The Internal Revenue Service has blessed a union's proposal to create a program that combines a health reimbursement arrangement (HRA) with a defined contribution retirement plan.

The plan participants would be able to choose each year how to allocate the employer's contributions between the HRA and the profit-sharing plan each year, according to the IRS.

A copy of the HRA private letter ruling is available here.

The employer would contribute a set minimum to the HRA plan, and the allocation of the remaining amount would be chosen by the employee at the beginning of the plan year.

If an employee failed to make an election, a default uniform fixed contribution would be allocated to the defined contribution plan and the remaining portion would be allocated to the HRA plan.

The IRS ruled, in a private letter ruling that applies directly only to that particular program, that the proposed program to the defined contribution retirement plan would not cause the defined contribution plan to be treated as offering a cash or deferred arrangement.

The proposed amendment to the HRA plan would not affect the treatment of the contributions to and the payments made from the union trust to the HRA plan that were used to pay and reimburse qualified medical expenses, according to the ruling.

The IRS listed the ruling in its private letter ruling database under the heads of Cash or Deferred Arrangements, Accident and Health Plans (Excluded v. Not Excluded), and Contribution by Employer to Accident and Health Plans (Excluded v. Not Excluded).

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IRS approves employer's hybrid HRA-retirement plan

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