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September 6, 2006

HSA Guidance Again! Comparability Rules

As promised, the health savings account (HSA) rules relating to employer contributions have been finalized.  If an employer makes a contribution to the HSA of employees, the employer must satisfy what are known as the comparability rules.  The final HSA comparability rules make several significant modifications to the proposed regulations issued in August, 2005. 

Specifically, the comparability rules require that like-contributions be made for certain classes of employees.  The final regulations have broadened the classifications of participating units to correspond with varying categories of family HDHP coverage:

  • Employee-only;
  • Employee + one (employee + one means employee + one, even if the high deductible health plan (HDHP) creates two categories: employee + spouse and employee + child.  For comparability contribution purposes, employee + one would include both of these classifications);
  • Employee + two; or,
  • Employee + three or more.  

This means for each of these employee classifications, the employer must make a comparable contribution.  However, the regulations state that the contribution to the ‘Employee + three or more’ classification cannot be less than the contribution to the ‘Employee + two’ classification, which cannot be less than the contribution for ‘Employee + one’ classification.  This is a welcome expansion of the classifications available.  The final regulations continue to allow contributions to vary among the following: full-time employees, part-time employees and terminated employees.

The final regulations clarify that if HSA contributions have been the subject of good faith bargaining, members of the collective bargaining unit can be excluded from the comparability rules.

Finally, the regulations clarify that all employer contributions to an HSA made through a cafeteria plan are exempt from the comparability rules, since they are subject to the cafeteria plan discrimination rules.  Of particular note, the regulations clarify that if an employer makes a non-elective contribution to an HSA, the non-elective contribution is considered to be made through a cafeteria plan, and thus, exempt from the comparability rules, as long as the employee can make a salary reduction contribution (cafeteria plan contribution) to the HSA.

These rules apply to employer contributions to HSAs made on or after January 1, 2007.  To this end, the regulations clarify that all comparability testing must be done on a calendar year basis.

 

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

 

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

 

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