Eligibility Requirements
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What are HRAs?

Health Reimbursement Arrangements (HRAs) are defined contribution plans that employers own and control for the benefit of their employees. HRAs are 100% employer funded and represent an employer's commitment to pay for certain healthcare expenses for their employees.

Why choose an HRA?

Employers choose HRAs because it gives them broad latitude to set the rules for contributions and reimbursements. They can decide what to reimburse, when to reimburse, how much to reimburse and in what order, who to cover, whether funds will rollover, and which health plan to pair with the HRA. With HRAs, one of the primary decisions is who pays first – the employer or the employee participant. Employers can also change the rules every year, if they want.

Who is eligible to participate in an HRA?

With few exceptions, almost all employees can participate in an HRA. Exceptions include partners in a business, members of LLCs, and shareholders who own 2% or more in S-corporations. Employers can cover employees only or employees and their dependents, as well as domestic partners as long as they meet the IRS Section 152 definitions. Employers can also choose to provide HRAs to retirees and former employees.

HRAs cannot discriminate in favor of highly compensated employees. Employers must pass two tests related to eligibility and benefits. Annual nondiscrimination testing is required with an HRA to insure that the employer meets participant eligibility requirements.

What is a "highly compensated" employee?

Highly compensated employees are defined as:

  • One of the 5 highest paid officers
  • Own more than 10% of the company
  • One of the highest paid 25% of all employees

Does Sterling offer HRA nondiscrimination testing?

Yes. Sterling will provide nondiscrimination testing annually to make sure the employer is in compliance. If the employer requests, Sterling will also provide mid-year nondiscrimination testing.

What is the definition of a qualifying dependent?

IRS Code Section 152 has a two-prong definition of a dependent - qualifying child and qualifying relative. A qualifying child is any son, daughter, brother, sister, niece, nephew, or grandchild who:

  • Will not be age 19 during the year (or 24, if a full-time student). The exception is in the case of a disabled child who is considered as satisfying the age requirement despite their actual age.
  • Has the same principal address as the taxpayer for more than half of the year
  • Does not provide over half of his/her own support

A qualifying relative is any individual who:

  • Is not a qualifying child of any other person
  • Has income less than the exemption amount (see your tax advisor for details)
  • Receives over half of his or her support from the taxpayer
  • If a non-relative, resides with the taxpayer the entire year