Employer Comparable Contributions to Health Savings Accounts Under Section 4980G, 20794-20797 [E8-8214]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 73, Number 75 (Thursday, April 17, 2008)]
[Rules and Regulations]
[Pages 20794-20797]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-8214]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 54

[TD 9393]
RIN 1545-BF97


Employer Comparable Contributions to Health Savings Accounts 
Under Section 4980G

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations providing guidance on 
employer comparable contributions to Health Savings Accounts (HSAs) 
under section 4980G in instances where an employee has not established 
an HSA by December 31st and in instances where an employer accelerates 
contributions for the calendar year for employees who have incurred 
qualified medical expenses. These final regulations affect employers 
that contribute to employees' HSAs and their employees.

DATES: Effective Date: These regulations are effective on April 17, 
2008.
    Applicability Date: These regulations apply to employer 
contributions made for calendar years beginning on or after January 1, 
2009.

FOR FURTHER INFORMATION CONTACT: Mireille Khoury at (202) 622-6080.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-2090. The collection of information 
in these final regulations is in Q & A-14. This information is needed 
for purposes of making HSA contributions to employees who establish an 
HSA after the end of the calendar year but before the last day of 
February or who have not previously notified their employer that they 
have established an HSA.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains final Pension Excise Tax Regulations (26 CFR 
part 54) under section 4980G of the Internal Revenue Code (Code). Under 
section 4980G, an excise tax is imposed on an employer that fails to 
make comparable contributions to the HSAs of its employees.
    On August 26, 2005, proposed regulations (REG-138647-04) on the 
comparability rules of section 4980G were published in the Federal 
Register (70 FR 50233). On July 31, 2006, final regulations (REG-
138647-04) on the comparability rules were published in the Federal 
Register (71 FR 43056). The final regulations clarified and expanded 
upon the guidance regarding the comparability rules published in Notice 
2004-2 (2004-2 IRB 296) and in Notice 2004-50 (2004-33 IRB 196), Q & A-
46 through Q & A-54. See Sec.  601.601(d)(2). Q & A-6(b) of the final 
regulations reserved the issue of employees who have not established an 
HSA by the end of the calendar year.
    On June 1, 2007, proposed regulations (REG-143797-06), were 
published in the Federal Register (72 FR 30501) addressing the reserved 
issue and one additional issue concerning the acceleration of employer 
contributions. One written public comment on the proposed regulations 
was received, which supported the proposed regulations. These final 
regulations adopt the provisions of the proposed regulations without 
substantive revision.

Explanation of Provisions and Summary of Comments

Employee Has Not Established HSA by December 31

    The proposed and final regulations provide a means for employers to 
comply with the comparability requirements with respect to employees 
who have not established an HSA by December 31, as well as with respect 
to employees who may have established an HSA but not notified the 
employer of that fact. The proposed and final regulations provide that, 
in order to comply with the comparability rules for a calendar year 
with respect to such employees, the employer must comply with a notice 
requirement and a contribution requirement. In order to comply with the 
notice requirement, the employer must provide all such employees, by 
January 15 of the following calendar year, written notice

[[Page 20795]]

that each eligible employee who, by the last day of February, both 
establishes an HSA and notifies the employer that he or she has 
established the HSA will receive a comparable contribution to the HSA. 
For each such eligible employee who establishes an HSA and so notifies 
the employer by the end of February, the employer must contribute to 
the HSA by April 15 comparable amounts (taking into account each month 
that the employee was a comparable participating employee) plus 
reasonable interest. The notice may be delivered electronically. The 
proposed and final regulations provide sample language that employers 
may use as a basis in preparing their own notices. The only comment 
received was in support of this new rule and the model notice.

Acceleration of Employer Contributions

    The proposed and final regulations also address a second issue 
relating to acceleration of contributions. They provide that, for any 
calendar year, an employer may accelerate part or all of its 
contributions for the entire year to the HSAs of employees who have 
incurred during the calendar year qualified medical expenses exceeding 
the employer's cumulative HSA contributions at that time. If an 
employer accelerates contributions for this reason, these contributions 
must be available on an equal and uniform basis to all eligible 
employees throughout the calendar year and employers must establish 
reasonable uniform methods and requirements for acceleration of 
contributions and the determination of medical expenses. An employer is 
not required to contribute reasonable interest on either accelerated or 
non-accelerated HSA contributions. But see Q & A-6 and Q & A-12 in 
Sec.  54.4980G-4 for when reasonable interest must be paid. The one 
comment received supported this new provision allowing employers to 
accelerate contributions.

