Introduction to Tax-Advantaged Accounts

Welcome everyone to Introduction to Tax Advantage Accounts. Thank you all so much for joining us. The benefits compliance team will be answering the questions you send through the Q&A today. We'll try our best to answer all your questions, but if for whatever reason we're unable to get to your question today, please follow up with your adviser for further assistance. 
0:19 
Today's presentation is being recorded. We'll be sharing the recording in the follow-up email and on the NFP website. 
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If there are any portions of this call that you missed, by Monday you'll receive an email with a link to the full recording. The PowerPoint slides used during this presentation will be shared in the same email. At this time, I'll hand it over to Kelly Ecman, vice president of benefits compliance at NFP, and Patrick Meyers, vice president and council of benefits compliance at NFP. 
0:42 
Patrick, the floor is yours. Thank you, Amber. Welcome everyone to our introduction to tax-advantage accounts. My name is Patrick Meyers and my colleague Kelly Ecman and I would like to take this opportunity to provide a high overview of these benefits which are often key components to employer benefit plans. 
1:09 
But before we do, allow me to note that what we will be providing today is high level guidance and not legal or tax advice. If you have any tax or legal questions regarding these benefits, then please consult your tax advisor or your attorney. Finally, I'd like to note that any information that we provide today is current as of today. 
1:34 
So, what are we covering? Well, we will begin with Kelly lay providing a lay of the land in describing the basics of those tax advantaged accounts. 
1:45 
I will then discuss health savings accounts or HSAs. Then Kelly will talk about HAS or health reimbursement accounts. And then I will come back to describe FSAs or flexible spending accounts. And then finally, Kelly will wrap it up with key takeaways as well as resources that we have prepared that provides more information about the topics we'll be discussing today. So, let's go ahead and get started. Uh, Kelly, take it away. 
2:15 
All right, thanks Patrick. And yeah, we're just going to get started here with just a very quick overview of some basics surrounding tax advantaged accounts. 
2:27 
Thank you. And so really, I think it's important just to understand, you know, what are the kind of accounts that we're talking about today? And so these are going to be medical plans or in some cases what we might think of as savings vehicles that are going to let someone pay for health coverage or qualified expenses on a pre-tax basis. Sometimes you'll also hear us say on a non-taxable basis. Um the tax savings that these types of accounts bring can actually be both for the employer and the employee. Um really the important thing and it'll be kind of a consistent theme throughout the presentation is that because these are tax advantaged or tax favored um accounts, they cannot favor highly compensated employees or key employees. um each type of arrangement and account that we're going to talk about today, they're going to have their own set of compliance rules and we'll kind of touch on those as we do a deeper dive into each category. But in general, the rules can be limited by either annual limits by the employer and then you're going to have a variation with eligibility criteria. sometimes enrollment criteria um tax filing status can impact some of these accounts that thing. The important thing here is that these type of types of accounts do need to have written plan documents for um to maintain their tax advantage status. Now it is important to note here that HSAs are a little different and that these are individual accounts. So the employer is not going to have a plan document for those. Although the contributions that are made to an HSA would run through a regular cafeteria plan. So there is still some sort of plan document that does need to exist. Next slide please. And again I mentioned non-discrimination rules. So this is really kind of the consistent theme we're going to hit. Um the highly look at non-discrimination rules are these are rules that are intended to discourage employers from disproportionately providing tax favored benefits to those highly compensated employees or those key employees. Now when we're looking at HCE or sometimes you'll see it called HCI highly compensated individual um those definitions are actually going to vary by the code section and the test. So, we will try to talk through that a bit as we go on. So, section 125, that's probably the most common one that most people have heard about. These are also known as cafeteria plan rules. These are really going to cover those pre-tax, premiums, HSA contributions, that kind of thing.
5:20 
The next set of non-discrimination rules are going to be section 105H. So, these are only applicable to self-insured plans. And we're going to talk today about both FSAs and HAS, which are types of self-insured plans. And then the last type of non-discrimination rules that come into play for our topics today are under section 129. And this is applicable only to dependent care FSA accounts or you might hear DECAP, dependent care assistance programs. And these really are the most common um tests to fail when we're thinking about non-discrimination rules. Um, and I think Patrick will talk more about that later in the presentation, but just understand that these non-discrimination rules are really important when 
employers are trying to maintain the tax advantage status of these various accounts. 
6:13 
And now, oh, one more here. I guess this is um just a quick look at one of our publications we have. So, our non-discrimination rules chart here. I think it's really helpful to look at this and just see, you know, an easy breakdown of, okay, what are the various types of the code sections, which benefits do these apply to, how we're defining those HCEES and key employees. And this is a publication that you can request from your consultant or advisor if it's not one that you have seen and you are interested in learning more about the various non-discrimination tests and rules. 
