Health Savings Accounts (HSA) are tax-favored savings accounts integrated with a high deductible health plan. Both employers and employees can make contributions to an HSA. Funds held in the HSA can be used for qualified medical expenses and certain health care premiums. Unused funds roll over from year to year and accumulate earnings on a tax-free basis.

Health Reimbursement Arrangements (HRA) consist of employer contributions made on behalf of enrolled employees that can be used for reimbursement of eligible medical expenses. Unused funds can be rolled over from year to year, subject to limits established by the employer.

A Health Care Flexible Spending Account (FSA) is an arrangement that allows participants to fund qualified, unreimbursed health care expenses with pre-tax contributions to an individual health care account. FSAs are “use it or lose it” arrangements; any money in the individual account that is not used by the end of the plan year (or grace period) is forfeited and returned to the employer.

When HSAs, HRAs, or FSAs are standalone, they generally do not constitute an employee welfare plan for purposes of the provisions of Title 1 of ERISA. For HSAs, HRAs, and FSAs that are a component of a health and welfare plan, it is necessary to determine whether the associated activity should be included in the plan's financial statements. Factors to consider in making this determination might include the sources of funding (employers, participants, or both), who has legal title to the accounts, how claims are adjudicated, and whether a carry-forward provision exists into the next plan year for unused amounts. Consultation with the plan's legal counsel may be needed to make this determination.

As described in ASC 965-205-05-2, “[e]mployers may fund a portion of their postretirement medical-benefit obligations related to their health and welfare benefit plans through a health benefit account (401(h) account) in their defined benefit pension plans, subject to certain restrictions and limitations.” The 401(h) account assets and liabilities used to fund retiree health benefits, and the changes in those assets and liabilities, should be reported in the financial statements of the health and welfare benefit plan either as a single line item on the face of the statements or included in individual line items with separate disclosure in the footnotes about the 401(h) amounts included in those individual line items. The 401(h) obligations should be reported in the health and welfare benefit plan's statement of benefit obligations, and the health and welfare benefit plan's statement of changes in benefit obligations should include claims paid through the 401(h) account.

Because ERISA requires 401(h) accounts to be reported as assets of the pension plan, a reconciliation of the net assets reported in the financial statements to those reported in Form 5500 is required for the health and welfare benefit plan. Refer to the illustrative example in AAG EBP Appendix E for further discussion and examples of required disclosures.

Health and welfare plans are not required to disclose 401(h) investment account information, but are required to include a reference to the defined benefit plan that discloses such information.