Jacmo

Fortunately or unfortunately (depending on whose camp you're in) it's an honor system aspect of HSAs. Ultimately, it's between the employee and the IRS. The employer has limited responsibility for determining whether an employee's HSA contribution is excludable. An employer is responsible for determining 1) whether the employee is covered under an HDHP sponsored by that employer; 2) whether the employee is covered under a non-HDHP (including health FSAs and HRAs) sponsored by that employer; 3) the employee's age. That's it.

I tend to think that the employer would want to follow a 1/12th rule. Regardless of the timing of the fund transfers, they might want to consider following a "time served=amt deposited" type of rule. I also think I would be just as concerned about the advantage/preferred treatment those employees with early claims have received. It could be argued that those who didn't get the early transfers missed out on earned interest. You didn't state whether employee HSA contributions are offered through a cafeteria plan. If they are, IRS Notice 2004-50 confirms that an employer may accelerate HSA funding up to the maximum salary reduction amount elected by the employee, but employees terminating mid-year must repay any accelerated amounts. 4980g refers to 4980e as to comparability. Per 4980E(d)(2)(B): "In the case of an employee who is employed by the employer for only a portion of the calendar year, a contribution to the Archer MSA of such emplyoyee shall be treated as comparable if it is an amount which bears the same ratio to the comparable amount as such portion bears to the entire calendar year." Therefore, I think you are correct. You've got to make those contributions. Which goes back to my first paragraph.

I'm currently in a debate with a cohort. I believe that an employer can do just about any thing they want to under an HRA as long as everyone is treated the same, no A/D tests are failed, the plan does not favor Key or HCEs, and the plan is in writing and communicated. Example: HRA is effective 5/1 and states that it will pay 1,000 toward the 1,500 deductible of the Major Medical plan. I say that the plan can allow credit for deductible expenses incurred back to 1/1 (as long as it's in writing, communicated, and meets requirements noted above). My cohort says no. No expenses can be allowed prior to 5/1, the eff. date of the plan. Who is right?

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.

I don't think there are any 2 year lengths UNLESS you signed up as a reservist (4 years of reserve duty while in college) then 2 years active duty.

The employer's $1200 should also be in box 12.

Try the cafeteria plan forum. This is the HSA forum.

Wouldn't it be possible for preventive items/procedures to be eligible expenses under an HSA compatible Limited Purpose FSA? If so, would an MD's statement that the acupuncture was medically necessary to treat a current condition make it eligible?

No, I don't think so. HCE determination is made by income and ownership. No reference is made to family connnections.

There is nothing to prevent S-corp owners from participating in a 129 DCAP program, as long as you can pass the 55% test. Unfortunately, since the other employee won't be participating, you are automatically going to fail the 55% test, which means you're back where you started taxwise. This is a no go for you.

To add to Presson's correct reply, the dollars can be claimed as soon as the expense is incurred.

Yes--because you have distinguised those assets as separate from the employer's general assets. You now are subject to ERISA asset trust requirements. You must set up a trust. That requires very special legal expertise and very special accounting expertise. Translation----$$$$$$$$$$$$. You are far better off to simply change the name of the account.

DAHO: We recently set up a plan where the employer also wanted it to remain cost neutral. They already had a POP plan in place, and added FSAs--MedRe and DayCare. There was the initial set up fee. They anticipated that their FICA savings would offset that well within the first plan year. The monthly admin fee was $6.50/mo/participant. For the employer to break even on this, they communicated to the employees that anyone who elected less than 1,000 for their annual election (MedRE and/or Daycare combined) would pay the $6.50 monthly admin fee (which was made an eligible benefit under the POP portion of the plan which allowed it to be pre-taxed too). The math: 6.50x12=78. 78 divided by .0765=1019.61. A first class presentation was made to the employees of this high tech group. Judging by the response, it is anticipated that there will be 50-75% participation. The average annual MedRe election in this part of the country is 1200.00 per year. The employees will have the use of a debit card, which tends to raise participation rates. Participation rates will vary from 20-80% depending on the group demographics, specifically, discretionary income. Under this scenario, your group should be in better than a break even situation. And the 25% who don't have your insurance will be able to benefit from this program. You will find that participation will increase each year (word of mouth +plus employee meetings) and then begin to level off in the 3rd year. But this assumes that you do a good job of communicating the benefit each year.

