HSA/125 plan documentation and corrections

[Guest MBuschmeyer]

HSAs are not our primary area of business so I only know the basics. I understand there is no formal correction procedure for HSAs. A company implemented a premium only Section 125 plan a few years back. In 2005, they established an HSA account. They have been funding the HSA account on a pre-tax basis. From what I've read, the HSA can be funded on a pre-tax basis (vs an above the line deduction) only if it's done in conjunction with a Section 125 Plan. However, their 125 plan does not mention or address HSAs.

1.) Is there any way other than a 125 plan to fund an HSA on a pre-tax basis?

2.) Does the 125 plan have to specifically address the HSA?

3.) What possible corrections/repercussions might exist for the company if they impermissibly funded their HSA on a pre-tax basis?

Thanks,

Melanie

[Jacmo]

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".