Reg 120476-07

Part IV. Items of General Interest
Notice of Proposed
Rulemaking and Notice of
Public Hearing
Employer Comparable
Contributions to Health
Savings Accounts Under
Section 4980G, and
Requirement of Return
for Filing of the Excise Tax
Under Section 4980B, 4980D,
4980E or 4980G
REG–120476–07
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains
proposed regulations providing guidance
on employer comparable contributions to
Health Savings Accounts (HSAs) under
section 4980G of the Internal Revenue
Code (Code) as amended by sections 302,
305 and 306 of the Tax Relief and Health
Care Act of 2006 (the Act). The proposed regulations also provide guidance
relating to the requirement of a return
to accompany payment of the excise tax
under section 4980B, 4980D, 4980E, or
4980G of the Code and the time for filing
that return. These proposed regulations
would affect employers that contribute
to employees’ HSAs and Archer MSAs,
employers or employee organizations that
sponsor a group health plan, and certain
third parties such as insurance companies
or HMOs or third-party administrators
who are responsible for providing benefits
under the plan. This document also provides notice of a public hearing on these
proposed regulations.
DATES: Written or electronic comments
must be received by October 14, 2008.
Outlines of topics to be discussed at the
public hearing scheduled for October 30,
2008, at 10:00 am, must be received by October 13, 2008.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–120476–07), In-

September 8, 2008

ternal Revenue Service, room 5203, POB
7604, Ben Franklin Station, Washington, DC 20044. Submissions may be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–120476–07),
Courier’s Desk,
Internal Revenue
Service, 1111 Constitution Avenue, NW,
Washington, DC. Alternatively, taxpayers
may submit comments electronically
via the Federal eRulemaking Portal
at
http://www.regulations.gov
(IRS
REG–120476–07). The public hearing
will be held in room 2116, Internal
Revenue Building, 1111 Constitution
Avenue, NW, Washington, DC.
FOR
FURTHER
INFORMATION
CONTACT: Concerning the proposed regulations as they relate to section 4980E
or 4980G, Mireille Khoury at (202)
622–6080; concerning the proposed regulations as they relate to section 4980B
or 4980D, Russ Weinheimer at (202)
622–6080; concerning submissions of
comments, the hearing, and/or to be placed
on the building access list to attend the
hearing, Richard Hurst at (202) 622–7180
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in this notice of proposed rulemaking have been submitted to the Office of
Management and Budget for review in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)).
Comments on the collections of information should be sent to the Office of
Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and Regulatory
Affairs, Washington, DC 20503, with
copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collection of information should be received by September 15, 2008.
Comments are specifically requested
concerning:
Whether the proposed collections of information are necessary for the proper per-

680

formance of the functions of the IRS, including whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information;
How the quality, utility, and clarity of
the information to be collected may be enhanced;
How the burden of complying with the
proposed collection of information may be
minimized, including through the application of automated collection techniques
or other forms of information technology;
and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of services to provide information.
The collections of information in these
proposed regulations are in Q&A–11 in
§4980B–2, Q&A–1 in §4980D–1, Q&A–1
in §4980E–1, and Q&A–5 in §4980G–1.
These collections of information result
from the requirement to file a return for
the payment of the excise tax under section 4980B, 4980D, 4980E, or 4980G
of the Code. The likely respondents are
employers that contribute to employees’
HSAs and Archer MSAs, employers or
employee organizations that sponsor a
group health plan, and certain third parties
such as insurance companies or HMOs or
third-party administrators who are responsible for providing benefits under the plan.
Estimated total annual reporting burden: 2,500 hours.
The estimated annual burden per respondent is 30 minutes.
Estimated number of respondents:
5,000.
The estimated frequency of responses
per respondent is occasional, less than
once per year.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number assigned by the Office of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return

2008–36 I.R.B.

information are confidential, as required
by 26 U.S.C. 6103.
Background
This document contains proposed Pension Excise Tax Regulations (26 CFR part
54) under section 4980G of the Code, as
amended by sections 302 and 305 of the
Tax Relief and Health Care Act of 2006
(the Act), under paragraph (d) of section
4980G of the Code, as enacted by section
306 of the Act, and under section 4980E of
the Code.
Section 1201 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Modernization Act),
Public Law 108–173, (117 Stat. 2066,
2003) added section 223 to the Code to
permit eligible individuals to establish
HSAs for taxable years beginning after
December 31, 2003. Section 4980G was
also added to the Code by the Modernization Act. Section 4980G(a) imposes
an excise tax on the failure of an employer to make comparable contributions
to the HSAs of its employees for a calendar year. Section 4980G(b) provides
that rules and requirements similar to
section 4980E (the comparability rules
for Archer Medical Savings Accounts
(Archer MSAs)) apply for purposes of
section 4980G. Section 4980E(b) imposes
an excise tax equal to 35% of the aggregate amount contributed by an employer
to the Archer MSAs of employees during the calendar year if an employer fails
to make comparable contributions to the
Archer MSAs of its employees in a calendar year. Therefore, if the employer
fails to make comparable contributions to
the HSAs of its employees during a calendar year, an excise tax equal to 35% of
the aggregate amount contributed by the
employer to the HSAs of its employees
during that calendar year is imposed on the
employer. See sections 4980G(a) and (b)
and 4980E(b). See also Notice 2004–2,
2004–1 C.B. 269, Q&A–32. On July 31,
2006, final regulations on comparability
were published in the Federal Register,
71 FR 43056 (T.D. 9277, 2006–2 C.B.
226). In addition, on April 17, 2008,
final regulations were published in the
Federal Register, 73 FR 20794 (T.D.
9393, 2008–20 I.R.B. 975), providing
guidance on employer comparable
contributions to HSAs in instances where