6:53 
And now I'll hand it back to Patrick for a look at HSAs. 
6:58 
Thank you, Kelly. First, let's go over some HSA basics. An 
7:04 
HSA is a government regulated savings and investment account that allows eligible individuals to pay for or reimburse qualified medical expenses for themselves, their spouses, and their tax dependents on a tax advantaged basis at the federal level. Now, HSAs are individual accounts. So, you can't have a joint account with a spouse and so each spouse should have their own account. 
7:30 
And in addition to that, employees own those HSAs. They can invest their savings and carry over unused account balances indefinitely. Uh HSAs are becoming quite popular because there are tax advantages to contributing and investing funds in an HSA. Uh that said, HSA withdrawals that used to pay for qualified medical expenses are 100% tax-free. 
7:56 
Now, they are generally not treated as group health plans under ORSA or other employee benefits laws, but as Kelly indicated in that first section, section 125 of the Internal Revenue Code, which covers cafeteria plans, will apply to HSAs that are offered through an employer's cafeteria plan. And this is generally the case. So when you're talking about uh employer and employee contributions to HSAs through a cafeteria plan, then you'll have to take into account those non-discrimination rules in section 125. And incidentally, on this slide, you will see an image from the cover of our uh publication on this topic which you can ask uh you can obtain from your uh consultant. So, let's dig a little bit deeper into HSAs and talk a little bit about eligibility. An employee must to be enrolled in a qualified HDHP to be eligible to make or receive HSA contributions. Now, a qualified HDHP is a medical plan that meets the statutory prescribed single family thresholds for minimum annual deductibles and maximum out-of-pocket expenses exclusive of premiums and it does not provide a significant benefit other than preventive care before the statutory minimum annual deductible is met. 
9:22 
When we talk about preventive care, we mean care that includes but is not limited to periodic health exams and related tests, routine prenatal and well child visits, immunizations, tobacco cessation and weight loss programs, and certain screening devices. 
9:42 
This usually doesn't include services or treatments intended to treat existing illnesses, injuries, or conditions, but there are exceptions. uh a common one is uh insulin for diabetes is covered is considered preventive care for this purpose. 
9:59 
Let's talk a little bit about impermissible coverage. An employee must not have impermissible health coverage to be eligible to make or receive HSA contributions. Impermissible coverage refers to any non-HDHP health coverage provided before the statutory minimum HDHP deductible is met. Common examples include other major medical coverage such as through a spouse, Medicare entitlement, which is a specific meaning, which means when someone is both eligible and enrolled in Medicare, general purpose HRA or FSA coverage, including through a spouse's general purpose HRA or FSA. Now note that if an FSA with a grace period or carryover provision may extend the period when an individual is ineligible to contribute to his or her HSA. And we'll talk more about HAS and FSAs later on in this presentation. 
11:03 
Now before we go on, I wanted to talk a little bit about some changes to HSA eligibility uh that were introduced in recent legislation. First of all, we want to talk about telehealth. 
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Since most telehealth benefits provide coverage before the statutory minimum HDHP deductible is met, it was considered impermissible coverage. In response to the COVID pandemic, Congress provided a temporary exception for telehealth. Now, Congress renewed this exception regularly and the last extension for this exception expired on December 31st, 2024. 
11:43 
But in the 2025 tax act, also known as the one big, beautiful bill act or OEBA, Congress made the exception permanent. Telehealth coverage can be provided to HDHP participants at low or no cost before meeting the deductible without impacting HSA eligibility. Also note that this change is retroactive and applies to plan years beginning on or after January 1st, 2025. 
12:16 
Another exception introduced in that tax act involves direct primary care. 
12:22 
Direct primary care is a benefit that allows a participant to pay a membership fee to obtain access to a primary care doctor. Direct primary care was considered in permissible coverage unless the service was solely for certain permitted coverages, for example, dental or vision coverage or for preventive care. 
12:44 
Now, the tax act now defines direct primary care as a fee based primary care service, not as a health plan, and allows HSA participants to make or receive contributions while also participating in a direct primary care arrangement that meets certain conditions. One, there must be a fixed monthly fee not exceeding $150 for individuals or $300 for a family and this will be indexed annually. 
13:14 
Two, the fixed periodic fee structure uh compensation to practitioners for services is limited to primary care. And then finally, it's got to be distinct from concierge services. 
13:27 
If it meets those uh conditions, then it can be allowed under, and people can participate in a direct primary care uh program and also continue to make or receive HSA contributions. 
13:40 
Now, the other thing to note is that the new tax act also allows HSA funds can be used to pay direct primary care fees subject to those same limitations. 
