Notions 101
FSAs, HRAs, and LSAs are all considered notional accounts. Here’s a quick overview:
The notion of a balance. Notional accounts like FSAs, HRAs, and LSAs display a balance for funds deposited elsewhere, giving the “notion” of a balance. Notional accounts help track financial activities without funds necessarily moving.
Employer-sponsored. Notional accounts are employer-sponsored plans where employers are responsible for covering employee expenses. For that reason, notional account cash balances are primarily maintained at the employer level.
Language note
In the Health Wallet universe, members of an organization or benefit program are referred to as members. Often, these members are employees. Depending on the context, you may see both of these terms used.
Required minimum funding 101
Required minimum funding ensures member expenses can be paid Here’s how it works.
Required minimum funding (RMF)
“For Benefit Of”
For Benefit Of (FBO) accounts allow third-party administrators to have employer funds available to reimburse claims for benefits on a timely basis.
A cash reserve balance is maintained in an FBO settlement account held on behalf of the employer to cover expenses. Maintaining this reserve is called Required Minimum Funding (RMF).
RMF rate factors
A rate of up to 10% for RMF is considered a best practice, but this rate varies by benefit program design. The RMF rate is dependent on the following factors:
Frequency of reimbursement to the RMF balance (Daily, Weekly, Monthly, Upfront)
Method of reimbursement to the RMF balance (ACH pull vs. ACH push)
Estimated average spend per transaction
If there is a card associated with the plan
Number of plan members
Maximum spend for each plan member
RMF formula
Total Elections
The total potential spend for a notional account in a plan year. Total elections accounts for all enrolled employees and their elected benefit amounts.
The formula below is used to calculate the RMF balance.
RMF = Total Elections x RMF Rate
Example
Employer A offers employees an LSA program that provides $100 in monthly funds ($1,200 annually) for child care. 1,500 employees enrolled this year. 1,500 employees x 1,200 = $1,800,000 in total elections.
$1,800,000 x 10% = $180,000 RMF
Frequency of RMF funding
Employers can choose how frequently they maintain their Required Minimum Funding (RMF) balance. Below is a general framework for RMF options available for notional accounts:
| Daily | Weekly | Monthly |
Timing of Payment | ACH is generated on Monday morning as a same-day ACH | ACH is generated on Monday morning as a same-day ACH | ACH is generated by the second day of the month |
Communication / ACH Push Request | Daily email sent in the morning with the prior day's spend | Weekly email sent on Sunday with prior week’s spend | Monthly email sent on the first day of the month with prior month’s spend |
The Daily ACH pull is the preferred method of funding, allowing for the maintenance of the lowest possible deposit.
RMF balance
If the RMF balance cannot cover the sum of the card transactions and/or claims processed on a given day, card transactions and claims will be paused. It's essential that the RMF is maintained for employees to receive their funds promptly and compliantly
ACH push vs pull
ACH Pull: We initiate the transfer of funds and email the employer to inform them of the transfer.
ACH Push. The employer initiates the transfer of funds. We email the employer to request the transfer of funds.
ACH pull failures
When an ACH pull transaction fails, the employer will receive an email requesting a wire by the end of the day.
Funding experience for organization admins and members
Employer selects a frequency to fund the RMF.
Employer makes initial funding for benefit.
Plan year begins, and members receive notification about the program and available funds.
Members spend funds via card and/or submit claims for reimbursement.
Administrator* reviews claims. If approved, an ACH request is submitted to fund the member's linked account for reimbursement.
ACH initiates at the next ACH window.
Funds will appear in the member's bank account within 2-5 business days, depending on the member's bank timeline, weekends, and holidays.
On the next funding date, the employer funds any balance needed to maintain RMF.