HSA's / Employer Contribution Flexibility?

[Guest benefitsnerd]

I have a start up company that is planning on offering an HDHP and HSA plan along a hi and low PPO and an HMO. Employer is adamant about contributing 100% of HDHP deductible into Employee's HSA accounts via 12 equal installments. I have two questions.

First question: If an employee has a catastrophic situation the first month of the plan year, can employer help the needy employee with a lump sum payment to HSA to cover employee's deductible while only doing month by month deposits for all other less needy employees?

Second question: With the employer hell bent on incentivising all of the employees to participate in the HDHP, I'm concerned that the HDHP/HSA products are too new to give a 100% endorsement and that employer should cool off since many of the products / concepts are untested? Feedback?

[Guest AMP]

Your "frontloading" scenario has a potential adverse tax consequence for the employee under the HSA contribution limits of Code Section 223. The maximum amount that can be contributed to an HSA for any year (by the employer or the employee) is the total of the monthly limitations for that year. The monthly limitation in your situation is 1/12 of the annual deductible, or $83, for each month the employee is covered by the HDHP.

If the employee receives the $1,000 in January and remains covered by the HDHP for the entire year, no problem, because the employee's limit is 12/12 of $1,000.

But if the employee stops being covered by the HDHP during the year, an excess contribution will have been made to the HSA, because the employee's limit will be only (# of months covered by HDHP)/12 of $1,000. For example, if the employee stops being covered by the HDHP in February, the employee's annual limit is 2/12 x $1,000 = $166. The employee has to include the excess contribution of $834 in the employee's adjusted gross income for that calendar year. If the entire $1,000 has already been spent, the employee shouldn't be subject to the 6% excise tax on the excess, however.

I don't think there's a failure to comply with the comparability rule for employer contributions. The comparability rule requires that the same amount of employer HSA contributions has to be made available to comparable participating employees for each coverage period during the calendar year. Presuming that the coverage period is the plan year/calendar year, the same total employer contribution is available to all comparable participating employees, even if the timing of the employer contribution is different. But I haven't seen any guidance on how the timing of employer contributions affects the comparability rule, so I'm not certain.

[Guest AMP]

The Proposed Treasury Regs under Code Section 4980G published today do NOT permit the company to make employer HSA contributions at different times for different employees during the year, even if the employer contributes the same amount for every employee. If the employer HSA contributions are pre-funded for one employee, the employer HSA contributions must be pre-funded for all eligible employees.