13:54 
And another important uh change to HSA eligibility introduced by the uh one big, beautiful bill act is that it now allows for individual coverage. As noted earlier, an employee must be enrolled in a qualified HDHP to be eligible to make or receive HSA contributions. But the OOTBA now treats bronze and catastrophic individual plans offered through the marketplace as qualified HDHPs regardless of deductible or out of pocket maximum amounts. And this will be effective January 1st, 2026. Employers may be allowed to contribute to the HSAs of employees enrolled in bronze or catastrophic marketplace plans. So, employers who sponsor ICAS take notes. 
14:52 
Here is an excerpt from our publication on HSAs that provides or shows the limits on health savings accounts and HDHPS as imposed by the IRS. 
15:04 
Again, if you would like to see a copy of this uh chart, please ask your consultant for a copy of that publication. So, let's talk a little bit about HSA employee contributions. HSA contributions may be made by the account holder or any other person, including an employer or family member, on behalf of an eligible individual. 
15:28 
Contributions to an HSA can be made in increments of any size up to the annual limit. HSAs can be front-loaded or backloaded as the contributors see fit, provided the contributions do not precede the employees’ HSA eligibility date. 
15:45 
Employee and employer HSA contributions made via an employer's cafeteria plan on a pre-tax basis are not subject to federal income and payroll taxes. 
15:56 
Contributions made on a pre-tax basis are subject to section 125 non-discrimination rules. Contributions made on a post- tax basis are subject to comparability rules which are stricter than section 125. And again, we get into more detail about the comparability rules in our HSA publication. 
16:16 
The HSA annual contribution limit is increased by an additional $1,000 for HSA eligible individuals who have attained age 55 by the end of the calendar year. If the employee is not HSA eligible for the entire calendar year, as with the general HSA contribution limit, the catchup contribution limit must be prorated based on the employees’ actual months of HSA eligibility. 
16:47 
An employee’s eligibility to make or receive HSA contributions is determined monthly up to the applicable annual contribution limit under the full contribution rule. also referred to as the last month rule. An employee can make the full not pro-rated annual HSA contribution for the current year based on the HSA eligible employees HDHP coverage tier as of def December 1st, regardless of whether they had HDHP coverage earlier in the year. However, if the employee fails to remain HSA eligible through the end of the following calendar year, then the amount that exceeds the sum of the monthly limits must be included in the employees gross income for the following year and is subject to an additional 10% tax. So, be careful with those. Now, employers can contribute to the accounts of HSA eligible employees. 
17:46 
Employer contributions to an employes HSA are generally excluded from the employee’s gross income for purposes of federal withholding and employment taxes. Employer and employee contributions combined cannot exceed annual limits. Employers have discretion to determine HSA contribution amounts subject to those non-discrimination rules in section 125 or perhaps the comparability rules. And they can also choose the frequency of the contribution. For instance, they could do it on a per pay period, monthly, quarterly basis etc. Employers are not responsible for determining whether an employee is HSA eligible. However, employers should have a reasonable belief when they contribute to an employee’s HSA that the employee is eligible to make or receive HSA contributions. Employers are required to verify whether the employee is enrolled in the employer's HDHP and is not enrolled in any of the employer's other health coverage options. 
18:53 
Now, what happens if you have excess contributions? Contributions made in excess of annual limits are subject to a 6% excise tax. It is generally the responsibility of the account holder, not the employer, to correct excess contributions. 
19:11 
The account holder should consult with their own tax advisor when they need to make any corrections. Errors must be corrected by the employee’s individual federal income tax filing deadline, including extensions for the prior calendar year. and contributions to a employees HSA belong to that employee and cannot be returned to the employer. That said, there are very limited exceptions to this rule which include at a high level instances where the individual was never HSA eligible if there are clear and convincing evidence of administrative or process errors and if they were mistakenly contributing more than the maximum permitted by the IRS. 
19:55 
Let's talk a little bit about HSA distributions. HSA funds used to pay for qualified medical expenses are not subject to federal tax. Medical expenses are defined as the costs of diagnosis, cure, mitigation, treatment, or prevention of disease and for the purpose of affecting any part or function of the body. Over-the-counter supplies such as bandages, reading glasses, contact lens solution, sunscreen, or medications are qualified expenses, even without a prescription. 
20:29 
HSA funds do not need to be withdrawn in the same year, expenses are incurred. 
