HSA Enrollment During FSA Grace Period

[Guest parkerak]

Our Company is introducing a HDHP with HSA for the first time effective 1/1/2007. Since we already have Health FSA's (not limited scope) with a grace period to 3/15, it is our understanding that employees cannot participate in an HSA until 4/1/2007, irregardless of whether they have remaining funds in their 2006 FSA account. We are getting differing opinions as to whether a person can enroll in an HSA effective 1/1/07 if he was enrolled in an FSA in 2006 in a plan with a grace period. Due to the conflicting opinions, we have decided not to begin pretax payroll deductions until 4/1/07 (month following the grace period); however employees want to know if they can open their HSA with the custodian and send a check for the three months where we will not take payroll deductions. I would like some feedback from others regarding your understanding.

Thank you.

[jmor99]

The answer is "no" for the employees who want to open their own HSA before 4/1. If they try to open an HSA with a sharp custodian, that custodian will ask the right questions and find out that the employee has first dollar coverage. (covered by an FSA with a grace period). They won't let the employee make contributions until 4/1, and then only 8/12s of the HDHP deductible.