IRS Issues Final Rule on Comparable HSA Contributions

September 8, 2009 (PLANSPONSOR.com) - The Internal Revenue Service (IRS) has issued final rules on comparable employer contributions to employee health savings accounts (HSAs) and filing excise taxes for contributions that exceed statutory guidelines.

As in the proposed regulation issued in July 2008 (see IRS Proposes New Rules on Employer HSA Contributions ), the final regulations address an exception to comparability rules for employer contributions and provide that employer contributions to the HSAs of non highly-compensated employees may be larger than employer contributions to the HSAs of highly-compensated employees with comparable coverage during a period. However, employer contributions to the HSAs of highly-compensated employees may not exceed employer contributions to the HSAs of non highly-compensated employees with comparable coverage during a period.

The regulation defines highly-compensated employee as any employee who was:

• A 5% owner at any time during the year or the preceding year; or
• for the preceding year, had compensation from the employer in excess of $110,000 (for 2009, indexed for inflation) and if elected by the employer, was in the group consisting of the top 20% of employees when ranked based on compensation.

In addition, the IRS allows an employer who makes the maximum calendar year HSA contribution, or who contributes more than a pro-rata amount, on behalf of employees who are mid-year eligible individuals will not fail to satisfy comparability merely because by doing so, some employees will have received more contributions on a monthly basis than employees who worked the entire calendar year.

However, if an employer contributes more than the monthly pro-rata amount for the calendar year to the HSA of any employee who is a mid-year eligible individual, the employer must then contribute, on an equal and uniform basis, a greater than pro-rata amount to the HSAs of all comparable participating employees who are mid-year eligible individuals.

Likewise, if the employer contributes the maximum annual amount for the calendar year to the HSA of any employee who is a mid-year eligible individual, the employer must contribute that same amount to the HSAs of all comparable participating employees who are mid-year eligible individuals.

The final regulation affects employers that contribute to employees' HSAs and Archer MSAs, employers or employee organizations that sponsor a group health plan, and certain third parties such as insurance companies or HMOs or third-party administrators who are responsible for providing benefits under the plan. The guidance on employer comparable contributions to HSAs under section 4980G apply to employer contributions made on or after January 1, 2010.