The IRS has issued final regulations that provide guidance on complying with the requirement that employer contribution to Health Savings Account ("HSA") be “comparable”.  These regulations apply to employer contributions to HSAs made on or after January 1, 2007.

      Eligible employees may set up HSAs if they are covered under high-deductible health plans ("HDHP") and not covered under any other plans, [if they are subject to the exceptions they are not eligible]. Subject to certain statutory limits, eligible employees, employers, and others acting on behalf of eligible individuals may make contributions to an HSA.  Employer contributions are excludable from an employee’s income and distributions for qualifying medical expenses are tax-free.  Unlike other employer-provided benefits, HSAs are not subject to nondiscrimination rules restricting the amount of benefits provided to highly compensated employees.  However, if an employer elects to fund HSAs for its employees, "comparable" contributions must be made to all "comparable" participating employees.  In general, an employer must contribute the same amount or the same percentage of the HDHP deductible to all employees with the same HDHP coverage.  Failure to comply with this requirement will result in the imposition of an excise tax.

      The final regulations provide for the following:

•        Family HDHP coverage may be subdivided into the following categories: self plus one; self plus two; and self plus three or more.  In addition, an employer’s contribution for the self plus two category must not be less than the contribution for the self plus one category, and the contribution for the self plus three category must  not be less than for the self plus two category;

•        Employees who are included in a unit covered by a collective bargaining agreement between employee representatives and one or more employers are not "comparable" employees, if health benefits were the subject of good faith bargaining.  In other words, this comparable contribution rule does not apply to these employees; and 

•        Additional guidance is supplied on how employer HSA contributions are made through a Code § 125 cafeteria plan.  Specifically, employer contributions to employees’ HSAs are made through a cafeteria plan if under the written plan, the employees may elect to receive cash or other taxable benefits in lieu of all or a portion of an HSA contribution, regardless of whether an employee elects to contribute any amount to the HSA by salary reduction.