HB Counsel Client Alert – HSA Contributions: IRS Clarifies When an Employer Can Request a Refund
The Internal Revenue Code provides that the interest of an individual in their health savings account (“HSA”) balance is nonforfeitable. However, the Internal Revenue Service (“IRS”) has previously issued Notice 2008-59 and 2008-29 I.R.B. 123 (the “Notice”), providing limited circumstances under which an employer may recoup contributions made to an employee’s HSA.
On December 28, 2018, the IRS released Information Letter 2019-0033, explaining that the circumstances outlined in the Notice were not comprehensive, and that based upon the standard described in the Notice other errors could result in an employer’s ability to recoup contributions made to an HSA. Where there is clear evidence an administrative or process error occurred, an employer may request that contributions made to an employee’s HSA be returned. The correction is intended to put the employer and employee in the same position as if the error had never occurred.
Letter 2019-0033 lists the following examples of when an employer may recoup HSA contributions:
- An amount withheld and deposited in an employee’s HSA for a pay period is greater than the amount shown on the employee’s HSA salary reduction election.
- An employee receives an employer contribution that the employer did not intend to contribute, but the amount was transmitted because an incorrect spreadsheet is accessed or because employees with similar names are confused with each other.
- An employee receives an incorrect HSA contribution because it is incorrectly entered by a payroll administrator (whether in-house or third-party) causing the incorrect amount to be withheld and contributed.
- An employee receives a second HSA contribution because duplicate payroll files are transmitted.
- An employee receives an incorrect HSA contribution because a change in employee payroll elections is not processed timely so that amounts withheld and contributed are greater than (or less than) the employee elected.
- An employee receives an incorrect HSA contribution because an HSA contribution amount is calculated incorrectly, such as an employee electing a total amount for the year that is allocated by the system over an incorrect number of pay periods.
- An employee receives an incorrect HSA contribution because the decimal position is set incorrectly resulting in a contribution greater than intended.
Employers should maintain documentation to support their assertion that a mistaken contribution occurred.
DOL Increases Penalties: Reminder for Plan Sponsors to Meet Reporting and Disclosure Requirements
On January 23, 2019, the Department of Labor (“DOL”) issued its Federal Civil Penalties Inflation Adjustment Act Annual Adjustments for 2019, the DOL’s annual adjustment of federal civil monetary penalties.
Due to the government shutdown, the 2019 penalties were not published by the annual January 15 deadline and thus have a later-than-usual effective date. The 2019 adjustments are effective for penalties assessed after January 23, 2019 (with respect to violations occurring after November 2, 2015). Here are some key adjustments:
- Form 5500. The maximum penalty for failing to file Form 5500 increases from $2,140 to $2,194 per day that the filing is late.
- Summary of Benefits and Coverage (“SBC”). The maximum penalty for failing to provide the SBC increases from $1,128 to $1,156 per failure.
- Medicaid or Children’s Health Insurance Program (“CHIP”) Assistance. Failure to disclose notice of availability of Medicaid and CHIP assistance, may result in penalties of $117 per participant per day, up from $114.
- Multiple Employer Welfare Arrangements (“MEWAs”). Penalties for failure to meet applicable filing requirements, which include annual Form M-1 filings and filings upon origination, increase from $1,558 to $1,597 per day.
The content herein is provided for educational and informational purposes only and does not contain legal or tax advice. Please contact our office if you have any questions regarding your HSA contributions or disclosure and reporting requirements that may apply to your employee benefit plans.