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School Districts Beware: Stand-Alone 105(h) Plans Generally Prohibited

SchoolNet Blog Archives
January 13, 2014

Under guidance published by both the Labor and Treasury Departments, beginning with the 2014 plan year, employers (including school districts) may no longer utilize stand-alone general purpose Health Reimbursement Accounts (“HRAs,” also commonly known as 105(h) plans) for current employees. An HRA will generally not be permitted unless it is integrated with a group health plan that does not have annual dollar limits. To be integrated:

  • The employer must offer coverage under a group health plan,
  • The employee receiving the HRA must actually enroll in a group health plan,
  • The employee must be permitted to permanently opt-out of and waive future reimbursements from the HRA at least annually, and
  • Upon termination of employment, either the remaining amounts are forfeited or the employee must be permitted to permanently opt-out of and waive future reimbursements from the HRA.

Significantly, the guidance points out that although an individual is required to enroll in group health plan coverage, the individual may enroll in a group health plan other than the plan offered by his or her employer. For example, an individual may be considered to participate in an integrated HRA if he or she declines coverage under his or her employer’s plan and instead enrolls for coverage under a spouse’s employer’s group health plan. However, an HRA paired with an individual health insurance policy would not be considered integrated. If at some point in the future an employee ceases coverage under a group health plan, he or she would still be permitted to be reimbursed from an existing HRA balance under the terms of the HRA, but would not be eligible for new employer contributions. Along with integrated HRAs, employers will also be permitted to continue or establish HRAs for retirees. HRAs are benefits commonly provided to school district employees. School district business administrators should review HRA plan documents (along with collective bargaining agreements and employment agreements) to identify and amend HRAs to ensure compliance with these new requirements.