What Are Portable Benefits?

Portable benefits are those that have been paid into or accrued in an employer-sponsored plan. Portable benefits can transfer to a new employer's plan or to an individual who is leaving the workforce. Portable benefits apply to benefits from health plans, retirement plans, and most other defined-contribution (DC) plans. Portability of benefits can be found within most 401(k) plans, 403(b) plans, and health savings accounts (HSAs).

How Portable Benefits Work

Significant progress has recently occurred in making employee benefits more portable. It’s now possible to roll over many 401(k) and 403(b) plans into a new employer's plan or to an IRA. The Health Insurance Portability and Accountability Act (HIPAA) even ensures that pre-existing medical conditions don't exclude a worker when moving from one group health plan to another.

The two main types of plans that don't have portable benefits are defined-benefit plans (such as pension plans) and company-sponsored flexible spending accounts (FSAs). FSAs are a type of cafeteria plan that allows an employer to expand benefit choices on a tax-advantaged basis to employees with minimal extra out-of-pocket costs. Employees select cash and specified benefits by means of a payroll deduction that they elect each year.

Portable Benefits vs. Defined Plans

As mentioned above, defined benefit plans do not have portable benefits. A defined benefit or DB plan is one in which employee benefits are computed using a formula that considers factors like length of employment and salary history. In contrast, a defined contribution (DC) plan does incorporate portable benefits.

In a DC plan, employees contribute a fixed amount or a percentage of their paychecks in an account that is intended to fund their retirements. The sponsor company will generally match a portion of employee contributions as an added benefit, and an investment advisor often manages the pool of contributions.

Portable Benefits and HIPAA

HIPAA has played a key role in the development of employee benefits. U.S. Congress created this act in 1996 to amend both the Employee Retirement Income Security Act (ERISA) and the Public Health Service Act (PHSA). The original intent of HIPAA was to protect individuals covered by health insurance. Today, HIPAA ensures that individual health-care plans are accessible, portable, and renewable. It also sets standards and the methods for how medical data is shared across the U.S. health system and helps prevent fraud.