Can Employers Use PPP Funds to Contribute to HSAs?

Limited guidance on the regulations makes this answer complex for plan sponsors.

The recent passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act has left some employers scrambling for more guidance. Among the issues they’re clamoring to understand are Small Business Administration (SBA) loans and the Paycheck Protection Program (PPP), experts say.

According to Alison Moore, vice president of health marketing at HealthSavings, a health savings account (HSA) provider, these loans can help employers add contributions to their employees’ HSAs. “At this time when employers are looking for ways to help their employees, one of the things they could do is help fund their employees’ HSAs,” she says.

A number of new rules that came out under the COVID-19 relief package added health benefits for employees. Now, employed workers may use their HSAs to cover telehealth—an issue that was swept under the rug for years before the coronavirus pandemic—and over-the-counter medicine without a prescription. Additionally, if a worker is laid off or unemployed, they may use their HSA to cover COBRA [Consolidated Omnibus Budget Reconciliation Act] premiums tax-free. “This fits right at the intersection with financial health and wellness,” Moore says. “It’s a vehicle that employees can use to put money in tax-free, it can grow tax-free and it can be used tax-free for qualifying medical expenses.”

Yet the emergence of additional guidance can be taxing on employers, who continue to find little clarification on some regulations. Some employers, says Kevin Robertson, chief revenue officer at HSA Bank, an HSA administration provider, can run the risk of hurting their compliance, even if their actions are a mistake or an oversight.

While employers can begin or increase contributions for their employee population under SBA loans, it’s important to note that they cannot selectively contribute to a singular employee’s account, Robertson adds. For instance, an employer is prohibited from making an extra contribution to an individual worker who is falling under tough times. If they do, they can be subject to HSA comparability rules if the contribution is made outside of a Section 125 plan, or nondiscrimination rules if made inside a Section 125 plan, according to Robertson. “They just have to remain cognizant because they may ultimately be causing a compliance issue for themselves,” he says. “As a rule of thumb, what they do for one, they should do for all.”

Under the CARES Act, the rules on the PPP state that employers can use the money from these loans for payroll costs. If an employer applies for the program and is accepted, they must use at least 75% of the loan on payroll services. “But what technically applies as a payroll cost?” Robertson asks. The complexity behind the PPP is enough to sway small business employers from potentially offering or increasing HSA contributions—and the confusion led the Treasury Department to issue a set of frequently asked questions (FAQs) for additional guidance and the SBA to release a brief explaining how to apply, yet both make no mention of HSAs.

However, because these loans are intended for employees, plan sponsors may use them toward HSA features, Moore says. “Generally, the PPP loans are for employers to provide benefits and compensation to their employees, and HSAs do qualify as a benefit,” she explains.

But while employers may want to help with health care costs, Robertson, on the other hand, urges plan sponsors to think twice before applying PPP funds to increase HSA contributions, mainly because of limited understanding around the regulation. Since the ruling’s generalization can be subject to interpretation, it’s best to halt before using funds for HSA contributions and consult with an Employee Retirement Income Security Act (ERISA) attorney. “There’s no linear answer,” Robertson says.