Employee Declined Savings Account

[Clint Franklin]

An Employer has an HSA plan and contributes to the HSA, however, an employee was declined an account by the financial institution.  What options does the employer have with their money they would contribute.

[Peter Gulia]

Has the bank or trust company told the employer the reason for not opening an account?

Might the reason relate to a mismatch about a Social Security Number or Individual Taxpayer Identification Number?

[Clint Franklin]

I spoke to the bank and the bank says it has to do with the employees past history with banks.

I do not know if the employer has spoken with the employee to have that employee call the bank for the exact details.

[Bill Presson]

😬
 

ETA - if I was the employer, I would want to know the exact reason for the bank’s issue. Because it might warrant additional investigation as to the appropriateness of continued employment. 

[CuseFan]

Financial institutions now have very stringent rules concerning the acceptance of customers, designed to mitigate things like funding terrorists and laundering money. Sometimes a person ends up on a list, a blacklist so to speak, because of suspicious or questionable activity and failure to provide sufficient or accurate information. I'm not saying that is the reason here and that this is an unsavory person, but the comment "past history with banks" seems like just the tip of the iceberg.

[Clint Franklin]

Agreed but regardless what options does the employer have with the contribution amount that their policy states each employee will received $$ in their HSA?

[Chaz]

Off the top of my head, I think the rules state that, while an employee can open an HSA at any bank/HSA provider, the employer can restrict the ones to which it will forward employer or employee salary reduction contributions.

I don't think that the employer has an obligation to make its contribution to this employee if the employee is unable to open an account at the employer's selected bank.

If the employee can manage to find another bank where he or she can open an HSA account and the employer still wants to make the contribution, it may pay the employee extra taxable compensation and the employee can deposit the amount into the HSA at the other bank.

If the employee is unable to open an HSA account at any bank then he or she would be SOL and not be able to contribute to an HSA.

There may be extraneous facts that might cause me to change my view but, based on your fact scenario, I can't see how the employer would have any obligation to make a contribution in either case.

[Brian Gilmore]

This often occurs where the employee fails to timely establish the HSA with the employer’s designated custodian. It's frequently because the employee has not completed the Customer Identification Program (CIP) to satisfy requirements set forth in the USA Patriot Act.

Here's a short summary on how to handle--

https://www.newfront.com/blog/employee-fails-to-establish-hsa-2

Best practice is to have a consistent policy in place to address situations for both active and terminated employees who do not take the steps required to open the HSA with the employer’s custodian.

Employee HSA Contributions

For employee HSA contributions, the employer must either deposit or return the employee’s salary reductions.  Any reasonable administrative policy would be fine here.  For example, failure to open the account within 90 days (or during the period of employment, if sooner) will result in a refund to the employee in the following payroll.  That avoids the need to hold and potentially refund large amounts of employee contributions.  Remember that any refund must be taxable income subject to withholding and payroll taxes.

Employer HSA Contributions

For employer HSA contributions, it is reasonable to have a consistent administrative policy providing that employees forfeit the employer contribution if they fail to timely open the account. For example, there will be no retro contributions beyond the last day of February of the following year.  And if the account isn’t opened during the period of employment, all employer contributions are forfeited.  The employer should provide employees with advance notice of the consequences of failing to timely establish the HSA.

Note that although IRS guidance does not directly address these types of policies generally, there are provisions in the comparability rules providing that employers may have a policy for employees to forfeit the employer contribution if they do not establish the HSA within a set period.  Although most employers are not subject to the comparability rules (in almost all cases the Section 125 nondiscrimination rules apply instead), this provision at least provides a basis for the IRS approval of this type of approach generally.

[CuseFan]

16 hours ago, Brian Gilmore said:

It's frequently because the employee has not completed the Customer Identification Program (CIP) to satisfy requirements set forth in the USA Patriot Act.

Exactly, thank you.