CUNA Comment Letter
HSA Comparability Rules
November 23, 2005
Internal Revenue Service
Ben Franklin Station
Washington, DC 20044
Re: Employer Comparable Contributions to Health Savings Accounts Under Section 4980G
Dear Sir or Madam,
The Credit Union National Association (CUNA) is pleased to provide comments to the Internal Revenue Service (Service) on employer comparable contributions to the health savings accounts (HSAs) of their employees under section 4980G of the Internal Revenue Code (Code). Under Section 4980G of the Code, if an employer fails to make comparable contributions to the HSAs of its employees during a calendar year, the employer is subject to an excise tax equal to 35% of the aggregate amount contributed by the employer to the HSAs of its employees during that calendar year. This proposed guidance would clarify provisions on employer comparable contributions, including: definition of employer contribution; categories of employees for comparability testing; calculation of comparable contributions; procedures for making comparable contributions; exception to comparability rules for cafeteria plans; and waiver of excise tax. By way of background, CUNA represents approximately 90% of the nations nearly 8,900 state and federal credit unions that serve more than 87 million members.
SUMMARY OF CUNAS COMMENTS
- CUNA applauds the Service for issuing a great deal of regulatory guidance in a timely fashion so that credit unions can begin offering HSAs, which are still fairly new.
- CUNA believes the rules concerning calculation of comparable contributions make sense.
- CUNA agrees with the approach laid out in the proposed guidance explaining the procedures for making comparable contributions.
- We feel the proposed guidance can provide employers with more flexibility in determining eligible individuals and comparability based on class distinctions.
- We believe that if the Service imposes limits on matching contributions, they should be consistent with those limits for qualified retirement benefit plans.
We commend the Service for its continued efforts to promote HSAs, including the issuance of guidance in an expeditious manner on this financial vehicle that was created only two year ago. As employers, more and more credit unions are providing HSAs to their employees and as financial institutions helping administer those individual HSA accounts. This guidance is useful for those credit unions and other employers that contribute to the HSAs of their employees either through a cafeteria plan or a stand- alone plan. The question-and-answer format, in particular the numerous examples given to illustrate the various provisions, assists financial institutions to better apply the complex regulations based on real-life fact situations.
CUNA appreciates the detailed guidance concerning making comparable contributions. In determining whether the comparability rules are satisfied, an employer must take into account all full-time and part-time employees who were eligible individuals for any month during the calendar year. Employers may comply with the comparability rules when some employees who are eligible individuals do not work for the employer for an entire year by using any one of the following three methods: the pay-as-you-go basis, the look-back basis, and the pre-funded basis.
We also think that the provisions in the proposed guidance regarding the calculation of comparable contributions are clear and reasonable. The proposal emphasizes that if an employer contributes to the HSA of any employee in a category of employees, the employer must make comparable contributions to the HSAs of all comparable participating employees within that category and sets out the exclusive categories for comparability testing.
CUNA has some recommendations to further improve the guidance. First, we feel the proposed guidance could be revised to allow more flexibility regarding eligible individuals and comparability based on class distinctions in order to maximize the opportunity the HSA regulations offer employees and employers. For example, in Section 54.4980G3 (Definition of employee for comparability testing), Q &A-5 states that the definition of part-time employee means those employees customarily employed for fewer than 30 hours per week; full-time employees are defined as those employees customarily employed for 30 or more hours per week. However, many credit unions and other employers have based their part- time/full-time classification on other federal standards. Under Code Section 401(a) which applies to qualified retirement plans, an employee is, in general, eligible if he or she is scheduled to work 1,000 hours or more in the course of the year. Employers are used to working with this 1,000 hour rule. The 1,000 hours per year comes out to about twenty hours per week, which is considerably less than under the proposed HSA guidance. We urge the Service to allow credit unions and other employers to utilize either standard for defining an eligible part-time employee. Allowing the use of either standard would enable those employers who have based their classification on the 1,000 hour rule to ensure that the employee treatment under the HSA plan and qualified plan would be consistent.
Second, we recommend that if the Service imposes a calendar year or percentage ratio limit for employer matching contributions, the limit should be consistent with those limits for qualified retirement benefit plans. In general, there is little continuity or commonality of nondiscrimination regulations for deferred and matching benefits without regard to whether they are under qualified retirement plans or welfare benefit plans. We believe consistency between the two sets of rules (welfare benefit plans and qualified retirement benefit plans) would result in less confusion and greater compliance with the nondiscrimination rules.
Thank you for the opportunity to comment. If you have any questions about this letter, please contact me by phone at (202) 508-6743 or by e-mail at firstname.lastname@example.org.
Senior Regulatory Counsel
Credit Union National Association