HSA Account

[jala]

If an eligible employee fails to submit the necessary paperwork to establish the HSA, what happens to the employer's contribution if the employee is now terminated.

The employee did not elect to contribute to her HSA, but did elect employee and spouse HDHP coverage.

The employer contributes a certain amount for employee and spouse coverage under a HDHP so it submitted her contribution to the financial institution each month (2 months).

It was just discovered that her account was never established as a result of the financial institution sending the employer contribution back to the employer.

How must this refund be handled:

1) Sent on to the terminated employee without tax consequenses since it was all employer contributions

2) Employer keeps reimbursement since employee failed to establish HSA

3) Must terminated employee open the HSA so contributions can be deposited.

I do see in 26 CFR Part 54, III that an employer is not required to make comparable contributions for a calendar year to an employee's HSA if the employee has not established an HSA by December 31st of the calendar year.

The employee was hired on 12/4/06. She was eligible for the HSA on 2/1/07. She terminated employment on March 10, 2007. The employer had submitted their contribution to her account for February and March 2007.

Your help and guidance in this matter is greatly appreciated.

[Jacmo]

The employer should have something in their communication materials to employees regarding how and when they'll make contributions. Regardless, I don't think # is an option. Even if they do send the money, it couldn't be tax free. It's tax free only if it goes into the HSA account.

I think the safest thing for the employer to do is to write to the employee's last home address (using same precautions as they would for COBRA) asking if the employee wants the money deposited to their HSA account, requiring bank name, etc. stating that a non-reply within 30 days automatically negates the offer, and the employer keeps the money.