Third-party administrators enable employers to offer benefits that help them attract and retain their valuable talent. However, employers do not own all benefit funds, nor do employees. These are essential questions when enrolling in benefits and spending down funds. So, let’s discuss who owns benefit accounts and ensure everyone fully understands the benefit account portability.
What is portability?
Benefits portability refers to the ownership of benefit account funds. If a particular type of benefits account isn’t portable, then a departing employee loses access to it and any funds left in it, regardless of whether the money came from the employee or the employer. Here are more details regarding the portability status of the most commonly used benefit accounts.
Who owns HSAs?
Health Savings Accounts (HSAs) are a great way to save money for healthcare expenses and retirement. They have substantial tax benefits, and any unspent funds roll over yearly like a savings account. Participants own the accounts and can take the funds with them even if they switch jobs. To open an HSA, participants must enroll in a qualified high-deductible health plan. HSAs can help ensure participants are better prepared for future healthcare expenses.
How about FSAs?
Flexible Spending Accounts (FSAs) are similar to HSAs in that they help you save on taxes and pay for healthcare expenses. However, the employer owns the FSA account. If the FSA participant leaves employment, any unspent funds go to the employer, but they can’t collect any difference if you have spent more than the amount you have contributed to date. Different types of FSAs are available for different purposes, such as healthcare expenses, vision and dental expenses, and dependent care, and they all follow the same model.
Who owns HRAs?
Health Reimbursement Arrangements (HRAs) allow employers to provide funds for IRS-approved medical expenses like deductibles and copays. Employers fund and own HRA accounts and hold the HRA portability. Where FSA funds always expire at some point, and HSA funds always roll over, HRAs meet in the middle. Some HRAs roll over, and some don’t; it’s up to the employer. When participants leave, any unspent funds go to the employer. (An exception: some employers allow retirees to use the HRA, but that’s up to the employer.)
Like FSAs, HRAs come in different varieties. There are different types of HRAs, including qualified small employer HRAs for smaller employers and ICHRAs for larger ones.
Do employers own LSAs?
To help address needs not included in IRS-approved medical expenses, companies can offer employer-funded Lifestyle Spending Accounts (LSAs). Employers decide what participants can spend the money on and whether the unused funds expire or rollover. Employees pay taxes on LSA benefits. Any unspent money belongs to the employer.
Who owns an ESA?
Recent events have highlighted the importance of saving for a rainy day. A recent survey from Fidelity Investments found that about 39% of people making financial resolutions want to save more money. Having some money saved up for unexpected situations is essential, but it can be challenging. However, some employers offer Emergency Savings Accounts (ESAs), which automatically deposit a portion of an employee’s paycheck into a savings account. The best part is that the money in the account belongs to the employee, even if they leave their current job.
The Bottom Line
Employers and employees alike need to understand who owns benefit account funds if there is a separation from employment. There were many layoffs in 2023, and more may happen in 2024, so it’s essential to be prepared. Please share this information with employer groups to help them understand why providing good benefits and education regarding portability is crucial.
For 40 years, DataPath has been a pivotal force in the employee benefits, financial services, and insurance industries. The company’s flagship DataPath Summit platform offers an integrated solution for managing CDH, HSA, Well-Being, COBRA, and Billing. Through its partnership with Accelergent Growth Solutions, DataPath also offers expert BPO services, automation, outsourced customer service, and award-winning marketing services.