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When Can Participants Change Their HSA Contribution Elections Under Our Cafeteria Plan?



QUESTION: We are thinking about allowing employees to make pre-tax HSA contributions under our cafeteria plan, but we are not sure how the cafeteria plan election change rules apply to those contributions. Under what circumstances would our employees be able to make midyear changes to their HSA elections?

ANSWER: The short answer is that under proposed IRS regulations (which may be relied upon until final regulations are issued), employees may prospectively start, stop, or otherwise change an election to make HSA contributions through pre-tax salary reductions under a cafeteria plan at any time during the plan year. The proposed regulations provide that if a cafeteria plan offers pre-tax HSA contributions, the written cafeteria plan document must (1) specifically describe the HSA contribution benefit; (2) allow participants to prospectively change their salary reduction elections for HSA contributions on a monthly or more frequent basis; and (3) allow participants who become ineligible to make HSA contributions to prospectively revoke their salary reduction elections for HSA contributions.

Remember that other cafeteria plan election changes may be made only if they are permitted under the IRS’s cafeteria plan election change rules. Consequently, an employee who elects to reduce or discontinue HSA contributions during a plan year may be limited to receiving the difference as taxable compensation—additional nontaxable benefits cannot be elected unless the cafeteria plan election change rules otherwise allow a midyear change to the elections for those benefits.

Note that before your company can include HSA contributions as a cafeteria plan benefit, it will need to amend its written cafeteria plan document to include HSA contributions as one of the qualified benefits offered and to address the terms and conditions of the HSA benefit. The circumstances under which midyear election changes will be allowed for HSA contributions is just one of the terms and conditions that must be addressed in the cafeteria plan document and in participant communications.

For more information, see EBIA’s Cafeteria Plans manual at Sections XIV.P (“Pre-Tax HSA Contribution Election Changes”) and XVI.K.6 (“What Cafeteria Plan Changes Are Required in Order to Offer HSAs?”). See also EBIA’s Consumer-Driven Health Care manual at Section XVIII.B (“HSAs Offered Through Cafeteria Plans”). You may also be interested in our recorded webinar “Workplace Health Savings Accounts (HSAs)” (recorded on 10/5/16).

Contributing Editors: EBIA Staff.

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