The following commonly asked HSA questions are answered below:
- Why does the HSA plan year need to align with the medical, FSA & LPFSA plan year?
- How does EN support HSA IRS limits and the last-month rule?
- Is there an example of how the system calculates an employee’s max per pay?
- What types of employer funding does EN support?
- What types of employee funding does EN support?
- What is important to note with the funding calendar and new hire pro-rate?
- Are there any setup considerations when using the Cafeteria EN-Exchange?
- Why do employees' HSA start dates set to 1st of the month?
- How does EN support the $1,000 catch-up contribution?
- What happens if we make changes to the plan or payroll calendar after EEs have enrolled?
- Can enrollment editor be used to change an effective date or ER contribution for an employee?
- Why does the system change EEs HSA start date when they change tier levels on the medical plan?
- How does EN support calculating an EEs max per pay when they change from family to single or visa-versa?
- Can an employee enroll in both an HSA and HRA?
1. Why does the HSA plan year need to align with the medical, FSA & LPFSA plan year?
The system has built in logic to control eligibility:
- An EE cannot enroll in an HSA if they are not enrolled in the contingent medical plan
- An EE cannot enroll in an HSA if enrolled in a Flexible Spending Account (FSA)
- An EE cannot enroll in a Limited Purpose FSA if not enrolled in an HSA
This means the HSA plan year needs to align with the tied medical plan, FSA, & LPFSA plan year for the system to work as expected. As an example, you cannot have the HSA start 1/1 and medical on 4/1.
Currently the system only supports the control of eligibility by looking at the enrollments in the same enrollment window.
This also means that when eligibility rules differ for these plans, they may split between windows and indicate that an EE is ineligible for enrollment.
2. How does EN support HSA IRS limits and the last-month rule?
The IRS HSA limitations are set on a calendar year (tax year) basis. The IRS does not take into consideration when the employer has set the plan year. The IRS also has the last-month rule which allows an EE to contribute the entire year max limit as long as they have coverage on the first day of the last month of the tax year.
- EN uses the current year's IRS limits to calculate the max contribution limit during the enrollment process. When the HSA is set up on an off-cycle plan year, the system will calculate the max per pay by taking the remaining pay periods in the current calendar year (through 12/31) and applying the max limit accordingly.
- An employee may want to maximize their tax savings and contribute the full calendar year limit. EN supports the ability to contribute the full IRS calendar year limit which means even if an employee is only enrolled for December, the system will let them elect the max.
IMPORTANT NOTES ON THIS:
- During enrollment the system saves the per pay the employee elects and does not reset it in January of the following year. This means if you have an off-cycle HSA plan year that employees may need to go back into the system in January and use the adjust HSA tool to change their per pay. The system will then look at the new calendar year IRS max and set limits accordingly. If the employee does not go back and adjust, then they could over contribute the next calendar year.
- The adjustment has to made in January and not prior. Refer to this article for how to adjust an HSA deduction ADJUST HSA
- It is on EN's road map to better support enrollment for off-cycle plan years.
3. Is there an example of how the system calculates an employees max per pay?
See examples below using 2019 limits
Example 1: Off-cycle plan year / open enrollment / EE has no prior contributions / no ER contribution
Group has medical and HSA set up on plan year 6/1/19 - 5/31/20. Employee enrolls in EE + Family coverage. This allows the employee to contribute the IRS family limit. The employee is on a semi-monthly payroll. The employee has never contributed to an HSA.
The system will look at the employees remaining pay periods from 6/1/19 to 12/31/19 which is 14. The system will then take $7000 and divide by 14 which is $500. The system will not allow EE to contribute more than $500 per pay period.
If employer contributed then the system would also subtract what the EE would get in ER contributions from 6/1 to 12/31
Example 2: Off-cycle plan year / open enrollment / EE has prior contributions / no ER contribution
Group has medical and HSA set up on plan year 6/1/19 - 5/31/20. Employee enrolls in EE + Family coverage. This allows the employee to contribute the IRS family limit. The employee is on a semi-monthly payroll. The employee has been contributing $50 per pay.
