maybe the enhancement for owners is that the HRA covers deductibles and copays for other insurances like dental and vision and cancer, etc. If the owners make employees pay the full premiums for those other coverages, the employees are less likely to participate than the owners (who will only offer the insurances in which they are interested), so they get the most benefits.

I agree with you. The confusing thing is that their web site promotes 2 levels of benefits, which is prohibited discrimination?

[Guest taxesquire]

I agree with you. The confusing thing is that their web site promotes 2 levels of benefits, which is prohibited discrimination?

I'd like to think that they are promoting an arrangement that complies with the rules, but owners tend to participate to a greater extent.

For example, the arrangement may reimburse for copays and deductibles of any insurance policy sponsored by the employer. This employer has a medical insurance plan, dental insurance plan, vision insurance plan, cancer insurance plan, and diabetes supplemental policy b/c the business owner has diabetes, his wife is a cancer survivor, his children need dental work and they all need glasses. So the owner participates in everything, uses everything, and gets a significant amount of reimbursements from the HRA.

Most employees will participate in the medical insurance plan and maybe 1 of the others, so they use less benefits and incur fewer copays and deductibles and, therefore, are eligible for fewer reimbursements udner the HRA.

[GBurns]

What is a 105(h) MERP as opposed to a 105 MERP?

Do you establish a 105(h) MERP or do you establish a 105 MERP that does not violate 105(h)?

All HRAs are MERPs but not all MERPS are HRAs. The main differences being funding and the rollover feature.

[Guest taxesquire]

All employer-sponsored health plans must comply with IRC 105 to avoid subjecting amounts to taxation as employee-income. All self-insured employer-sponsored group health plans must comply with the nondiscrimination requirements of IRC 105(h) to avoid HCEs from having to include the value of certain benefits in their taxable income.

"Do you establish a 105(h) MERP or do you establish a 105 MERP that does not violate 105(h)?" The latter

"All HRAs are MERPs but not all MERPS are HRAs. The main differences being funding and the rollover feature." True. Over the last several years, however, I have not seen an employer-sponsored self-insured MERP that was not a health FSA, HRA, or HSA. Actually, I'm not sure that an HSA qualifies as a MERP under 105...

[GBurns]

So it is a section 105 MERP and not a 105(h) MERP.

I see MERPS that are not health FSAs at least once per month.

[Guest taxesquire]

So it is a section 105 MERP and not a 105(h) MERP.

I see MERPS that are not health FSAs at least once per month.

If those MERPS are also not HRAs, would you try to describe how they qualify under 105 and satisfy 105(h) without complying with the FSA or HRA rules?

I'm not doubting, I'm just trying to educate myself

[Jacmo]

Quicksilver: The two levels of coverage might be this: IRS regs provide a specific exception to the Code 105(h) nondiscrimination rules for medical diagnostic procedures (including medical examinations) that are provided to employees only (not dependents). Under this exception, medical diagnostic procedures are not considered to be part of the employer's self-insured medical reimbursement plan for purposes of non-discrimination testing. I.E., executive physicals! See Treas. Reg. 1.105-11(g)(1).

I'd like to know how they handle the self employed (LLCs, LLPs, Partnerships, sole proprietors, S-corps) Your description shows no disclaimer for that category.

I'm wrestling with the self employed problem and suspect it might be possible to rely on Section 104(a)(3) to allow self-employed individuals to participate in an HRA on an after tax basis, and use the COBRA rate as the value of the plan, to be added to the owner's W-2. I wonder if they're doing this.

[GBurns]

taxesquire

Section 105 MERPS do not have to be HRAs, but HRAs have to be section 105 MERPS. HRAs are section 105 MERPS with features that were not frequently used prior to Revenue Ruling 2002-41 and Notice 2002-45. There were no new or amended IRC sections nor Treasury Regulations. Why not? Because it was always allowed under sections 105 and 106.

Definity, Destiny, Lumenous and others long before them were actively selling these arrangements with and without rollover, before June 2002. Just because there was no Ruling, it does not mean that they were not in use. Section 125 pre-taxing still has no IRS ruling, yet is in widespread use even with a yearly repeated official No=Rule Revenue Procedure issued at the start of every year.

HRAs are nothing new. The only thing "new" is the name that the IRS chose to use and which has now a label.

Section 105 MERPS have nothing to do with FSA, section 125 or HRA rules. It is FSAs and HRAs that have to comply with section 105.

See Treas Regs 1.105-11 Self-insured medical reimbursement plan, for an explanation. The Regs have not changed since pre 1984.

Aside from being used by large companies, section 105 MERPS are such a standard fixture that the document is usually included in the Kit that is given out by probably all of the business incorporation services. This has been so from as far back as I can recall. Do a Google search on "business incorporation kit" and look at what is in the package that almost every service provides. They have been doing this long before 2002, which means that they have been doing this long long before HRAs, as you know them, came into being.

[Guest taxesquire]

For some reason, Burns, I get the feeling that you are criticizing my posts without adding anything meaningful. I see I made a misstatement about MERPS being HRAs. In my experience, all MERPS are FSAs or HRAs, and 90% of the time, when they are called "MERPS," it's an HRA, not an FSA. I've never seen a commercially-insured MERP.