2008–36 I.R.B.

an employee has not established an HSA
by December 31st and in instances where
an employer accelerates contributions for
the calendar year for employees who have
incurred qualified medical expenses. See
§601.601(d)(2).
This document also contains proposed
Pension Excise Tax Regulations (26 CFR
part 54) under sections 4980B and 4980D
of the Code. Under section 4980B of the
Code, group health plans maintained by an
employer with 20 or more employees must
comply with continuation coverage requirements. If a plan does not satisfy these
requirements, an excise tax is imposed
of $100 per day per affected beneficiary.
Final regulations under section 4980B
have been published, including provisions
concerning the excise tax, but no return
filing requirement has previously been
imposed. See §54.4980B–2, Q&A–9 and
Q&A–10. Moreover, under chapter 100
of the Code, group health plans must comply with various requirements, including
limitations on preexisting condition exclusions, certification of creditable coverage,
special enrollments, prohibitions against
discrimination based on a health factor,
parity in the annual and lifetime dollar limits placed on mental health benefits with
those placed on medical/surgical benefits,
and minimum hospital lengths of stay in
connection with childbirth. If a plan does
not satisfy any of these requirements under chapter 100, section 4980D imposes
an excise tax of $100 per day per affected
individual. Regulations interpreting the
substantive requirements of chapter 100
have previously been published, but no
regulations have been published concerning the excise tax under section 4980D.
Explanation of Provisions
Special Rule for Contributions to
Nonhighly Compensated Employees
New paragraph (d) of section 4980G
provides an exception to the comparability
rules that allows, but does not require,
employers to make larger contributions
to the HSAs of nonhighly compensated
employees than the employer makes to the
HSAs of highly compensated employees.
These proposed regulations interpret that
requirement. Specifically, the proposed
regulations, in §54.4980G–4, provide that
employer contributions to the HSAs of

681

nonhighly compensated employees may
be larger than employer contributions to
the HSAs of highly compensated employees with comparable coverage during a
period. Conversely, employer contributions to the HSAs of highly compensated
employees may not exceed employer
contributions to the HSAs of nonhighly
compensated employees with comparable
coverage during a period.
The comparability rules still apply with
respect to contributions to the HSAs of all
nonhighly compensated employees who
are comparable participating employees
(eligible individuals who are in the same
category of employees with the same
category of high deductible health plan
(HDHP) coverage) and an employer must
make comparable contributions to the
HSA of each nonhighly compensated employee who is a comparable participating
employee during the calendar year. Similarly, the comparability rules still apply
with respect to contributions to the HSAs
of all highly compensated employees who
are comparable participating employees
and an employer must make comparable
contributions to the HSA of each highly
compensated employee who is a comparable participating employee during the
calendar year. Collectively bargained employees are disregarded for purposes of
section 4980G, as are HSA contributions
made through a cafeteria plan.
For purposes of §4980G(d), highly
compensated employee is defined under
section 414(q) and includes any employee
who was (1) a five-percent owner at any
time during the year or the preceding year;
or (2) for the preceding year, (A) had compensation from the employer in excess of
$105,000 (for 2008, indexed for inflation)
and (B) if elected by the employer, was
in the group consisting of the top 20 percent of employees when ranked based on
compensation. Nonhighly compensated
employees are employees that are not
highly compensated employees.
Maximum HSA Contribution Permitted
for Employees Who Become Eligible
Individuals Mid-year
Section 305 of the Act provides that individuals who are eligible individuals during the last month of the taxable year (that
is, who, in the case of calendar year taxpayers, are eligible individuals on Decem-

