That was the bottom line of proposed rules issued by the Internal Revenue Service that would enhance the appeal of HSAs by reducing employees’ concerns that their accounts could be exhausted if they incur big medical bills early in the year before employers make all of their contributions.
According to news reports, the 2007 proposed regulations allow an employer to accelerate part or all of its contributions for any calendar year to the HSAs of employees who have incurred qualified medical expenses during that year that exceed the employer’s year-to-date HSA contributions. Employers that accelerate contributions must do so on an equal and uniform basis for all eligible employees throughout the calendar year.
The proposed rule would apply to HSAs that are not part of Section 125 programs, in which employees make pretax contributions to their accounts, according to news reports. Benefit experts say such an acceleration of employer contributions to HSAs that are part of Section 125 programs is already permitted.
The 2007 proposed regulations provide a means for employers to comply with the comparability rules with respect to employees who have not established an HSA by December 31; and employees who may have established an HSA but not notified the employer of that fact.
The employer must first provide written notice (which may be delivered electronically) to all such employees, by January 15 of the next calendar year, stating that each eligible employee who, by the last day of February, both establishes an HSA and notifies the employer that he or she has done so will receive a comparable contribution to the HSA. The employer must then make a comparable contribution (plus reasonable interest), by April 15, to the HSA of each eligible employee who establishes an HSA and so notifies the employer by the end of February, according to the regulations.
The text of the rules are here .