20:35 
Distributions cannot be made for a time period prior to the establishment of that HSA. That is to say, you can't reimburse yourself for expenses incurred before you open that HSA. HSA fund withdrawals by individuals under 65 for any purpose other than for qualified health care expenses are subject to income tax on the withdrawal amount plus a 20% tax penalty regardless of the age of the party on whose behalf the withdrawal is made. That said, HSA distributions made after age 65 are penalty-free but are taxable if the withdrawal is for purposes other than for qualified medical expenses. That's a lot, but let's go ahead and move on to HASS, and I'll hand this back to Kelly. All right, thanks Patrick. Yeah, so now we're going to switch gears and talk about HAS. Um, we're going to do this a little bit more of a higher-level overview than kind of some of the details Patrick took us through on HSAs just because we want to cover several different kinds here. Um, but to begin, we kind of want to take a look at what are HRAs or health reimbursement arrangements. So, as we mentioned earlier, HAS are self-insured plans. They are employer funded. So that means employees do not contribute to HASS at all. It is just employer dollars. And then these HASS can be used for things like qualified medical expenses and in some cases potentially premiums as well. 
22:14 
Like other reimbursement accounts, there are claim substantiation rules that apply. So that means someone can't just use their HR and buy, you know, whatever they want. It has to be on qualified medical expenses that are allowed under the plan. And so therefore, there are substantiation processes that an employee would have to go through for anything they are trying to uh spend that money on or get reimbursed for under the HRA. 
22:44 
Now, HASS are going to be subject to basically the same federal laws that we think of applying to um kind of your traditional group health plans because we really want to think of HASS as group health plan. So, these are self-insured plans. So, often they're going to have to file a PICORI fee because again, self-insured plan. Um, HASS are going to be subject to COBRA and COBRA rates for HASS can be a little bit tricky. Um, they're going to follow the same methodology as you see with a self-insured health plan. Um, so sometimes you even have to get an actuary involved to make sure that you are presenting the correct COBRA rates. It's not just as simple as, you know, the HRA allows someone to spend $200 a month and therefore the Cobra rate is $200 a month. It actually gets a bit more complex than that. As I talked about at the beginning, non-discrimination rules, again, the theme of the day. So, these are self-insured plans, so they're subject to both section 125 and section 105H rules. And typically, we think of the 105H rules as being a little bit more difficult to meet because they are going to have a broader range of employees that are considered highly compensated. 
24:10 
Um keys here are making sure that you know if an employer wants to vary eligibility or potentially reimbursement amounts available to different groups of employees that can be problematic. Um, and specifically under those 105H rules, if an employer wants to vary um, the benefits or amounts based on age, compensation, or years of service, that can also be problematic. So, if you have an HRA and you want to offer different amounts to different employees, I always say kind of, you know, hit the brakes a bit and make sure that the variance that you want to offer is allowed. Um, and so you can see on the right side here, we're going to walk through five different types of HRAs. These are kind of the most common ones that we typically see, and we'll just kind of do a high look at each of these HRA types. 
25:08 
Next slide, please. Okay. So, the first type here, I think of these as our traditional HRAs, the ones that most people are um probably most common commonly known. So, our integrated or traditional HASS, the important thing when we had the ACA come about that got rid of the ability for employers to have standalone HAS except in very limited situations. Um, so basically most of the time an HR has to be integrated with a group health plan or it's not going to satisfy the ACA's rules. 
25:50 
So what does integration mean? It means that the employer is also offering a group health plan to those same employees that are eligible for that HRA. 
26:03 
The employee receiving the funds, they must be enrolled in a group health plan of either the employer or their spouse's employer. Has can only reimburse, you know, regular amounts like co-pays, co- insurance, deductible amounts, or premiums in some cases. And then the HA must allow the employee to opt out or wave participation in that HR at least once each year. And again, federal rules that apply to group health plans are going to apply. So, ACA, we mentioned, uh, COBRA, Orisa, HIPPA, all of these rules that you're likely familiar with are going to apply to HR just like they apply to a group health plan. 
26:52 
And so now, Patrick walked us through, you know, some of the issues with uh, HSAs and impermissible coverage. And so now we're going to talk about a type of HRA that would be compatible with HSA. And this is a post deductible HRA because again HASS are traditionally going to be impermissible because they often pay before that statutory minimum deductible has been met. But if an employer wants to offer an HRA alongside a high-deductible health plan and still make it compatible for HSA contributions, the post-deductible HRA is the way to go. 
27:34 
The important thing here is that the HA cannot pay for non-preventive care expenses until the statutory minimum deductible has been met. Now, it's important to understand here. It doesn't mean that you first have to pay the entire plan's deductible first. It just means it has to be that statutory minimum deductible that Patrick talked about earlier. So, in our example here um the from the individual level the post deductible HR could start paying at $1.1701 and that's assuming we're looking at the 2026 minimum deductible amount. So, if the plan has, let's say, a $3,000 deductible for self-only coverage, it doesn't mean the HA has to wait until um $3,000 has been paid. It just means they have to satisfy that first $1,700 for the minimum deductible. So, these are definitely a strategic way that an employer can potentially, you know, have a higher deductible plan, but still help employees out with some of those expenses before they have to get to that um actual deductible under the plan. And again, I mentioned the same design and reimbursement requirements that we talked about for that integrated or traditional HRA. They're also going to apply for these. It's really just when the HRA starts paying. That's the difference here with that post-deductible HRA. Okay. The next one we're going to talk about is an IKRA or an individual coverage HRA. And so, I think these have become a little bit more common over time. So, I think it's important to understand some of the basics here. 