The system will look at how many pay periods the EE will have from 1/1/19 to 5/31/19 which is 10 and the EE was contributing $50 per pay which is a total of $500. The system will look at the employees remaining pay periods from 6/1 to 12/31 which is 14. The system will then take $7000 and subtract $500 (prior contributions) which is $6500. It will then take $6500 and divide by 14 which is $464.28 The system will not allow EE to contribute more than $464.28 per pay period.
If employer contributed then the system would also subtract what the EE would get in ER contributions from 1/1/19 to 12/31/19
Example 3: Calendar plan year / new Hire / no ER contribution
Group has medical and HSA set up on calendar year 1/1/19 - 12/31/19. Employee is newly hired and eligible for benefits starting 9/1/2019. Employee enrolls in EE + Family coverage. The employee is on a semi-monthly payroll.
The system will look at the employees remaining pay periods from 9/1/19 - 12/31/19 which is 6. The system will then take $7000 and divide by 6 which is $1166.66. The system will not allow the EE to contribute more than $1166.66 per pay period
If employer contributed then the system would also subtract what the EE would get in ER contributions
IMPORTANT NOTE ON THIS:
- If any of the employees in the examples above elected the max or higher amount they may need need to go back in the system in January and use the adjust HSA tool to change their per pay. The system will then look at the new calendar year IRS max and set limits accordingly. Refer to FAQ above regarding this.
4. What types of employer funding does EN support?
Currently the only employer funding option that EN supports is per pay. We don't support front loading or employer matching contributions. EN will take the ER annual contribution that is entered during plan setup and divide by the employee's total per pays to get the ER's per pay. This means that some employees could have a different ER per pay amount depending on when they enter the plan.
- If your client has employer funding that does not fit what we support, you can use plan communications to inform the employee of how much and when the employer funds the HSA.
- If your client has employer funding that does not fit what we support, then the system would not be able to calculate the employee's max limit accurately and you would need to audit and make adjustments as needed.
- It is on EN's road map to support additional employer funding options.
5. What types of employee funding does EN support?
Currently the only employer funding option that EN supports is per pay. We do not support front loading. If the employee wants to contribute more then decrease or visa-versa, they can use the adjust HSA tool.
6. What is important to note with the funding calendar and new hire pro-rate?
The funding calendar is only needed if the client wants to pro-rate the employer contribution for new hires.
Although it is called "funding calendar," it does not set when the employer actually funds employees' accounts. It purely drives the system to pro-rate new hires ER contribution and not "when" funds are deposited just "how much" in total of the annual contribution a new hire will receive.
Best practice is just enter the 1st day of the month for each month of the plan year. The system works best when all 12 months are completed.
Note! If you change the plan year, it is a best practice to delete the funding calendar dates first, then change the plan year, then re-enter the funding calendar dates. The system will store funding calendar dates on the back end when you change the plan year and that can cause the system to calculate new hires' ER funding inaccurately.
New Hire Pro-Rate:
Here is a breakdown of how the system calculates what a new hire will receive in total ER contributions if you have it set to pro-rate.
To start, you must complete the funding calendar. Please refer to note above that indicates best practice is just enter the 1st day of the month for each month of the plan year.
The system figures out what the new hires "annual" will be. Just as a regular EE has an annual, a new hire needs to start with an annual. Here are the steps it goes through:
- The system will look at the annual ER contribution for the tier level the EE is enrolled
- It will then divide that annual by the number of funding months completed in the funding calendar to come up with a monthly $ amount
- After it has the monthly $ amount, it will look at how many months of coverage the new hire will have for the plan year
- And then it multiplies that by the monthly $ amount to get the new hire's annual
Example: The employer's plan year is 1/1 - 12/31. Client gives employees with family coverage $1,500 in ER contributions. They pro-rate this amount for a new hire since they will not be working the full year. In the setup of the plan, the funding calendar is completed using the first day of the month for each month of the plan year to give 12 total months. The new hire starts employment in May with benefits being effective June 1st and enrolls in EE + Family coverage.
