Legislative Report

Legislation Offers HRA Tax Parity, But Limits Use to Two States

A provision included in the revised version of the Pension Protection Technical Corrections Act (H.R. 6382) extends beneficiary coverage for Health Reimbursement Arrangements (HRAs) - but only for two states.

The bill, approved by the House on July 9, 2008, would permit a certain class of governmental plans to include individuals other than a qualifying spouse or dependent as beneficiaries on employees' HRAs, provided those beneficiaries pay taxes on HRA amounts they ultimately receive. To qualify, the governmental HRA must be funded by a medical trust and must have been authorized by a state legislature or have received a favorable tax ruling from the IRS.

This narrowly drafted provision would override an Internal Revenue Service ruling that prohibits individuals other than a qualifying spouse or dependent as HRA beneficiaries, but only for plans that meet the specific criteria in the bill. It is our understanding that only two states qualify.

The Senate is expected to consider PPA technical corrections legislation again later this summer. It is unclear how the Senate will react to the new HRA provision. We are urging that the provision be broadened to expand the HRA beneficiary coverage to all states and municipalities.

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The Washington Perspective is a periodic online newsletter highlighting legislative and regulatory proposals affecting public sector retirement plans.

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