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Proposed rules will expand HRAs, ARPs

Posted October 24, 2018

The U.S. Departments of the Treasury, Health and Human Services, and Labor released two proposed rules, one expanding the use of Association Retirement Plans (ARPs), and one expanding health reimbursement arrangements (HRAs).


The first proposed rule, published in the October 23, 2018, Federal Register, expands access to affordable quality retirement saving options by clarifying the circumstances under which an employer group or association or a professional employer organization (PEO) may sponsor a workplace retirement plan. In particular, the proposed rule clarifies that employer groups or associations and PEOs can, when satisfying certain criteria, constitute "employers" within the meaning of section 3(5) of ERISA for purposes of establishing or maintaining an individual account "employee pension benefit plan" within the meaning of ERISA section 3(2).

As an "employer," a group or association can sponsor a defined contribution retirement plan for its members, as can a PEO sponsor a plan for client employers (collectively referred to as "MEPs" unless otherwise specified).

Comments on this proposed rule are due by December 24, 2018.


Another, soon-to-be published proposed rule expands the usability of health reimbursement arrangements (HRAs), which are designed to provide an additional way for employers to finance health insurance.

HRAs allow employers to reimburse their employees for medical expenses in a tax-favored way. Current rules prohibit employers from using HRAs to reimburse employees for the cost of individual health insurance coverage. The proposed rule would permit HRAs to reimburse employees for the cost of individual health insurance coverage, subject to certain conditions. These conditions mitigate the risk that health-based discrimination could increase adverse selection in the individual market, and include a disclosure provision to ensure employees understand the benefit.

Because medical expense reimbursements from HRAs are tax-preferred, they provide the same tax advantage enjoyed by traditional employer-sponsored coverage. The proposed rule would not alter the tax treatment of traditional employer-sponsored coverage. It would merely create a new tax-preferred option for employers of any size to use when funding employee health coverage. While the employer would fund the cost of individual health insurance coverage, the employee would own the coverage, allowing the employee to keep the coverage even if he or she left the employer and was no longer covered by the HRA. Employers would be allowed to offer traditional employer-sponsored coverage to offer an HRA of up to $1,800 per year (indexed annually for inflation) to reimburse an employee for certain qualified medical expenses, including premiums for short-term, limited-duration insurance plans.

The rule is expected to be published in the Federal Register on October 29, 2018. Comments will be due 60 days after that.

This article was written by Darlene M. Clabault, SHRM-CP, PHR, CLMS, of J. J. Keller & Associates, Inc.

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