29:20 
Icas are going to be the only way that an employer can pay for or reimburse individual health insurance. And then even more complicated is, you know, we often get asked by employers, can we pay for the Medicare coverage of employees? And typically, the answer is going to be no. And um but an IKRA is a way that an employer that has 20 or more employees can pay for Medicare costs and know why that 20 employee thresholds. So, there's a set of rules called the Medicare secondary payer rules that basically say an employer cannot take into account someone's eligibility for or enrollment in Medicare when making benefit decisions. Um, so offering an IKRA is a way that an employer can pay for those Medicare expenses without running afoul of those rules. Now, the important thing here is that the IRA would have to be offered to all members of a specific class. So, they couldn't just say, "Oh, anyone who's um Medicare eligible can have an IKRA and everyone else gets the traditional plan." 
30:35 
That still would be problematic. But an IKRA is a way to potentially pay for Medicare expenses. IKAS again they are employer funded. It's an HRA. There's no statutory annual limit for the amount that an employer can set. So, they do have discretion to set those amounts, you know, with how it fits your workforce. Employers of any size can sponsor an IKRA. And for those who are considered applicable large employers, so those with 50 or more employees, it actually would satisfy the ACA's employer mandate. So, an IKRA is considered uh relevant coverage for that. There is some flexibility with plan design. ICAS can be designed to only reimburse premiums, or they can be designed to reimburse both premiums and eligible out-of-pocket costs. Um, again, like we've talked about with the others, they are considered group health plans. So, we still have to consider those federal benefit laws. So, again, the ACA, they've got to use it for the employer mandate if your um organization is large enough. It's going to be considered minimum essential coverage, but you've still got to uh concern yourselves with affordability rules and making sure that it passes based on the reimbursement amount that you're applying. 1095 reporting. This can bring smaller employers up because these are self-insured plans. If you sponsor an IRA, you have a reporting obligation under section 6055 of the ACA, which says you have to report who is covered under your plan. And sometimes that gets lost with smaller employers who otherwise don't think they have a reporting obligation. Again, picori fees, it's a self-insured plan. 
32:30 
Cobra, again, we talked about this with traditional HAS. Um, the important thing to remember here is when we're talking about COBRA for an IKRA, it's based on the HRA. It's not based on the underlying individual coverage that the person has. COBRA is just based on that HRA amount that comes from the employer. 
32:53 
And then finally, Orisa um is going to apply because again, it's a group health plan. So, if you have an IKRA, you should have written plan documents. You still have to meet those notice requirements. You may have a form 5500 filing if you cover a hundred or more employees. Um, so these federal laws still are in existence for Icas. Next slide. And so, we're going to talk a little more. So IS have specific rules on classifications of employees or classes. And so, they're going to be a little different than what we just normally think of as bonafide business classifications. So, it's important to remember you cannot offer a traditional group health plan to a to the same class of employees who are also offered in IRA. So, it has to be one or the other. And the IKRA rules have specific classifications that can be used. And so, these are things like full-time or part-time status, seasonal and temporary employees, hourly versus salary, collectively bargained, um that kind of thing. And so, if you're trying to have a classification of employees that does not fall with one of these within one of these categories, it is not allowed. ICRA rules also have minimum class sizes and they are going to be based on employer size as far as how many employees must be considered when we're looking at minimum class sizes and then the final point here so that IRA must be offered on the same terms and conditions to all employees within that class. Now, it is important to remember that employers actually can offer higher amounts to older employees, although even then there are some specific conditions to be met. And that's really because these are individual health plans and thus age becomes a factor and so older employees are going to be paying higher premiums for that coverage. All right, next slide, please. Thank you. So, now we're going to look at accepted benefit HRA. These are probably the least common. Um, some of you may not have heard about these, but we do get questions about these from time to time. So, this can be a standalone HR. Um, it would need to be offered to all employees who are eligible for the group health plan. So, it doesn't mean they have to be enrolled in that employer's health plan, but they do have to be eligible for it. Like many other offerings, they have to offer it again on the same terms to all similarly situated employees. So, you don't want to offer, you know, a low amount to one group and a higher amount to another group within the same class. The IRS limits um what an accepted benefit HRA can reimburse, and it gets indexed each year. 
