Final Regulations on Employer HSA Contributions
On July 28, 2006, the IRS released the final regulations under Code Section 4980G (54.4980G-1,-2,-3, -4 and -5). These regulations provide guidance on employer contributions to employees’ HSAs. The IRS had released proposed regulations on August 25, 2005. The final regulations apply to employer contributions made on or after January 1, 2007.
The following provides a short review of the requirements and the changes provided in the new final regulations.
- An exception from the comparability rule for contributions made for groups of collectively bargained employees (Union).
- Clarification on how an employer may make comparable contributions, on a pre-funded annual basis, pay-as-you-go basis (usually per payroll schedule) or on a- look-back basis at the end of the calendar year. The ruling clarifies how the employer funds the HSA if an employee has not established an HSA at the time the employer funds its employees’ HSAs. However, no guidance was written for what an employer should do if the Employee has not established an HSA by the end of the calendar year.
- Employer contributions can still only be made based on two categories of coverage, self only and family coverage under the HDHP. However, the final regulations did allow for some flexibility of the family coverage. Family coverage can now be broken down into three tiers: employee plus one, employee plus two, or employee plus three or more. For each tier under family coverage, contributions need to be comparable. Also the contribution for employee plus two cannot be less than the contribution for employee plus one and the contributions with respect to the employee plus three or more may not be less than the contribution for employee plus two.
Example: Employee plus spouse and employee plus dependent are both treated as employee plus one under the final rules.
- The categories of employees for whom an employer may make contributions to an HSA remain the same: Current Full Time, Current Part Time, and Former employees.
- The final rules clarify that HSAs are to be tested on a calendar year for comparability not on a plan-year basis. Also the amount is comparable when determined on a month-to-month basis.
- If an employee has not established an HSA at the time the employer funds its employees HSAs, the employer must still comply by contributing comparable amounts plus reasonable interest to the employee’s HSA when the employee established the HSA account. Reasonable interest is based on facts and circumstances. If an employer calculates interest using the Federal short term rate as determined by the Secretary in accordance with section 1274(d), the employer is deemed to use a reasonable interest rate.
- Further clarification of the exclusion for the comparability rules for employer contributions made through a cafeteria plan.
To read the entire guidance ...
http://www.treas.gov/press/releases/reports/hsa_comparable_contributions_4830.pdf
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