Hardship Withdrawal

[Nassau]

If medical expenses for a participant are paid by an employer Health Reimbursement Arrangement or Flexible Spending Account would this be considered a medical expenses for hardship purposes (i.e., the plan following the safe harbor reasons)?

[masteff]

Before the changes, what, 7 years, 10 years, ago that expanded what's allowable under an FSA, we'd always look to what's allowable as a medical expense on Form 1040 Schedule A. IRS Pub 502 http://www.irs.gov/pub/irs-pdf/p502.pdf It basically is the same as what you're proposing but been in place longer and less likely to change abruptly (e.g., the recent exclusion of non-prescription medications from FSAs). (Actually, the change some years ago to the FSA rules was to effectively expand FSAs to cover anything that's allowable on 1040 Sch A; seems like it was a tax court ruling but I'm too lazy to look it up right now .)

[Guest Sieve]

Would reimbursement from an HSA or cafe plan be considered "reimbursement" such that the employer, knowing the source of the payment of medical expenses, cannot rely on the employee's representation--and the employee cannot properly make a representation--that the distribution does not exceed the amount of the need? (Treas. Reg. Section 1.401(k)-1(d)(3)(iv)©(1).)

[masteff]

Sorry, I was thinking type of expense.

Sieve, I'd agree w/ you that to the extent you know it's been reimbursed by an FSA/HRA then it would NOT be hardship eligible. But... given HIPPA privacy rules, an administrator needs to be very careful about what's known and how it's known.

[Guest Sieve]

Agreed. Of course, you can request the information (i.e., require an EOB) in order for a participant to obtain a medical hardship distribution and, if it's given voluntarily, then it's not a HIPAA violation. Of course, if you don't request specific documentation (such as an EOB), then you can't prevent an employee from telling a mistruth (!) about whether the expense has been reimbursed.

If it's a medical expense that is deductible (i.e., meets the requriements of IRC 213(d)), then it can be requested as a hardship distribution, but a particular FSA/HSA may not be drafted so broadly.