35:54 
So, for next year, it's going to be $2,200. So, not a large amount when you think about, you know, some of the other HRAs that have um larger amounts or maybe not even an annual limit. These accepted benefit HAS, they can reimburse, you know, your standard out-of-pocket expenses. they can actually reimburse premiums for limited scope dental or vision and then in some cases even short-term limited duration insurance which are products that um I think most aren't going to be familiar with but basically just um health insurance plans that can be fit in just again a short term so kind of filling a gap maybe when someone is between health insurance plans employers have flexibility to determine what expenses are eligible under theirs. So, they don't have to say, you know, any statutory expense is allowed to be covered. So, they can set some limits. Um, interestingly, these types of HAS are not going to be subject to ACA rules. Um, so again, things like the PCORE filing and not even having to contend with HIPPA portability or non-discrimination rules. um but they are subject to other federal rules such as COBRA and Orisa and again those non-discrimination rules that we've been talking through. And then the final one that I'm going to touch on here are point solutions. 
37:27 
Um and so these are something that I think are becoming more popular with employers. So, they're various program offerings. They're going to be done through third-party vendors, and the real purpose is to enhance the um major medical plan that the employer is offering. So typically, these are going to be targeting specific medical conditions. Uh fertility point solutions are probably one of the most common ones that we see. Sometimes we'll see them with things like weight management, diabetes, other medical conditions. 
38:01 
Often times point solutions are designed as HRAs. Um it can get a little tricky on the taxation side because sometimes especially like with fertility point solution HAS sometimes, they can reimburse both taxable and non-taxable expenses. So, if you do offer an an HR like that, especially a fertility one, you want to make sure you're working closely with that vendor and your tax advisor to make sure that that is being handled appropriately. Now, sometimes we'll get vendors that say, "Oh, we're just a point solution. We are not a group health plan." But it's important to remember that if that point solution, that HA reimbursed medical expenses, it is a group health plan and thus it is subject to all these same federal rules that we've been talking about that are applicable to other HAS. 
39:01 
So employers, if um you know you are sponsoring one or you're thinking about it, you definitely want to work closely with you know the vendors or potentially your own legal counsel just to make sure that you're handling that taxation piece correctly and that you understand whether or not the account you have um does indeed reimburse medical expenses. 
39:26 
And then now Patrick is going to take us through our last section on FSAs. 
39:32 
Thank you, Kelly. Health FSAs or flexible spending accounts are taxed advantage reimbursement accounts that are designed to pay qualified medical expenses and medical plan cost sharing. They are coupled with a major medical plan and offered through a section 12 federal tax benefit. Any contributions to a health FSA must be made through a cafeteria plan. Employee pre-tax deferrals are not subject to payroll or income taxes and distributions for qualifying expenses are not taxable. FSAs are subject to use it or lose it rule. And this means that any contributions left over after the end of the plan year are forfeited and cannot be carried over into the next plan year unless the plan is specifically designed to allow this. 
40:26 
Um, a health FSA is a group health plan. The employer sponsors this plan. It's self-insured and the employer can set the contribution level within IRS limits. They can establish eligibility requirements, determine the plan year, and choose design features, for instance, a grace period. Employers are ultimately responsible for determining the eligibility, ensuring contribution limits are not exceeded, the substantiation of expenses, and plan compliance with all applicable laws. 
41:01 
What are those applicable laws? Well, uh there's Orisa, which requires plan documents, a summary plan description, uh form 5500 filings, fiduciary obligations, and other elements uh to ORISA that would apply to the FSA. 
41:18 
COBRA is also a law that applies to FSAs. Participants who terminate employment with underspent accounts, that is to say, those with remaining contributions that exceed their reimbursements, must be offered COBRA for that FSA. HIPPA also applies as a group health plan. Health FSAs are covered entities. So, HIPPA privacy and security rules will apply. So, employers must ensure that those business uh associate agreements are in place with TPA or vendors to whom PHI or electric PHI electronic PHI may be disclosed. 
41:59 
FMLA also applies to FSAs and so that means that participants can maintain their FSA benefit during their FMLA leave. FSAs are also subject to some ACA requirements. If the FSA is designed as an accepted benefit, then certain ACA requirements will not apply. And as we have mentioned, FSAs are going to be subject to non-discrimination rules. They are going to be subject to the cafeteria plan rules because, as we mentioned earlier, contributions must be made through a cafeteria plan. So section 125 non-discrimination rules will apply. But FSAs are also a self-insured benefit. So section 105 non-discrimination rules will also apply. 
42:45 
So employees eligible for health FSAs must also be eligible for the group major medical plan. It is not necessary that the employees actually enroll in that major medical plan just that they are eligible to do so. For example, part-time employees who are not ineligible for the medical plan could not be eligible for the FSA. If an employer offered a health FSA without also offering a major medical plan, then the FSA would not qualify as an accepted benefit. Now, how much can they contribute to an FSA? These are contributions are usually made through salary deductions and which are capped and adjusted annually. For instance, for uh plan year 2025, the cap for salary deductions is uh $3,300. Now, employers can also contribute, but employer contributions cannot exceed the greater of $500 or a dollar for dollar match of the employees contribution. Employer contributions do not apply to the employees annual limit unless the employee has the option to receive it as cash or other taxable benefit. 
