QUESTION: Our firm is considering including an HRA that might be built-in with our main medical plan. Staff might carry over their HRA balances from 12 months to 12 months. What occurs to these balances when an worker’s employment terminates?
ANSWER: Your organization has some decisions about what is going to occur to HRA balances remaining at termination of employment. The HRA could also be designed in order that staff forfeit their unused HRA balances when employment ends (sometimes after a restricted post-termination alternative to submit reimbursements for pre-termination bills). Or your organization could select a design that allows staff to “spend down” their HRA balances and obtain reimbursement for eligible bills incurred after employment termination till the HRA stability is depleted. Alternatively, the HRA may very well be designed so that every one however a nondiscriminatory class of staff forfeit unused quantities at termination. No matter which design you select, terminated staff might not be “cashed out” of their HRAs (i.e., supplied with money or different advantages in an quantity equal to some or the entire HRA stability), as a result of a cash-out characteristic would set off taxation of all HRA distributions, whether or not or not they have been used to pay certified medical bills. The design decisions you make must be clearly acknowledged within the HRA plan doc and defined to staff within the abstract plan description and different communication supplies.
Whether or not or not the stability is forfeited, COBRA should be provided until an exception applies (e.g., as a result of the HRA is sponsored by a small employer that’s exempt from COBRA). If COBRA protection is bought, the recipient can have entry to the HRA stability (however any forfeiture rule), elevated by any account credit that might be acquired for the protection interval by a equally located non-COBRA beneficiary. Word that COBRA’s software to HRAs raises some complicated points which can be past the scope of this reply.
If an worker dies whereas eligible to incur reimbursable bills, the HRA could permit the worker’s accrued stability to reimburse the substantiated certified medical bills of the worker’s surviving partner, youngsters who’re beneath age 27 as of the tip of the taxable 12 months, or tax dependents for well being protection functions. A deceased worker’s stability might not be used to reimburse the medical bills of anybody aside from these people (there’s a restricted exception for sure state governmental HRAs), or paid for any cause aside from medical expense reimbursement. For extra info, see EBIA’s Shopper-Pushed Well being Care guide at Sections XXI.F.12 (“Forfeit Account Balances or Allow Spend-Downs?”), XXII.C.2 (“Therapy of HRAs Upon a Participant’s Loss of life”), XXIV.F (“No Money-Out of Unused Quantities”), and XXV.B (“HRAs and COBRA”). See additionally EBIA’s COBRA guide at Sections IV.C (“Small Employer Exception”) and XI.G (“How COBRA Applies to HRAs: Distinctive COBRA Administration Points”).
Contributing Editors: EBIA Workers.