The fact that people didn't use the term "HRA" back in the day does not change the fact that this is what they are.

"Section 105 MERPS have nothing to do with FSA, section 125 or HRA rules. It is FSAs and HRAs that have to comply with section 105."

Of course FSAs and HRAs have everything to do with MERPS. I believe we all understand that those are types of MERPS.

As for your confusion between 105 and 105h, let me clarify - there technically is no "105 MERP." IRC 105 addresses when amounts that employees receive from an employer-sponsored plan is taxable income. Any amounts, whether it be from an FSA, HRA, or medical insurance policy. IRC 105h describes when a MERP (actually, a self-insured MERP) is discriminatory and what happens in that instance. What we commonly refer to as MERPS, HRAs, and FSAs is a way to reimburse people for medical expenses outside of a commercial insurance policy without running afoul of the 105h nondiscrimination rules.

"Definity, Destiny, Lumenous and others long before them were actively selling these arrangements with and without rollover, before June 2002. Just because there was no Ruling, it does not mean that they were not in use. Section 125 pre-taxing still has no IRS ruling, yet is in widespread use even with a yearly repeated official No=Rule Revenue Procedure issued at the start of every year."

Huh?!? I don't think anyone said they didn't exist. I just said they are HRAs, and they are, be it because of a name change or whatever. Why bring 125 into this?!? What does it add???

[GBurns]

I am really confused by your response.

" all MERPS are FSAs or HRAs", in my mind should have been all FSAa and HRAs are MERPs, since they are all Medical Expense Reimbursement Accounts and not the other way around. All apples and oranges are fruits not the other way around.

"I've never seen a commercially-insured MERP". Aside from what Exec-U-Care etc sells, I have never seen one either, and I doubt that any other reader has either, so I wonder what you mean.

Then if your first paragraph is true, How can you then state in your 4th paragraph that:

"Of course FSAs and HRAs have everything to do with MERPS. I believe we all understand that those are types of MERPS".

Which is it "all MERPS are FSAs or HRAs" or "that those are types of MERPS" ?

What seems to be the real problem is that we seem to have two very different sets of definitions (interpretations) for what the terms MERP and HRA means and what they are commonly or should be used for.

I use MERP as explained in Treas Regs 1.105-11 and HRA as per the IRS Notice and Ruling issued in June 2002. That means that to me, an HRA is a MERP with a rollover option, so as to differentiate it from what had already been in fairly common use. Technically, I guess it could be said that they are one and the same, with features dependent on Plan Document.

But that still means that HRAs are MERPS set up as per section 105. In addition, I have never seen or heard of anyone ever setting up a MERP or HRA based on 105(h). I have always seen them set up as per 105 and operated so as not to violate 105(h). A very big difference.

The way you are stating it is similar to saying that someone should set up their health plan as a HIPAA or COBRA health plan rather than setting up a health plan under 105 and 106 and operating that plan so as not to violate HIPAA or COBRA.

[Guest taxesquire]

I have a better understanding of where you're coming from now - sorry that my last post was so aggressive. Just a few more comments:

" all MERPS are FSAs or HRAs", in my mind should have been all FSAa and HRAs are MERPs, since they are all Medical Expense Reimbursement Accounts and not the other way around. All apples and oranges are fruits not the other way around.

I understand and agree with you technically. I did not think to differentiate between an HRA and a MERP based on rollover. To me, they are both HRAs. So...to try and play into the fruit example, if the only fruits I had ever come across in the entire world were apples and oranges, then I would believe that all apples and oranges are fruits, but also that all fruits are either apples or oranges. I have not personally come across a MERP that was not either an FSA or an HRA, and I guess by "HRA," I mean an arrangement that satisfies the requirements of those rulings defining what an HRA is. So, all FSAs are MERPS; all HRAs are MERPS, all MERPS are either FSAs or HRAs.

"I've never seen a commercially-insured MERP". Aside from what Exec-U-Care etc sells, I have never seen one either, and I doubt that any other reader has either, so I wonder what you mean.

I know I said this, but I can't locate it now. My recollection is that I was qualifying my statement about MERPS having to comply with 105h. Technically, commercially-insured MERPS do not, which may be what's happening in the original post.

Then if your first paragraph is true, How can you then state in your 4th paragraph that:

"Of course FSAs and HRAs have everything to do with MERPS. I believe we all understand that those are types of MERPS".

I think I answered this above

But that still means that HRAs are MERPS set up as per section 105. In addition, I have never seen or heard of anyone ever setting up a MERP or HRA based on 105(h). I have always seen them set up as per 105 and operated so as not to violate 105(h). A very big difference.

105h has operational requirements, but also documentation requirements. Eligibility must not be drafted in a way that is discriminatory. Same with the available benefits, so you need to consider 105h when drafting and when operating the plan.

The way you are stating it is similar to saying that someone should set up their health plan as a HIPAA or COBRA health plan rather than setting up a health plan under 105 and 106 and operating that plan so as not to violate HIPAA or COBRA.

I don't know if that is what I am saying, but a health plan document that does not address special enrollment, HIPAA privacy, and certificates of coverage violates the requirements even if it is operated in accordance with HIPAA, so you need to consider those when drafting the plan.