Unfunded HRAs

Unfunded HRAs are commonly used by “for-profit” employers and not as common among governmental employers. The primary reason for this is that for-profit employers generally may not deduct contributions to an HRA until such time as the plan assets are paid out as a claim to a qualified participant.

Unfunded HRAs are also commonly referred to as “notional” HRAs.

Unfunded HRAs do not hold assets in a separate trust vehicle, but hold the plan assets in the general account of the employer. These programs are typically bookkeeping entries whereby an employer promises to reimburse an employee for a fixed amount, and if the promised benefit amount for a particular plan year is not fully used, some or all of it may be carried over and be added to any new benefit amounts made available in the next plan year (the HRA carryover provision).

Most of these programs are for active employees. Many unfunded HRA plan designs provide that some or all of the account is forfeited when the employee separates from service.

back        next