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What health FSA plan designs may be used to pass the eligibility test?

One plan design that would likely pass the eligibility test would be for the employer to make “seed contributions.” Sponsors can design health FSAs to make a de minimis benefit available to all non-excludable employees (sometimes called a “seed contribution”). If the employer makes a seed contribution, then all these employees would be counted as “benefiting” for eligibility testing purposes. However, making seed contributions would also cause all eligible employees to be participants and might increase aggregate administration costs. In addition, depending on the amount of the seed contribution, the FSA may become subject to obligations under the HIPAA portability rules (it may not be an excepted benefit under these rules) and additional COBRA obligations (it will not be eligible for the special limited COBRA obligation). So keep that in mind.

Last update on September, 4 2013 by Elizabeth Bonney.

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