- System looks at ER contribution for EE + Family coverage = $1,500
- System divides $1,500 by total months in funding calendar which is 12 = $125 per month
- System looks at how many months EE will have coverage for the plan year. June through December = 7
- System multiplies $125 by 7 to get EE's annual = $875
7. Are there any setup considerations when using the Cafeteria EN-Exchange?
Yes. Confirm how the TPA has set up the HSA(s) in their system and match that in EN.
As an example: If for some reason the TPA has set up two or more HSAs in their system, then you must build the same amount in EN using the same eligibility for each that the TPA has used. Yes, EN allows you to build one HSA and link multiple contingent medical plans but doing this would not allow the TPA to distinguish which HSA to put the EE into in their system.
1:1 match is a must.
8. Why do employees' HSA start dates set to 1st of the month?
Per IRS guidelines, HSA enrollment effective start dates and contributions must begin on the first day of the month. This logic was built into our system, so all HSA enrollments will begin on the first of the month, regardless of the plan eligibility rules (https://www.irs.gov/publications/p969/ar02.html)
9. How does EN support the $1,000 catch-up contribution
Employees over the age of 55 will automatically be applied the additional $1000 catch-up amount. There is no need to configure this in the plan setup.
10. What happens if we make changes to the plan or payroll calendar after EE's have enrolled?
Before you open up the plan for enrollment, double check that the plan design (ER contributions, pro-rated, etc.) and the company's payroll groups/calendars are setup correctly.
If you make changes to the plan or payroll calendar/frequency AFTER EEs enroll, those changes won't apply to the already processed enrollments. The only way to update those enrollments is to decline, save and re-enroll EEs in the enrollment flow (NH/OE/Modify).
Changing tier levels both limits and effective dates
11. Can enrollment editor be used to change an effective date or ER contribution for an employee?
The enrollment editor tool doesn't support HSA enrollments (even though they display on-screen under the enrollment editor) - so overriding effective dates and contribution amounts won't actually update the EE's record. This means ER contribution amounts are calculated according to the plan design and there's no way to override this amount for individual EEs.
12. Why does the system change EE's HSA start date when they change tier levels on the medical plan?
This is done so the system can set the new ER contribution.
The system will change an employee's HSA start date for the following plan setups:
Plan setup is NO ER contribution:
- System will not set a new HSA effective date
Plan setup is ER contribution but NOT pro-rated:
- Only setting a new HSA effective date if there is a difference in ER contribution from one tier to the other. i.e. HSA ER contribution is EE = $500 and EE + SP = $1000
- If there is no change in ER contribution from one tier to another, HSA effective date is NOT being changed
Plan setup is ER contribution and IS pro-rated:
- Always changes the HSA effective date regardless if ER contribution changes from one tier to the next
- If the ER contribution is $500 for EE and then $1000 for all other coverage levels, even if you enter $500 in EE and $1000 in EE + Family and do not enter anything for the other tiers, the system will still change the HSA effective date.
13. How does the system support calculating an EE's max per pay when they change from family to single or visa-versa?
Under IRS Notice 2008-52 (published in IRB 2008-25, page 1166) – also known as the Full-Contribution Rule – the annual contribution limit for an HSA can increase, but not decrease, due to a change in status. Under the “greater of” provision of the Full-Contribution rule, an HSA-eligible individual who has a mid-year status change will have his new annual contribution limit determined by whichever of the following two options results in the highest amount:
- The maximum annual contribution limit based on his or her actual HDHP coverage (individual or family) for each month of the tax year, calculated monthly, combined and then divided by 12; or,
- The maximum annual contribution limit for the tax year based on his or her actual HDHP coverage (individual or family) as of December 1 of that year.
Going from single to family is easy since the EE would still get $6850. But going from family to single requires more calculation and EN currently does not support this.
14. Can an employee enroll in both an HSA and HRA?
Yes. If the client offers an HSA compatible HRA, i.e. post deductible HRA or limited HRA, the system can accommodate this. It is your responsibility to confirm that the client's HRA is HSA compatible.
On the medical plan under enrollment options, select both the HRA and HSA checkbox.