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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The IRS has issued proposed regulations which, among other provisions, would permit larger employer contributions to the Health Savings Accounts (HSAs) of nonhighly compensated employees than to highly compensated employees’ HSAs.
Under Code Sec. 223, eligible individuals have been able to establish HSAs beginning in 2004. Generally, if the employer fails to make comparable contributions to the HSAs of its employees during a calendar year, an excise tax equal to 35% of the aggregate amount contributed by the employer to the HSAs of its employees during that calendar year is imposed on the employer.
The proposed regulations, implementing an exception to comparability rules contained in Code Sec. 4980G(d) , provide that employer contributions to the HSAs of nonhighly compensated employees may be larger than contributions to the HSAs of highly compensated employees with comparable coverage during a period. The proposed regulations do not permit the reverse: employer contributions to the HSAs of highly compensated employees may not exceed employer contributions to the HSAs of nonhighly compensated employees with comparable coverage during a period.
Despite this exception, comparability rules still apply to contributions to the HSAs of all non-highly compensated employees who are comparable participating employees (eligible individuals in the same category of employees with the same category of high deductible health plan (HDHP) coverage). An employer must make comparable contributions to the HSA of each nonhighly compensated employee who is a comparable participating employee during the calendar year. The comparability rules also still apply to contributions to the HSAs of all highly compensated employees who are comparable participating employees and an employer must make comparable contributions to the HSA of each highly compensated employee who is a comparable participating employee during the calendar year.
Individuals who are eligible individuals during the last month of the taxable year may make, or have made on their behalf, the maximum annual HSA contribution based on their HDHP coverage on that date. The proposed regulations provide that the employer can contribute up to the maximum contribution on behalf of all employees who are eligible individuals during the last month of the taxable year, including employees who become eligible individuals after January 1st of the calendar year (“mid-year eligible individuals”). Under the proposed rules, an employer who makes the maximum calendar year HSA contribution on behalf of mid-year eligible individuals will not fail to satisfy comparability merely because some employees will have received more contributions on a monthly basis than employees who worked the entire calendar year. If an employer contributes either more than the monthly pro-rata amount, or the maximum annual contribution amount, for the calendar year to the HSA of any employee who is a mid-year eligible individual, the employer must then contribute, respectively, a greater than pro-rata amount, or that same maximum annual contribution amount, to the HSAs of all comparable participating employees who are mid-year eligible individuals.
Direct distributions of amounts from health flexible spending arrangements (health FSAs) or health reimbursement arrangements (HRAs) are permitted to be made to HSAs. These “qualified HSA distributions” may not exceed the lesser of the balance in the health FSA or HRA on September 21, 2006, or the balances as of the date of distribution. The proposed regulations provide that if an employer offers qualified HSA distributions to any employee who is an eligible individual covered under any HDHP, the employer must offer qualified HSA distributions to all employees who are eligible individuals covered under any HDHP. However, an employer that offers qualified HSA distributions only to employees who are eligible individuals covered under the employer’s HDHP is not required to offer qualified HSA distributions to employees who are eligible individuals but are not covered under the employer’s HDHP.
The proposed regulations may be relied upon for guidance with respect to employer contributions to HSAs made on or after January 1, 2007 and before the effective date of final regulations. Written comments on the proposed regulations must be received by October 14, 2008, and submitted to: CC:PA:LPD:PR (REG–120476–07), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044, or via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG–120476–07).
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