43:59 
Now there are uh carryovers uh there are possibility that the plan can have a carryover provision which is an exception to the use it or lose it rule. There is a $660 limit for a plan year 2025 and does not count towards the employees annual limit. That is to say if there are $660 uh left in the FSA for the current plan year if the plan has a carryover provision then that $660 limit can be carried over into the next plan year. And here at the bottom of the slide, we have an excerpt from our uh publication on annual limits that uh describe the IRS limits on health FSA accounts. Again, you can ask your consultant for a copy of that particular publication. There's also a uniform coverage rule that must be observed. The maximum reimbursement amount must always be available to the participant during the plan year regardless of how much they contributed. For example, if Kelly elects $3,000 for her FSA for playing year 2025, which runs from January 1st through December 31st, then Kelly has access to that entire amount starting on January 1st, 2025. 
45:15 
Now, FSAs are designed to reimburse participants for qualified medical expenses, and those medical expenses are defined by IRS code section 213D2. and examples will include pre-deductible expenses, co-payments, dental and vision costs. Over-the-counter drugs without a prescription are also included. Insurance premiums, however, are not included. The expenses must be incurred by the employee, the employees spouse, the employees children, or the employees tax dependence. FSAs can only reimburse expenses incurred during the plan's period of coverage. usually the plan year, but there is an optional feature called a grace period. If the FSA has a grace period, then the period of coverage can extend two and a half months. To be reimbursed, the participant must substantiate the expense. Substantiation must be done electronically or can be done electronically rather and requires information from the independent third party describing the service or product, the date of the service or sale and the amount of the expense as well as a statement from the participant providing that the medical expense has not been reimbursed and that the participant will not seek reimbursement for the expense under any other health plan coverage. Now, payments are often made by uh a card like a credit or debit card. These can be auto adjudicated without this additional substantiation. 
46:46 
There are some FSAs that have special designs primarily to make sure that they play nicely with HSAs. One of these is called the limited purpose HSA FSA. And these are health FSAs that only reimburse dental, vision, and preventive care expenses. Limited purpose FSAs are not considered to be impermissible coverage for HSA eligibility purposes. 
47:10 
There are also post-deductible FSAs that would not reimburse expenses until the statutory deductible is met. Again, post-deductible FSAs are not considered to be impermissible coverage for HSA eligibility purposes. You can also combine both the limited purpose and the post-deductible FSAs and these would reimburse those dental, vision and preventive cares uh expenses before the statutory deductible is met and then any qualified medical expense after that uh after that deductible is met and that this combine combo FSA is not considered to be impermissible coverage for HSA eligibility purposes. And finally, we want to touch on a special kind of a flexible spending account which is called the dependent care assistance program or DECAPS. 
48:01 
Sometimes they're also considered to be flexible spending dependent care flexible spending accounts. Key differences here is that of course these are a special type of flexible spending account that helps cover dependent care expenses. The maximum annual DECAP exclusion depends on the employees federal income tax filing status. Uh for uh most filers, that is those that are single or married filing jointly, the cap is $5,000, although that will be $7,500 beginning on January 1st, 2026. If you are married filing separately, the cap is $2,500. But again, starting January 1st, 2026, that's going to be raised to $3,750. The maximum annual decap exclusion is measured per calendar year regardless of whether the employer administers the plan using a non-calendar plan year. And the rules for making election changes to decaps are more flexible than other benefits. Employees can make changes to their decap elections if their need for paid child care has changed. 
49:09 
And then finally, uh, unlike the other tax advantaged accounts we've been talking about, DECAPS have their own section of the Internal Revenue Code for non-discrimination rules. And this is section 129. 
49:21 
Decaps often fail non-discrimination testing because uh, often it's often only highly compensated employees take advantage of them. And as you may recall from our earlier discussions on non-discrimination rules um if a benefit um is tested um and is determined that more highly compensated employees are favored than non- highly cons compensated employees uh then they will fail the non-discrimination test and in with decaps uh because highly compensated employees are the ones who most often take advantage of them uh they tend to fail those tests more often. And we do have a publication on those section 12 129 non-discrimination rules. 
50:06 
You'll see an excerpt from it here on the slide uh which is available if just ask your consultant for a copy. And it gets into much more depth about these non-discrimination rules as well as the tests uh that are used to determine whether or not the plan will comply. So now I'm going to pass it on over to Kelly again to wrap it up with some key takeaways and resources. All right. Thanks, Patrick. 