Other Issues

    These final regulations concern only section 4980G. Other statutes 
may impose additional requirements (for example, the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA) (sections 9801-
9803)).

Effective/Applicability Date

    These regulations apply to employer contributions made for calendar 
years beginning on or after January 1, 2009. However, employers may 
rely on this guidance beginning on or after the date of publication of 
these final regulations in the Federal Register.

Special Analyses

    It has been determined that these regulations are not a significant 
regulatory action as defined in Executive Order 12866. Therefore, a 
regulatory assessment is not required. It also has been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
does not apply to these regulations. It is hereby certified that the 
collection of information in these regulations will not have a 
significant economic impact on a substantial number of small entities. 
This certification is based on the fact the estimated burden associated 
with the information collection averages 15 minutes per respondent. 
Moreover, a model notice has been provided for employers who are 
subject to this collection of information. Therefore, a Regulatory 
Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. 
Chapter 6) is not required. Pursuant to section 7805(f) of the Internal 
Revenue Code, this regulation has been submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business.

Drafting Information

    The principal author of these final regulations is Mireille Khoury, 
Office of Division Counsel/Associate Chief Counsel (Tax Exempt and 
Government Entities). However, personnel from other offices of the IRS 
and Treasury Department participated in their development.

List of Subjects in 26 CFR Part 54

    Excise taxes, Pensions, Reporting and recordkeeping requirements.

Adoption of Amendment to the Regulations

0
Accordingly, 26 CFR part 54 is amended as follows:

PART 54--PENSION EXCISE TAXES

0
Paragraph 1. The authority citation for part 54 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

Sec.  54.4980G-0  [Amended]

0
Par. 2. Section 54.4980G-0 is amended by adding entries for 54.4980G-4 
Q & A-14, Q & A-15 and Q & A-16 to read as follows:


Sec.  54.4980G-0  Table of contents.

* * * * *


Sec.  54.4980G-4  Calculating comparable contributions.

* * * * *
    Q-14: How does an employer comply with the comparability rules 
if an employee has not established an HSA by December 31st?
    Q-15: For any calendar year, may an employer accelerate part or 
all of its contributions for the entire year to the HSAs of 
employees who have incurred, during the calendar year, qualified 
medical expenses (as defined in section 223(d)(2)) exceeding the 
employer's cumulative HSA contributions at that time?
    Q-16: What is the effective date for the rules in Q & A-14 and Q 
& A-15 of this section?


0
Par. 3. Section 54.4980G-4 is amended by:
0
1. Removing paragraph (b) and redesignating paragraph (c) as paragraph 
(b) in Q & A-6.
0
2. Adding Q & A-14, Q & A-15 and Q & A-16.
    The additions read as follows:


Sec.  54.4980G-4  Calculating comparable contributions.

* * * * *
    Q-14: Does an employer fail to satisfy the comparability rules for 
a calendar year if the employer fails to make contributions with 
respect to eligible employees because the employee has not established 
an HSA or because the employer does not know that the employee has 
established an HSA?
    A-14: (a) In general. An employer will not fail to satisfy the 
comparability rules for a calendar year (Year 1) merely because the 
employer fails to make contributions with respect to an eligible 
employee because the employee has not established an HSA or because the 
employer does not know that the employee has established an HSA, if--
    (1) The employer provides timely written notice to all such 
eligible employees that it will make comparable contributions for Year 
1 for eligible employees who, by the last day of February of the 
following calendar year (Year 2), both establish an HSA and notify the 
employer (in accordance with a procedure specified in the notice) that 
they have established an HSA; and
    (2) For each such eligible employee who establishes an HSA and so 
notifies the employer on or before the last day of February of Year 2, 
the employer contributes to the HSA for Year 1 comparable amounts 
(taking into account each month that the employee was a comparable 
participating employee) plus reasonable interest by April 15th of Year 
2.
    (b) Notice. The notice described in paragraph (a) of this Q & A-14 
must be provided to each eligible employee who has not established an 
HSA by December 31 of Year 1 or if the employer does not know if the 
employee established an HSA. The

