What Employers Can Do with Holiday Gift of TRHCA
Gift-giving is common during December. So is figuring out what to do with many of those gifts. When the Tax Relief and Health Care Act (TRHCA) became law on December 20, 2006, and expanded several rules related to Health Savings Accounts (HSAs), a common reaction might be: “Thanks, but what now?”
The effective date for most of the new HSA rules is January 1, 2007. Employers and insurance brokers who are committed to a consumer-driven approach will likely want to take immediate advantage of the new rules. In such a case, you should consider a three-step plan.
1. Understand the major HSA provisions. TRHCA made the following changes:
- Health FSA/HRA/IRA rollovers are permissible. Employers can allow participants to move unused account balances from Health Flexible Spending Arrangements (FSAs), Health Reimbursement Arrangements (HRAs) and Individual Retirement Accounts (IRAs) into their new HSAs. This is a onetime opportunity.
- HSA participation may occur during FSA grace periods. HSA participation may begin during an FSA grace period in either of two scenarios:
- The participant has a zero balance at the end of the plan year (e.g., December 31 for calendar-year plans).
- The participant rolls over the remaining FSA balance to the HSA.
- HSA contribution limits are simpler. The annual maximum contribution limit is based solely on the statutory limits and is no longer based on the high-deductible health plan (HDHP) deductible. For 2007, these limits are $2,850 (self-only coverage) and $5,650 (family coverage). In addition, there are no more fractional calculations for HSA participants who start midyear.
- IRS will issue annual HSA COLAs earlier. IRS must publish the three major thresholds by June 1 every year: minimum HDHP deductibles, HDHP out-of-pocket maximums and HSA contribution limits. In the past, this information was not available until November.
- HSA comparability rules are easier. If an employer does not make HSA contributions through a cafeteria plan, it may contribute more to the HSAs of non-highly compensated employees than the HSAs of highly compensated employees without violating comparability rules.
2. Make required document changes. Plan sponsors will want to consider the following changes to plan documents and/or summary plan descriptions (SPDs):
- HRAs/FSAs. Amend documents to provide the option of allowing a rollover to an HSA. An employer may want to cap the rollover amount.
- Cafeteria Plans. Change the rules for determining the HSA contribution maximum.
3. Communicate and implement changes. Plan sponsors may communicate these changes via a revised SPD or through a Summary of Material Modifications (SMM). Even though the time frames for SMM distribution are extended, those who are making these changes should communicate them as quickly as possible. Adjustments to payroll systems and communications with HSA custodians and carriers may also require adjustments.
Agents and employers are reminded that Infinisource offers a complete HSA solution. Please contact our Sales Department at 800-779-6384 for more information.
A copy of TRHCA (the HSA section starts in Division A, Title III) is available at: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_cong_bills&docid=f:h6111enr.txt.pdf.
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