PEO doesn't offer cafeteria plan for HSA; why?

[Guest sanchanim]

i can't, for the life of me, understand why the big PEO, administaff, won't offer to run emplyee's HSA contributions through their cafeteria plan. does anyone know? they already offer pre-tax deductions for 401k and FSA, so why not HSA? is there any downside for administaff to amend and restate their section 125 to include an HSA module?

do you know of a PEO (like administaff) that does offer to pre-tax deduct HSA contributions? our small business will switch to that PEO!

administaff currently runs payroll and also is the interface for the insurance carrier unitedhealthcare

[GBurns]

Aside from the basic problem of a PEO offering a cafeteria plan and health insurance coverage to the client's employees since the PEO is most likely not the common law employer etc, there is also the requirement that the participant must bee covered by an eligible HDHP in order to have an HSA. If there is no eligible High Deductible Health Plan there would be no HSA. Many, if not most, employers and PEOs do not have an HDHP offering for many reasons.

I would be wary of participating in health coverage sponsored by any PEO. Check your state insurance laws covering Small Group and also MEWAs.

[Guest sanchanim]

Aside from the basic problem of a PEO offering a cafeteria plan and health insurance coverage to the client's employees since the PEO is most likely not the common law employer etc, there is also the requirement that the participant must bee covered by an eligible HDHP in order to have an HSA. If there is no eligible High Deductible Health Plan there would be no HSA. Many, if not most, employers and PEOs do not have an HDHP offering for many reasons.

I would be wary of participating in health coverage sponsored by any PEO. Check your state insurance laws covering Small Group and also MEWAs.

Our small business employees all have UnitedHealthCare medical policies, which flow through Administaff. I think Administaff might be the broker in this case. We have never had any problems with health coverage per se in the past 2 years. Administaff does offer United's HSA-qualified HDHP(in fact 2 of them). And we have opened FSAs in the past, and 401ks through Administaff, which are pre-taxed; suggesting that Administaff has a cafeteria plan in place already, but not amended to include HSA elections. We get our paychecks from Administaff, and their name appears on the W2 statements as the employer.

Do you still see a valid reason for Administaff's refusal to not offer pre-taxing allowable HSA elections?

[GBurns]

As far as I have been able to find out, Administaff does not offer either an FSA or a cafeteria plan to its clients. It offers a benefits management service of the client's plans. That means that your FSA is part of and under your common law employer.

[vebaguru]

I don't share GBurns concerns about sponsorship of such a plan. There is no "exclusive benefit rule" for welfare benefit plans, so the fact that the PEO is not the primary employer is not of much consequence.

It seems to me that the problem from Administaff's perspective is in combining FSA and HRA sponsorship. A client could potentially have an FSA and a "limited-purpose" health FSA, but how could they police that? It seems that any PEO could also be at risk of being in violation of IRS requirements in sponsoring either type of plan unless they also manage the core health plan. And it should never be a self-insured plan (and a MEWA) unless it operates in only one state and that state licensed them as a MEWA or as an insurance company (such as Texas).

[Guest sanchanim]

This is Administaff's rationale for not allowing pre-tax deduction of HSA contributions. Is this kosher? Or does Administaff need some education? Why should I lose the FICA and FUTA tax-shield because of their possible misinformation?

In regards to our cafeteria plan and Health Savings Accounts, the reason we do not offer a Health Savings Account is due to the IRS comparable contribution regulation.

The IRS views Administaff as the employer of record, and one of the guidelines of this program with regard to employers who want to make contributions to their employee’s HSA, is that employer contributions must be “comparable”. That is they must be in the same dollar amount or same percentage of the employee’s deductible for all employees with the same category of coverage -- for this purpose, generally, categories of coverage are either “self-only” or “family”. You can also vary the level of contributions for “full-time” vs. “part-time” employees, and employees covered by a collective bargaining agreement are not covered by the comparability rules if health benefits were part of the agreement. You do not need to consider employees who do not have HDHP coverage as they are not eligible for HSA contributions. Because of the comparability rule, Administaff would have to make comparable contributions to all employees enrolled in an HDHP coverage option regardless of whether or not the client wanted to make contributions or not,.

Due to these requirements, it would not be financially feasible for Administaff to offer a Health Savings Account; however, Administaff does provide employees with access to qualified HDHP coverage options that meet IRS requirements for an individual to establish an HSA. Employee contributions can be made to HSAs on an after-tax basis, and as such should be counted as an above-the-line deduction on their tax return, effectively making their contributions tax-free.

[J Simmons]

This is Administaff's rationale for not allowing pre-tax deduction of HSA contributions. Is this kosher? Or does Administaff need some education? Why should I lose the FICA and FUTA tax-shield because of their possible misinformation?

In regards to our cafeteria plan and Health Savings Accounts, the reason we do not offer a Health Savings Account is due to the IRS comparable contribution regulation.

The IRS views Administaff as the employer of record, and one of the guidelines of this program with regard to employers who want to make contributions to their employee's HSA, is that employer contributions must be "comparable". That is they must be in the same dollar amount or same percentage of the employee's deductible for all employees with the same category of coverage -- for this purpose, generally, categories of coverage are either "self-only" or "family". You can also vary the level of contributions for "full-time" vs. "part-time" employees, and employees covered by a collective bargaining agreement are not covered by the comparability rules if health benefits were part of the agreement. You do not need to consider employees who do not have HDHP coverage as they are not eligible for HSA contributions. Because of the comparability rule, Administaff would have to make comparable contributions to all employees enrolled in an HDHP coverage option regardless of whether or not the client wanted to make contributions or not,.

Due to these requirements, it would not be financially feasible for Administaff to offer a Health Savings Account; however, Administaff does provide employees with access to qualified HDHP coverage options that meet IRS requirements for an individual to establish an HSA. Employee contributions can be made to HSAs on an after-tax basis, and as such should be counted as an above-the-line deduction on their tax return, effectively making their contributions tax-free.

It does and does not hold water. As to ER contributions, Administaff's explanation does hold water. As to allowing EEs, as part of the cafeteria plan, to elect to have part of their pay held out pre-tax/pre-FICA and contributed by Administaff to the EE's HSA, this rationale does not hold water as such does not have that comparability requirement.

[Guest joshee]

Hi guys,,,

Thanks for the information,

Really helps here a lot.

Godspeed,,,

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