8807 / Can HRA contributions be made via salary reduction or through a cafeteria plan?

Employer contributions to an HRA may not be attributable in any way to salary reductions. Thus, an HRA may not be offered under a cafeteria plan, but may be offered in connection with a cafeteria plan. Where an HRA is offered in connection with another accident or health plan funded by a salary reduction plan, a facts and circumstances test is used to determine if salary reductions are attributable to the HRA. If a salary reduction amount for a coverage period to fund a non-HRA accident or health plan exceeds the actual cost of the non-specified accident or health plan coverage, the salary reduction will be attributed to the HRA. An example of the application of this rule can be found in Revenue Ruling 2002-41.¹

Because an HRA may not be paid for through salary reduction, the following restrictions on health FSAs are not applicable to HRAs:

(1) The ban against a benefit that defers compensation by permitting employees to carry over an unlimited amount of unused elective contributions or plan benefits from one plan year to another plan year.

(2) The requirement that the maximum amount of reimbursement must be available at all times during the coverage period.

(3) The mandatory 12-month period of coverage.

(4) The limitation that reimbursed medical expenses must be incurred during the period of coverage.²

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1. 2002-2 CB 75.

2. Notice 2002-45, 2002-2 CB 93.