CUNA Comment Letter

Model Agreements for Health Savings Accounts

July 26, 2004

Dear Sir or Madam:

The Credit Union National Association (CUNA) is pleased to provide comments on the Internal Revenue Service’s (Service’s) draft model documents for health savings accounts (HSAs) -- one that can be used as trust agreement (draft Form 5305-B, Health Savings Trust Account) and one that can be used as a custodial agreement (draft Form 5305-C, Health Savings Custodial Account). By way of background, CUNA is the largest credit union trade association, representing approximately 90% of our nation’s 9,400 state and federal credit unions.



CUNA believes that HSAs will become an important vehicle for many Americans to fund their health care expenses. We commend the Service for issuing the model documents for public comment in a timely fashion. With the issuance of a rule by the National Credit Union Administration last week providing federal credit unions with the authority to act as trustees or custodians of HSAs, credit unions will be able to make the business decision to offer HSAs to their members and employees. These model agreements will be helpful to those credit unions that chose to enter the HSA marketplace.

We believe that given the fact that these are new types of accounts, it is important to have model agreements that credit unions and other HSA custodians/trustees can use. When the forms are finalized, HSA custodians/trustees using either document can be certain that the agreement meets the requirements under the Internal Revenue Code section and implementing guidance on HSAs. Further, we appreciate the statement in the press release that while the forms are not intended to be used as stand-alone trust or custodial agreements until they are finalized, prospective HSA trustees and custodians can incorporate some or all of the language from the draft forms into their current HSA paperwork immediately. This will assist credit unions that want to start right away utilizing forms that they have customized for their members and/or employees.

While the documents are basically clear, understandable and user-friendly, we suggest the IRS include additional information in the model agreements in two areas. First, we suggest the Service state that HSA accountholders can let the balance in an HSA accumulate over the years until he/she reaches age 65. Otherwise (prospective) accountholders may wonder if there are other time limitations.

Second, Article I No. 1 of the documents states that no contributions will be accepted by the trustee/custodian in excess of the maximum amount for an account owner with family coverage plus the catch-up contribution. That statement seems to contradict the existing guidance that it is the responsibility of the account owner to monitor whether his/her contributions have exceed the maximum annual limits, not the responsibility of the trustee or custodian. Although we realize it is a longstanding practice of the Service to use similar language in other trustee/custodian agreements, we suggest the language be changed to state, “[n]o contributions shall be made by the account owner in excess of the maximum amount for an account owner with family coverage plus the catch-up contribution.”

In addition, since these are new financial vehicles, CUNA anticipates that there is likely to be some consumer confusion. For example, while the General Instructions section on qualified medical expenses for HSA accountholders refers to Internal Revenue Code Section 213(d), it may be difficult for accountholders to obtain adequate information to fully understand all the complexities of what is encompassed by the term “qualified medical expenses”. Further, Article III of the documents states that “[i]t is the responsibility of the account owner to determine whether contributions to this HSA have exceeded the maximum annual contribution limit described in Article II.” The draft forms indicate that annual contribution limits as well as high deductible health plan (HDHP) minimum annual deductible and annual out-of pocket maximum limits are subject to cost-of-living increases after 2004; consumers will certainly want those figures so they know when they reach those limits. For these agreements to be most useful for consumers, it would be beneficial to have information on HSAs in one place that is easy to access. Therefore, we urge the Service to revise Publication 969 on MSAs to be used in preparing tax returns to incorporate HSAs – to explain the rules governing HSAs in a user-friendly way and provide information on relevant annual limits.

In conclusion, CUNA feels that HSAs are likely to become viable, permanent vehicles for FCU members to pay their medical expenses not covered by health insurance as well as to save for retirement. We believe these model documents will be of great assistance to credit unions that want to begin offering HSAs. We would urge the IRS to act expeditiously to issue reporting requirements for HSAs, which we believe should be similar to the reporting requirements for an Archer MSA, as well as to provide guidance on what, if any, disclosures HSA fiduciaries are required provide.

Thank you for the opportunity to share our comments. If you have questions about this letter, please feel free to contact me or Senior Regulatory Counsel Catherine Orr at (202) 638-5777.


Mary Mitchell Dunn
Associate General Counsel and Senior Vice President

Catherine A. Orr
Senior Regulatory Counsel