IRS Releases Final HSA Comparability Regulations for Catch-Up and Accelerated Contributions Effective for Calendar Years Beginning on or after January 1, 2009

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The Internal Revenue Service released final regulations providing guidance on employer "comparable" contributions to Health Savings Accounts (HSA) where:
(1) an eligible employee has not established an HSA by December 31;

(2) the employer has no notice of the establishment of such HSA by December 31; or

(3) an employer accelerates comparable contributions for the calendar year for eligible employees who have incurred qualified medical expenses that exceed the cumulative employer contributions at the time.

The final regulations were effective April 17, 2008 and are applicable to employer contributions made for calendar years beginning on or after January 1, 2009.

The HSA comparability rules do not apply to employers who offer employees the opportunity to contribute to their HSA on a pre-tax basis through a cafeteria plan.

Those employers who choose to contribute to employees' HSAs outside of a cafeteria plan must do so in a comparable manner for all comparable participating employees. If an employer fails to do so, the employer is subject to excise taxes on the HSA contributions that are made.

Comparable contributions are either provided in an equal in amount or the same percentage of the plan deductible for all similarly situated individuals during the calendar year. Comparable employees are eligible employees who are in the same category of employee and who have the same category of High Deductible Health Care (HDHC) plan coverage. For the purposes of an HSA, an eligible employee is any employee who is eligible for coverage under an employer's HDHC plan who does not also have coverage under another health care plan that would prohibit the employee from participation in the HSA.

If an eligible employee establishes an HSA at any time during the calendar year (January 1 to December 31), the employer will be required to make the full amount of comparable contributions to his or her HSA for that same calendar year.

HSA Comparability: Two Requirements for Employers who Contribute

To comply with the HSA comparability requirements where an HSA has either not been established by an employee or where an employee has established an HSA but has not notified the employer of the existence of that HSA, an employer must satisfy two requirements: (1) the notice requirement; and (2) the contribution requirement.

The Notice Requirement
The final regulations require the employer to provide notice to each eligible employee who has either not established an HSA or has not notified the employer that an HSA has been established by December 31. Written notice must be given no later than January 15 of the following year (but no earlier than 90 days before the first employer HSA contribution for that calendar year) to eligible employees. Sample notice language is provided in the final regulations and is included below. The notice may be distributed electronically in compliance with applicable IRS rules. The eligible employee is obligated to follow the procedures for proper notice before the last day of February, following the plan year in question. An employer may not require further notice of the existence of an HSA where the employer has knowledge of an established HSA or has previously made contributions to an HSA.

Contribution Requirement
Each eligible employee who gives proper notice to the plan must receive a comparable contribution from the employer to the HSA account (taking into account each month that the employee was a comparable participant in the HSA) plus reasonable interest by April 15 of the following calendar year.

Acceleration of Employer Contributions
For any calendar year, an employer may accelerate part or all of its HSA contributions for the entire year to the HSAs of comparable employees who have incurred qualified medical expenses that exceed the employer's cumulative HSA contributions at that time, provided that all comparable employees receive the same amount or percentage for that calendar year. Medical expenses must be incurred during the calendar year and considered qualified under Code Section 223(d)(2). If an employer chooses to accelerate its HSA contributions, it must establish reasonable uniform methods and requirements for both the availability of accelerated HSA contributions to all eligible employees and the determination of medical expenses throughout the calendar year.

An employer is not required to provide for interest with respect to accelerated or non-accelerated HSA contributions, except where specifically required under the regulations.

Sample Notice Provided by IRS

Notice to Employees Regarding Employer Contributions to HSAs:

This notice explains how you may be eligible to receive contributions from [employer] if you are covered by a High Deductible Health Plan (HDHP). [Employer] provides contributions to the Health Savings Account (HSA) of each employee who is [insert employer's eligibility requirements for HSA contributions] ("eligible employee").

If you are an eligible employee, you must do the following in order to receive an employer contribution:

(1) Establish an HSA on or before the last day in February of [insert year after the year for which the contribution is being made] and;

(2) Notify [insert name and contact information for appropriate person to be contacted] of your HSA account information on or before the last day in February of [insert year after year for which the contribution is being made]. [Specify the HSA account information that the employee must provide (e.g., account number, name and address of trustee or custodian, etc.) and the method by which the employee must provide this account information (e.g., in writing, by e-mail, on a certain form, etc.)]. If you establish your HSA on or before the last day of February in [insert year after year for which the contribution is being made] and notify [employer] of your HSA account information, you will receive your HSA contributions, plus reasonable interest, for [insert year for which contribution is being made] by April 15 of [insert year after year for which contribution is being made]. If, however, you do not establish your HSA or you do not notify us of your HSA account information by the deadline, then we are not required to make any contributions to your HSA for [insert applicable year]. You may notify us that you have established an HSA by sending an [e-mail or] a written notice to [insert name, title and, if applicable, e-mail address]. If you have any questions about this notice, you can contact [insert name and title] at [insert telephone number or other contact information].

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