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Selecting the right funding options

It’s time to talk funding. Given that “fun” is built into the topic, what could be more exhilarating than a good analysis of funding options? We will try to keep our excitement to a reasonable level as we explore all the “fun” options employers have when funding their pre-tax benefit accounts.

DECISION 1: How are the funds sent? 

There are generally three funding options for accounts.

Authorize BRI to pull funds from a designated account (recommended)

Benefit Resource (BRI) can automatically pull funds from the account of your choosing based on the trigger and frequency you select. This option ensures that your participants always receive timely deposits with little effort on your part.

Push funds to BRI through ACH or wire transfer

As an employer, you would be responsible for sending funds to BRI on a designated schedule. This provides a little more control for employers, but also places a higher level of accountability on them to ensure timely funding occurs.

While BRI doesn’t charge fees to receive the funds through ACH, there is a $25 fee for wire transfers. Additionally, you may want to confirm any fees your bank charges to initiate the transaction.

DECISION 2: When do funds need to be sent?

There are a variety of factors that influence when funds need to be sent, but there are two primary models.

Fund by deposits.

When you fund by deposits, you apply funding as you receive payroll deductions from employees. This provides a regular schedule for funding accounts, makes cash flow more predictable, and simplifies reconciliation throughout the plan year.

When should it be used?

ALWAYS – Health Savings Accounts (HSAs).

HSAs are “cash balance” accounts and should always be funded by deposits collected by employees.

FREQUENTLY – Commuter Benefit Plans

Commuter Benefits are treated either in a “cash balance” or “election funding” model.

In a “cash balance” approach the CBP is funded as the deposits are received from payroll. This is an employer-friendly approach and ensures that employers are not at risk to lose money.

Employers may also use an “election funding” approach. In this case, the employer fully funds the monthly election on a specific date. Often times, they have collected a portion from the employees and must collect the remaining portion from a payroll later in the period.

SOMETIMES – Flexible Spending Account (FSA)

Employers looking for simplicity in managing FSA funds will fund based on deposits. They collect elections from employees and forward them onto the administrator. This is a low maintenance approach.

RARELY – Health Reimbursement Account (HRA)

At times, employers will treat an HRA like a “cash balance” account and will make HRA funds available at different intervals in the year. They will send HRA funds which them makes them available to participants.

Fund by claims (usage)

When you fund by claims, funds are provided to a benefits administrator (like Benefit Resource) to directly cover the cost of the expenses used by employees. This includes both when a benefits card is used and when the claim is reimbursed. Since a participant can use funds at any time, employers will likely fund the accounts on a higher frequency.

FREQUENTLY – Health Reimbursement Accounts 

Since an HRA is funded with employer dollars instead of payroll deductions, funding based on usage is generally the preferred model.

SOMETIMES – Flexible Spending Account (FSA)

Employers are ultimately in the driver’s seat when it comes to funding the Medical FSA. If they choose to fund the Medical FSA based on claims, they are retaining the maximum amount possible (and may find themselves in a favorable cash position if employees do not use funds until late in the year).

RARELY – Commuter Benefit Plans

There can be limitations to funding a Commuter Benefit Plan through claims. Since BRI is not holding a cash balance, it prevents employers from using options like a Commuter Extension Program, which allows participants to spend down funds.

Once you’ve made your decision

Once you know how the funds will be sent and the frequency you’re comfortable with, you can start the “fun” part of funding: actually putting it into motion.

More reading on funding from Benefit Resource: 3 ingredients you need for successful plan reconciliation