Multiple FSAs

[Guest MeToo]

Client currently has a 125 Plan with Premium Conversion, Dependent Care and Medical FSA. One of the medical plans they offer is an HDHP. Employees who elect the HDHP are not eligible to participate in the Medical FSA.

Client wants to add a Limited-Use FSA for dental expenses only, that will be funded solely by Employer contributions ($300/yr for single, $500/yr for family). All employees would be eligible for this FSA, even those who are covered under the HDHP. In addition, they want to include the HSA contributions (both the employer and the employee contribute to the HSA) in the 125 Plan.

Questions:

1. Can the plan have two Medical FSAs – one full use with restricted eligibility funded solely by employee contributions, and one restricted use without restricted eligibility funded solely by employer contributions?

2. Can the employer sponsor two separate 125 Plans – in which case we could separate out the full use Medical FSA as a stand alone plan (I assume the Limited-Use FSA could not be a stand alone since it would be fully funded by the employer and therefore not provide an option between cash and benefits)?

3. Would it be better to have a Limited-Use HRA, instead of the Limited-Use FSA? If so, why?

4. Are there any problems/issues I need to be aware of?

Any help or suggestions will be GREATLY appreciated.

[Guest parrot87]

Client currently has a 125 Plan with Premium Conversion, Dependent Care and Medical FSA. One of the medical plans they offer is an HDHP. Employees who elect the HDHP are not eligible to participate in the Medical FSA.

Client wants to add a Limited-Use FSA for dental expenses only, that will be funded solely by Employer contributions ($300/yr for single, $500/yr for family). All employees would be eligible for this FSA, even those who are covered under the HDHP. In addition, they want to include the HSA contributions (both the employer and the employee contribute to the HSA) in the 125 Plan.

Questions:

1. Can the plan have two Medical FSAs – one full use with restricted eligibility funded solely by employee contributions, and one restricted use without restricted eligibility funded solely by employer contributions?

2. Can the employer sponsor two separate 125 Plans – in which case we could separate out the full use Medical FSA as a stand alone plan (I assume the Limited-Use FSA could not be a stand alone since it would be fully funded by the employer and therefore not provide an option between cash and benefits)?

3. Would it be better to have a Limited-Use HRA, instead of the Limited-Use FSA? If so, why?

4. Are there any problems/issues I need to be aware of?

Any help or suggestions will be GREATLY appreciated.

1 - the second "restricted use without restricted eligibility...Edit: forgot about "flex credits"...

2 - yes, you can have a limited fsa and a full fsa...note the answer to 1...

3 - you have to expand on what you mean by "limited use HRA" and "limited use FSA"

4 - refer to 1.

[Guest MeToo]

1 - the second "restricted use without restricted eligibility...FUNDED by employer contributions" is not an FSA. An FSA can only have employee contributions. This would be called a health reimbursement arrangement and follow section 105 of the irs code.

2 - yes, you can have a limited fsa and a full fsa...note the answer to 1...there is no such thing as a "employer funded fsa"

3 - you have to expand on what you mean by "limited use HRA" and "limited use FSA"

4 - refer to 1.

Thank you for your response to Question 2. With respect to Question 1, while I agree with you that an HRA can only be funded by employer contributions, I am quite certain that an FSA may be funded by both employer and employee contributions. Are you meaning to say that the FSA must have an option for employees to contribute to it, in addition to the employer contributions?

[J Simmons]

I agree with MeToo that an FSA may be funded by EE and/or ER contributions.

ER contributions may be made to a cafeteria plan as 'employer flex credits' (Prop Treas Reg 1.125-1®(3)), which may be applied to the payment of an FSA (Prop Treas Reg 1.125-5(b)(1)).

I agree with Matthew Tae that only employer contributions may fund an HRA.

[Mike Preston]

Matthew, you might want to consider replying with a new post rather than editing a previous post. The reason is that if you edit a previous post, the time that you entered your new information is ignored on the "View New Posts" page. Hence, if J Simmons is watching this thread to see if there are any new posts, he won't see your new information.

Edits seem to be very rare on BenefitsLink and this may be the reason.

[SLuskin]

FSA's can very most definitely be funded (1) entirely with employee contributions, (2) entirely with employer contributions, or (3) a combination of employee and employer contributions.

We have any number of Section 125 Plans with 3 or more FSA accounts, each defined differently. Employers can limit what an FSA account will reimburse. They do not have to offer the entire gamut of 213(d) eligible expenses.

Benefit of having the employer money in the FSA- first of all, there is no rollover. If the employer does not want the money to roll over, only wants 1 plan document, 1 5500, etc, this is the way to go.