50:31 
Yeah, so we kind of just like to have a quick hit on just some of the highly points that we've talked through today because I know we've talked about a lot of information and a lot of different accounts. Um again if we haven't beaten this issue enough, non-discrimination rules, right? So, we talked about how these apply to the various um different types of accounts and the different code sections that apply. So the big thing and the big reminder here is that because these are all tax advantage accounts, you need to make sure if you're offering those that you are aware of these non-discrimination rules and that you are performing annual testing, right? And so when we think about non-discrimination testing too, we kind of think of, you know, test early, test often, right? It's always good to catch a non-discriminant issue, a non-discrimination issue earlier in the plan year and then be able to correct it as opposed to catching it at the very end of the tax year or in some cases after the tax year has closed. So definitely if you are sponsoring any of the accounts that we've talked about today, make sure that you are undergoing testing for those if you have not been already. And so the three main sections we talked about today again HSAs. The important thing here to remember is you cannot have one of those other types of impermissible coverage and still make contributions to an HSA. 
52:03 
Similarly, the employer cannot make contributions to an HSA in that case. Contributions are pro-rated monthly. So it's based on the individual's eligibility as of the first day of each month. These are individually owned accounts. 
52:20 
They are not joint accounts between spouses. They are not owned by the employer. It is owned by the individual. 
52:28 
And then maybe take a look back at those slides and some of the changes that we are seeing under the new legislation Patrick walked us through. Um so again in many cases it has changed you know what is no longer considered impermissible coverage. So it opens up a little more flexibility in some cases. 
52:48 
So make sure that you know you and your employees understand those changes if you have an HSA. 
52:55 
Our HA section, we talked about five different kind of common HR types that employers sponsor. Again, the common theme with those is that it typically has to be integrated with a medical plan. So, if you are only offering an HRA and nothing else, um that is likely problematic. Unless, of course, that is an IKRA, that's going to be the caveat there. These HAs are group health plans, so they're subject to federal benefit laws. So, ACA, COBRA, Orisa, all of these are going to apply as we talked about earlier. And then annual limits and eligibility rules, those are really going to vary depending on the type of HRA that you are offering. So, make sure you understand what rules apply depending on which type of HRA you are sponsoring. 
53:44 
Then Patrick just took us through FSAs. Again, those use it or lose it accounts. 
53:49 
Um the expenses that are eligible are determined again based on the type of FSA. Is it a, you know, full flex account or a full health um flex account? Is it a limited purpose FSA? Is it a dependent care? Those are all going to have different uh eligible expenses depending on that type of FSA. Again, decaps, they have their own set of rules Patrick just took us through. They are the ones that fail testing most often. So again, early testing is really important to catch those issues ahead of time so that you don't have to go back to employees at the end of the tax year and say, "Hey, you shouldn't have actually been able to elect $2,500. We we need to adjust it because you're going to have tax consequences." Being able to identify that early on is really important, especially, you know, just with that those employee relations related to the DECAP. And again, FSAs are going to be subject to Orisa and then COBRA. Again, it's going to depend on those overspent or underspent accounts for those health FSAs. But in general, we still want to think about COBRA applying in many cases. 
55:06 
And then our final slide here. Um, again, resources. I think both Patrick and I mentioned quite a few times. 
55:12 
Here's our publication on this. Here's our publication on that. Um, we have resources on all the various topics that we covered today. So, if there's something that you're wanting some more information on, please make sure you're reaching out to your consultant or advisor to make sure that you're getting um copies of these various publications or toolkits to kind of help guide you through these types of accounts, especially if it's something that maybe you haven't been offering in the past and you're going to start offering a an HR, let's say. um you know, we have resources that can kind of help guide you so you understand, you know, what your compliance obligations are when sponsoring those types of accounts. 
55:58 
And then with that, I will just thank everyone for attending today and sticking with us um for this last hour. 
56:06 
Hopefully, you found this information helpful either if you sponsor these types of accounts or you are considering it for your next renewal. Um, again, everyone will get a copy of the slides, and the presentation soon and then request those publications as needed from your account teams. And with that, I will hand it back over to Amber. 
56:26 
All right. Well, thank you, Kelly, and Patrick, for sharing your valuable time and expertise with us today. To reiterate, today's presentation was recorded. We'll be sharing the recording in the follow-up email and on the NFP website. If there are any portions of this call that you missed, by Monday, you'll receive an email with a link to the full recording. The PowerPoint slides used during this presentation will be shared in the same email. At the end of this call, a survey will populate in a new window. Please take a brief moment to complete the survey as it lets us know what topics are important to our listeners and helps make our education program as current and relevant as possible. That concludes our webinar for today. Thank you everyone for joining us and have a great day.