HSA MidYear and FSA

[Guest PGBenefits]

Can someone point me toward a good resource to answer some questions. I've surfed the web but can't seem to find these addressed.

Firm currently has an FSA which runs calendar year.

Firm may change to a HDHP and offer an HSA starting 7/1

1) What happens to the money already deferred from paychecks into FSA? When people made their FSA elections last fall they were deferring for all of 2006. Now half way through an HSA may be offered.

2) Does the FSA cease to exist on 7/1 if we move to an HSA?

There must be guidance somewhere as not all HSAs are implemented 1/1, but I can't find anything that speaks to what to do about the FSA.

[leevena]

You have many issues with what you are planning to do, and can cause significant problems if not handled carefully. There are many specifics about your current benefit plan and about what you want to do that I do not know, so I will try to make some broad statements to help guide you.

A change in underlying health plan is not necessarily a cause for allowing FSA changes. My guess is that you will not be able to make fsa changes. A HDHP with HSA is difficult to offer side-by-side. See rev rulings 2004-45 and 2004-1. 45 essentially says that you can offer them side-by-side, but that the fsa must be limited purpose, and 1 provides for the ordering.

Part of the problem you are running into is that since these types of programs are relatively new, there is not much expertise out there yet. You may want to find someone with this kind of background to help you instead of surfing the web.

Good luck.

[jmor99]

You can elect to terminate the plan mid year but the results will be negative for some employees and positive for others depending on who has used how much of their annual election. If you are going to do that then to be fair you might ought to put out an advance memo for the employees to get out there and use up at least 6/12 of their annual election (which is how much they'll have in it by 7/1) or stand to lose it! Of course, there will be some who will go use it alll up by 7/1 which is bad for the employer.

Then there's the problem that if you start the plan 7/1, the employees only have 1/2 a plan year to fund their HSA for the full annual deductible. Even if the carrier could administer the deductible from 7/1 thru 6/31, you have the potential problem of the tax year (for HSA purposes) being a calendar year. Further, the government adjusts the minimum deductible for HSAs based on calendar (tax) years, so it has the potential of changing on 1/1.

I've often wondered if the government ever thought about how all insurance plans in this country are going to be renewed on 1/1. Maybe we can all work like dogs from 10/1 thru 1/31 and take the rest of the year off.

The other option is to keep everything you've got and offer a dual option. A HDHP/HSA along with your current plan and FSA. Employees choose.