[[Page 20796]]

employer may provide the notice to other employees as well. However, if 
an employee has earlier notified the employer that he or she has 
established an HSA, or if the employer has previously made 
contributions to that employee's HSA, the employer may not condition 
making comparable contributions on receipt of any additional notice 
from that employee. For each calendar year, a notice is deemed to be 
timely if the employer provides the notice no earlier than 90 days 
before the first HSA employer contribution for that calendar year and 
no later than January 15 of the following calendar year.
    (c) Model notice. Employers may use the following sample language 
as a basis in preparing their own notices.

Notice to Employees Regarding Employer Contributions to HSAs:

    This notice explains how you may be eligible to receive 
contributions from [employer] if you are covered by a High 
Deductible Health Plan (HDHP). [Employer] provides contributions to 
the Health Savings Account (HSA) of each employee who is [insert 
employer's eligibility requirements for HSA contributions] 
(``eligible employee''). If you are an eligible employee, you must 
do the following in order to receive an employer contribution:
    (1) Establish an HSA on or before the last day in February of 
[insert year after the year for which the contribution is being 
made] and;
    (2) Notify [insert name and contact information for appropriate 
person to be contacted] of your HSA account information on or before 
the last day in February of [insert year after year for which the 
contribution is being made]. [Specify the HSA account information 
that the employee must provide (e.g., account number, name and 
address of trustee or custodian, etc.) and the method by which the 
employee must provide this account information (e.g., in writing, by 
e-mail, on a certain form, etc.)].
    If you establish your HSA on or before the last day of February 
in [insert year after year for which the contribution is being made] 
and notify [employer] of your HSA account information, you will 
receive your HSA contributions, plus reasonable interest, for 
[insert year for which contribution is being made] by April 15 of 
[insert year after year for which contribution is being made]. If, 
however, you do not establish your HSA or you do not notify us of 
your HSA account information by the deadline, then we are not 
required to make any contributions to your HSA for [insert 
applicable year]. You may notify us that you have established an HSA 
by sending an [e-mail or] a written notice to [insert name, title 
and, if applicable, e-mail address]. If you have any questions about 
this notice, you can contact [insert name and title] at [insert 
telephone number or other contact information].

    (e) Electronic delivery. An employer may furnish the notice 
required under this section electronically in accordance with Sec.  
1.401(a)-21 of this chapter.
    (f) Examples. The following examples illustrate the rules in this Q 
& A-14:

