Understanding HSA Compliance
A Health Savings Account (HSA) is an employer-funded spending account that helps participants save and earn interest on tax-free funds that can be used for qualified medical expenses. Even more, any unused money in your HSA isn't forfeited at the end of the year; it continues to grow, tax-deferred.
HSAs provide employers a cost-efficient way to support their employees’ financial and physical health. For employees, HSAs offer tax-saving benefits, flexibility, and greater control over finances.
Before deploying an HSA program at your organization, know that there are stringent HSA rules and regulations you and your employees must follow. Read on to learn about four actions you should take to ensure your company, employees, and HSA program comply, and to keep your HSA safe from the Employee Retirement Income Security Act of 1974 (ERISA) liabilities.
1. Confirm Employee Eligibility for HSA Participation
While Health Savings Accounts (HSAs) are available company-wide, individual eligibility depends on meeting specific criteria:- Enrollment in an HSA-Eligible Health Plan
The employee must be enrolled in a qualifying high-deductible health plan (HDHP). - No Conflicting Coverage
Employees are not eligible for an HSA if they:- Are claimed as a dependent on someone else's tax return.
- Are covered under another health plan (e.g., a spouse’s plan).
- Participate in a medical Flexible Spending Account (FSA).
- Are enrolled in Medicare.
2. Notify employees about HSA rules
Once you know an employee is HSA-eligible, educate them on which expenses HSAs can pay for and the unique benefits and saving opportunities HSAs offer. This sets a positive stage for understanding HSA contribution rules. This way employees tend to feel less confused or overwhelmed by the rules. With our years of experience guiding employers on HSAs, we find that by laying a foundation about the many benefits of HSAs, employees are more inclined to ask insightful questions and open an HSA account.3. Educate your employer partners on HSA contribution rules
Contribution rules for employersEmployers have the option of running their HSA program through a cafeteria plan, which can give employees certain benefits on a pretax basis. If your HSA program is not operated through a cafeteria plan, you must adhere to particular comparability rules when contributing to employees’ HSAs. Mainly, your contributions to all participating employees’ HSAs must match either the dollar amount or percentage of their HDHP’s deductible. If your program is run through a cafeteria plan, your contributions are subject to non-discrimination testing, so comparability rules don’t apply.
Contribution rules for employees
HSA contribution limits are among the most important rules you need to communicate to your HSA participants. If an employee’s contribution exceeds the limit, they’ll either need to withdraw their excess contribution before filing their taxes to avoid penalties or mark the over-contributed amount as “other income” when filing their taxes and incur a 6% excise tax penalty in the process.
HSAs through First American Bank Health Account Services come with a personalized, easy-to-understand expense dashboard that manages and tracks all HSA contributions throughout the year—enabling your employees to more proactively prevent HSA contribution mistakes.
4. Understand the relationship between HSAs and ERISA compliance
The ERISA protects the rights and interests of workers participating in employer benefits plans by making available plan features and funding information and by setting minimum standards for participation, vesting, benefit accrual, and funding.Whereas employer-sponsored health plans entail fiduciary responsibilities for employers, HSAs do not because they’re employee-owned. According to the Society for Human Resource Management, employers whose HSA programs are subject to ERISA are required to:
- File Form 5500s annually with the Department of Labor (DOL)
- Provide HSA participants a summary plan description and plan documents
- Follow all DOL claims procedures
- Offer COBRA continuation coverage
To ensure your HSA program stays ERISA-compliant, here are some actions that you should avoid:
- Controlling how much an employee contributes to their HSA
- Disallowing employees from moving their funds to another HSA
- Influencing or controlling how employees can use their funds
- Influencing employees on their HSA investment decisions
- Telling your employees their HSA is subject to ERISA
- Receiving any form of compensation related to the HSA
Compliance makes for stronger benefits offerings
With their significant tax-advantages, HSAs enable your employees to do more with their pre-tax dollars. By educating yourself and your employees on compliance rules for managing, contributing to, and using HSAs, you can provide for both better employee wellness and financial comfort.
First American Bank offers employers and their employees a variety of consumer-directed health benefit products—including one of the best HSA accounts for 2023, as recognized by Investor’s Business Daily. At First American Bank, our technology and people simplify the business of doing business. As a one-stop benefits administrator we coordinate HSAs, FSAs, and HRAs on a single platform accessible through a Mastercard® debit card.
