Benefits Account Ownership and Portability

Here’s another one of my funny Dad jokes for you. Why did I quit my job at a coffee shop? Because I couldn’t take the daily grind. Get it…grinding coffee. Ha ha ha.

Today though I want to talk about something more serious – losing your benefits if you lose your job or voluntarily change jobs. Do you know which benefits are always or usually “portable,” which means they go with the employee if they leave? A lot of people don’t. Here are the questions I get asked the most often.

What is portability?

Benefits portability refers to the ownership of benefit account funds. If a particular type of benefits account isn’t portable, then the employee who’s leaving loses access to it and any funds left in it, regardless of whether the money came from the employee or the employer. Let’s look at the portability status of the most commonly used benefit accounts.

Who owns my HSA?

Health Savings Accounts have tax advantages and can pay for eligible products and services. Unspent funds roll over each year with no limit, acting like a savings account. They also offer investment options to grow the balance for future healthcare expenses and to save for retirement.

Here’s more good news about HSAs: participants own these accounts. So, when your employment ends, you keep all the funds, even the employer-contributed funds. To open an HSA and actively contribute to it, you have to be enrolled in a qualified high-deductible health plan. These require you to pay more on the front end (deductible) before the insurance benefits kick in. HSAs are a great way to help you offset that initial financial responsibility.

Who owns my FSA?

Flexible Spending Accounts are very similar to HSAs in that they also help you save on taxes and pay for eligible healthcare products and services. Unlike HSAs, though, your employer owns the FSA account, even though the money in it came from your payroll deductions. If you leave, any unspent funds go to the employer. However, if you’ve spent more from the account than you’ve actually put into it so far, the employer cannot collect the difference from you.

There are a variety of FSAs for different purposes: regular FSAs for healthcare expenses, limited-purpose FSAs for vision and dental expenses only, and dependent care FSAs. All of these follow the same portability model.

What about my HRA?

Health Reimbursement Arrangements provide funds to pay for IRS-approved expenses, with most covering deductibles, copays, etc. Some also permit other eligible expenses.

HRA accounts are funded solely by your employer, who owns them. Where FSA funds always expire at some point, and HSA funds always roll over, HRAs meet in the middle. Some HRAs roll over, and some don’t; it’s up to the employer. If you leave, any unspent funds go to the employer. (An exception: some employers allow retirees to use the HRA, but that’s up to the employer.)

Like FSAs, HRAs come in different varieties. For example, smaller employers may offer qualified small employer HRAs (QSEHRAs) to help participants pay individual coverage premiums, rather than sponsoring a group health plan. Employers who have 50 employees or more can do the same thing by sponsoring what is called Individual Coverage HRAs (ICHRAs).

Who owns my LSA?

To help address needs not included in IRS-approved medical expenses, companies can offer employer-funded Lifestyle Spending Accounts (LSAs). Employers decide what you can spend the money on and whether the unused funds expire or rollover. Employees pay taxes only on payouts they receive from an LSA. Any unspent money belongs to the employer.

Who owns my ESA?

Recent events have highlighted the importance of saving for a rainy day. A recent survey from Fidelity Investments found that about 39% of people making financial resolutions want to save more money. Some people find it hard to save money, but if they don’t have the money in their hands to begin with, then they don’t miss it. With that in mind, some employers now offer Emergency Savings Accounts (ESAs). They set you up with a savings account that you own and automatically deposit a small portion of your paycheck into that account for you each payday. And over time, it builds up. Your ESA account and any money in it is yours, regardless of where you work.

The Bottom Line

Employers have more benefit options than ever, which is great for their employees. But tens of thousands of layoffs have already been announced for 2023. And a new poll found that 96% of workers say they will be actively looking for a new job in 2023, whether they are leaving voluntarily or involuntarily.

As a result, many people will lose access to the benefits offered by their current employer, and it always helps to be prepared. In addition to the FAQs above, consider talking with your benefits representative about the portability of other benefits you may currently have.