    Example 1. In a calendar year, Employer Q contributes to the 
HSAs of current employees who are eligible individuals covered under 
any HDHP. For the 2009 calendar year, Employer Q contributes $50 per 
month on the first day of each month, beginning January 1st, to the 
HSA of each employee who is an eligible employee on that date. For 
the 2009 calendar year, Employer Q provides written notice 
satisfying the content requirements of this Q & A-14 on October 16, 
2008 to all employees regarding the availability of HSA 
contributions for eligible employees. For eligible employees who are 
hired after October 16, 2008, Employer Q provides such a notice no 
later than January 15, 2010. Employer Q's notice satisfies the 
notice timing requirements in paragraph (a)(1) of this Q & A-14.
    Example 2. Employer R's written cafeteria plan permits employees 
to elect to make pre-tax salary reduction contributions to their 
HSAs. Employees making this election have the right to receive cash 
or other taxable benefits in lieu of their HSA pre-tax contribution. 
Employer R automatically contributes a non-elective matching 
contribution to the HSA of each employee who makes a pre-tax HSA 
contribution. Because Employer R's HSA contributions are made 
through the cafeteria plan, the comparability requirements do not 
apply to the HSA contributions made by Employer R. Consequently, 
Employer R is not required to provide written notice to its 
employees regarding the availability of this matching HSA 
contribution. See Q & A-1 in Sec.  54.4980G-5 for treatment of HSA 
contributions made through a cafeteria plan.
    Example 3. In a calendar year, Employer S maintains an HDHP and 
only contributes to the HSAs of eligible employees who elect 
coverage under its HDHP. For the 2009 calendar year, Employer S 
employs ten eligible employees and all ten employees have elected 
coverage under Employer S's HDHP and have established HSAs. For the 
2009 calendar year, Employer S makes comparable contributions to the 
HSAs of all ten employees. Employer S satisfies the comparability 
rules. Thus, Employer S is not required to provide written notice to 
its employees regarding the availability of HSA contributions for 
eligible employees.
    Example 4. In a calendar year, Employer T contributes to the 
HSAs of current full-time employees with family coverage under any 
HDHP. For the 2009 calendar year, Employer T provides timely written 
notice satisfying the content requirements of this section to all 
employees regardless of HDHP coverage. Employer T makes identical 
monthly contributions to all eligible employees (meaning full time 
employees with family HDHP coverage) that establish HSAs. Employer T 
contributes comparable amounts (taking into account each month that 
the employee was a comparable participating employee) plus 
reasonable interest to the HSAs of the eligible employees that 
establish HSAs and provide the necessary information after the end 
of the year but on or before the last day of February, 2010. 
Employer T makes no contribution to the HSAs of employees that do 
not establish an HSA or that do not provide the necessary 
information on or before the last day of February, 2010. Employer T 
satisfies the comparability requirements.
    Example 5. For the 2009 calendar year, Employer V contributes to 
the HSAs of current full time employees with family coverage under 
any HDHP. Employer V has 500 current full time employees. As of the 
date for Employer V's first HSA contribution for the 2009 calendar 
year, 450 eligible employees have established HSAs. Employer V 
provides timely written notice satisfying the content requirements 
of this section only to those 50 eligible employees who have not 
established HSAs. Employer V makes identical quarterly contributions 
to the 450 eligible employees who established HSAs. By April 15, 
2010, Employer V contributes comparable amounts to the other 
eligible employees who establish HSAs and provide the necessary 
information on or before the last day of February, 2010. Employer V 
makes no contribution to the HSAs of eligible employees that do not 
establish an HSA or that do not provide the necessary information on 
or before the last day of February, 2010. Employer V satisfies the 
comparability rules.

    Q-15: For any calendar year, may an employer accelerate part or all 
of its contributions for the entire year to the HSAs of employees who 
have incurred, during the calendar year, qualified medical expenses (as 
defined in section 223(d)(2)) exceeding the employer's cumulative HSA 
contributions at that time?
    A-15: (a) In general. Yes. For any calendar year, an employer may 
accelerate part or all of its contributions for the entire year to the 
HSAs of employees who have incurred, during the calendar year, 
qualified medical expenses exceeding the employer's cumulative HSA 
contributions at that time. If an employer accelerates contributions to 
the HSA of any such eligible employee, all accelerated contributions 
must be available throughout the calendar year on an equal and uniform 
basis to all such eligible employees. Employers must establish 
reasonable uniform methods and requirements for accelerated 
contributions and the determination of medical expenses.
    (b) Satisfying comparability. An employer that accelerates 
contributions to the HSAs of its employees will not fail to satisfy the 
comparability rules because employees who incur qualifying medical 
expenses exceeding the employer's cumulative HSA contributions at that 
time have received more contributions in a given period than comparable 
employees who do not incur such expenses, provided that all

[[Page 20797]]

comparable employees receive the same amount or the same percentage for 
the calendar year. Also, an employer that accelerates contributions to 
the HSAs of its employees will not fail to satisfy the comparability 
rules because an employee who terminates employment prior to the end of 
the calendar year has received more contributions on a monthly basis 
than employees who work the entire calendar year. An employer is not 
required to contribute reasonable interest on either accelerated or 
non-accelerated HSA contributions. But see Q & A-6 and Q & A-12 of this 
section for when reasonable interest must be paid.
    Q-16: What is the effective date for the rules in Q & A-14 and Q & 
A-15 of this section?
    A-16: These regulations apply to employer contributions made for 
calendar years beginning on or after January 1, 2009.

    Approved: April 10, 2008.
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E8-8214 Filed 4-16-08; 8:45 am]
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