Your plan document should state how gains are to be used (most employers use them to offset admin fees). I am assuming here that these "gains" are for FSA participant losses? What has happened is that the TPA has just now discovered that they were in violation of ERISA asset trust requirements. Whenever plan assets leave the employer's general assets, they must be transferred into a trust--never into the control of some other entity (such as a TPA)--unless it's an insurance carrier or a bank custodian (for HSA money, for example). The "cure" they have suggested to you is the correct one which meets ERISA requirements. In other words, by setting up a checking account that is controlled by you (the employer), you avoid ERISA asset trust requirements. That checking account must be indistinguishable from other employer general assets. For example, you will NOT want to name that account "the ABC Co. FSA account". Doing so would indicate a separation from the employer's general assets. So if your corporate checking account is named, for instance, "the ABC Co. general operating fund", then you might want to name this new account "the ABC Co. general operating fund #2", or some such. By doing so, you avoid ERISA asset trust requirements. After you set up this new account, deposit the check from the TPA there, to be used in the same manner that it was being used before (according to the plan document). You'll be fine from that point forward, and will still be able to do business with the TPA under the new arrangement, which is the legally correct one.

jcastro: Perhaps the easiest way to understand Box 12 is that it prevents double dipping. Your contribution was pre-tax, so your contribution goes in Box 12 to keep you from getting another break. Your employer's contribution was not taxable to you, so it also goes in box 12, to, again, keep you from getting another break on the same money. You paid no taxes on either category of contributions. So you don't get another break. That's the purpose of box 12.

My mistake. But you stated "the IRS minimum single deductible is currently $1500". You might want to print off a copy of Gary Lesser's chart (at the top of this forum). The IRS minimum deductible for a qualified High Deductible Health Plan is currently $1100 for self-only coverage and $2200 for family coverage.

Then my reply would still apply. But..........where did you get $1500 as being the IRS minimum single deductible?

Re: #2--Not any more (as of 1/1/07). During the first full month that I am HSA eligible in 2007, I can contribute to the max for 2007. I can become HSA eligible in December 07 and fund the max for all of 2007. Re the 2nd part of your question: I think what you're asking is--can one document serve for 2 distinctive plans. I believe the answer to be yes. As a parallel example, one document serves for 2 "plans" when a medical fsa and a DCAP fsa are included in the same document (and for 3 "plans" when the POP portion is included).

Agreed.

1)Assuming spouse doesn't renew her FSA election, ( and has a zero balance), he can start making contributions 9/1. 2) Under the new rules, not limited to 1/3. Can fund to the max for 2007. 3) Even tho the FSA balance may be zero prior to 9/1, the spouse (and husband) is still "covered" by the FSA until 8/31. 4) Yes, GP FSA could be amended to become a limited purpose FSA.

Rellio: The HDHP renewal date has nothing to do with HSA contribution time frames. He does not have to wait until 9/1 to max out his HSA contributions.

Why wouldn't it be? HSA contributions are no different than health plan contributions, from a 125 standpoint.

1) No 2) Yes--It must be named as an eligible benefit, just like a health option, cancer or accident plan, etc. 3) At worst, disqualification of the 125 plan meaning all back taxes are owed (federal, FICA, state). Best thing to do--write up a Plan of Self Correction identifying the failure, with accompanying details, and how you plan to correct the problem, when, etc. Then add to the 125 documentation. Then, "sin no more".

To the extent carried over deductibles reduce the new deductible below the legal minimum required--I would think not.

To answer your question, the HSA is not "under" the HDHP. It is a separate, private account. The employer can put in a HDHP and all employees are eligible to participate (take the coverage). Whether or not the employees also set up their own HSA is their problem (which the employer may or may not assist with). But once the employer makes contributions to an employees HSA, it must do so comparably to other similarly situated employees.