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 Final Regulations For HSA Contributions

FINAL REGULATIONS RELEASED EMPLOYER CONTRIBUTIONS FOR 2007
On July 28, 2006, the IRS released the final regulations under Code Section 4980G (54.4980G-1, 2, 3, 4 and 5). These regulations provide guidance for employer contributions made to employees’ HSAs. The final regulations apply to employer contributions made on or after January 1, 2007. An outline of the requirements and changes provided in the new final regulations are outlined here.

EXCEPTION TO COMPARABILITY RULE
An exception from the comparability rule for contributions made for groups of collectively bargained employees such as unions.

CLARIFICATION REGARDING HOW AN EMPLOYER MAKES CONTRIBUTIONS
Clarification regarding how an employer may make comparable contributions, on a pre-funded annual basis, pay-as-you-go basis (usually per payroll schedule) or on a- look-back basis at the end of the calendar year. The ruling clarifies how the employer funds the HSA if an employee has not established an HSA at the time the employer funds its employees’ HSAs. However, no guidance was written for what an employer should do if the Employee has not established an HSA by the end of the calendar year.

EMPLOYER CONTRIBUTIONS FOR FAMILY COVERAGE
Employer contributions can still only be made based on two categories of coverage, self only and family coverage under the HDHP. However, the final regulations did allow for some flexibility of the family coverage. Family coverage can now be broken down into three tiers: employee plus one, employee plus two, or employee plus three or more. For each tier under family coverage, contributions need to be comparable. Also the contribution for employee plus two cannot be less than the contribution for employee plus one and the contributions with respect to the employee plus three or more may not be less than the contribution for employee plus two. Example: Employee plus spouse and employee plus dependent are both treated as employee plus one under the final rules.

EMPLOYEE CATEGORIES FOR CONTRIBUTIONS
The categories of employees for whom an employer may make contributions to an HSA remain the same: Current Full Time, Current Part Time, and Former employees.

CALENDAR YEAR COMPARABILITY
The final rules clarify that HSAs are to be tested on a calendar year for comparability not on a plan-year basis. Also the amount is comparable when determined on a month-to-month basis.

CLARIFICATION OF WHEN EMPLOYEE ESTABLISHES AN HSA
If an employee has not established an HSA at the time the employer funds its employees HSAs, the employer must still comply by contributing comparable amounts plus reasonable interest to the employee’s HSA when the employee established the HSA account. Reasonable interest is based on facts and circumstances. If an employer calculates interest using the Federal short term rate as determined by the Secretary in accordance with section 1274(d), the employer is deemed to use a reasonable interest rate.

CLARIFICATION OF COMPARABILITY RULES
Further clarification of the exclusion for the comparability rules for employer contributions made through a cafeteria plan.

FOR FURTHER INFORMATION
To read the entire guidance, go to http://www.treas.gov/press/releases/reports/hsa_comparable_contributions_4830.pdf

Kereon HSA, Inc.
13700 Watertower Circle, Suite D
Plymouth, MN 55441
Phone (763) 383-4860
Fax (763) 383-4880

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