September 8, 2008

ber 1 of the year) may make or have made
on their behalf the maximum annual HSA
contribution based on their HDHP coverage (self only or family) on that date. A
portion of the contribution is included in
income and subject to an additional 10 percent tax if the individual fails to remain
an eligible individual for 12 months after
the last month of the taxable year. See
section 223(b)(8). Section 54.4980G–6 of
the proposed regulations provides that the
employer can contribute up to this maximum contribution on behalf of all employees who are eligible individuals during the last month of the taxable year, including employees who become eligible
individuals after January 1st of the calendar year and eligible individuals who are
hired after January 1st of the calendar year
(both such classes of individuals are hereinafter referred to as “mid-year eligible
individuals”). An employer who makes
the maximum calendar year HSA contribution, or who contributes more than a
pro-rata amount, on behalf of employees
who are mid-year eligible individuals will
not fail to satisfy comparability merely because some employees will have received
more contributions on a monthly basis than
employees who worked the entire calendar
year.
Employers are not required to make
these greater than pro-rata contributions
and may instead pro-rate contributions
based on the number of months that an
individual was both employed by the
employer and an eligible individual. However, if an employer contributes more than
the monthly pro-rata amount for the calendar year to the HSA of any employee
who is a mid-year eligible individual,
the employer must then contribute, on an
equal and uniform basis, a greater than
pro-rata amount to the HSAs of all comparable participating employees who are
mid-year eligible individuals. Likewise,
if the employer contributes the maximum
annual contribution amount for the calendar year to the HSA of any employee who
is a mid-year eligible individual, the employer must contribute that same amount
to the HSAs of all comparable participating employees who are mid-year eligible
individuals.

September 8, 2008

Special Comparability Rules For Qualified
HSA Distributions
Section 302(a) of the Act provides for
qualified HSA distributions. See section
106(e) and Notice 2007–22, 2007–10
I.R.B. 670. See §601.601(d)(2). A qualified HSA distribution is a direct distribution of an amount from a health flexible
spending arrangement (health FSA) or a
health reimbursement arrangement (HRA)
to an HSA. The distribution must not exceed the lesser of the balance in the health
FSA or HRA on September 21, 2006, or
as of the date of the distribution. Section
54.4980G–7 of the proposed regulations
would provide that if an employer offers qualified HSA distributions to any
employee who is an eligible individual
covered under any HDHP, the employer
must offer qualified HSA distributions to
all employees who are eligible individuals
covered under any HDHP. However, an
employer that offers qualified HSA distributions only to employees who are eligible
individuals covered under the employer’s
HDHP is not required to offer qualified
HSA distributions to employees who are
eligible individuals but are not covered
under the employer’s HDHP.

plan year. Finally, with respect to the excise tax under section 4980E or 4980G for
noncomparable contributions, the return
is due on or before the 15th day of the
fourth month following the calendar year
in which the noncomparable contributions
were made.
Proposed Effective/Applicability Date
The sections of these regulations that
provide guidance on employer comparable contributions to HSAs under section
4980G are proposed to apply to employer
contributions made on or after the first day
of the first calendar year after the final regulations are published in the Federal Register. However, taxpayers may rely on
these regulations for guidance with respect
to employer contributions made on or after
January 1, 2007, and before the effective
date of final regulations.
The sections of these regulations that
provide guidance relating to the excise tax
under section 4980B, 4980D, 4980E and
4980G are proposed to be effective for calendar years (or plan years, where applicable) beginning after the date the final regulations are published in the Federal Register.
Special Analyses

Requirement of Return and Time for Filing
of the excise tax under section 4980B,
4980D, 4980E or 4980G.
The regulations provide that persons
who are liable for the excise tax under
section 4980B, 4980D, 4980E, or 4980G
are required to file a return on Form
8928, “Return of Certain Excise Taxes
Under Chapter 43 of the Internal Revenue Code.” The excise tax under section
4980B, 4980D, 4980E or 4980G must be
paid at the time prescribed for filing of
the excise tax return (without extensions).
With respect to the excise tax under section 4980B or 4980D for employers and
third parties such as insurers or third party
administrators, the return is due on or before the due date for filing the person’s
federal income tax return. An extension
to file the person’s income tax return does
not extend the date for filing Form 8928.
With respect to the excise tax under section 4980B or 4980D for multiemployer or
specified multiple employer health plans,
the return is due on or before the last day
of the seventh month after the end of the

682

It has been determined that these regulations are not a significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not
apply to these regulations. It is hereby
certified that the collection of information
in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact, as previously noted, the estimated burden associated with the information collection averages thirty minutes per respondent and the
estimated number of respondents is 5000.
Moreover, the burden imposed under the
collection of information in these regulations arises only if there has been a failure that triggers liability for the excise tax
under section 4980B, 4980D, 4980E, or
4980G of the Code. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is
not required. Pursuant to section 7805(f)

2008–36 I.R.B.

of the Code, this regulation has been submitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(a signed original and eight (8) copies)
or electronic comments that are submitted timely to the IRS. The IRS and the
Treasury Department request comments
on the clarity of the proposed regulations
and how they can be made easier to understand. All comments will be available for
public inspection and copying.
The public hearing has been scheduled
for October 30, 2008, beginning at 10 a.m.
in room 2116, Internal Revenue Building,
1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all
visitors must present photo identification
to enter the building. Because of access
restrictions, visitors will not be admitted
beyond the immediate entrance area more
than 30 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the “FOR FURTHER INFORMATION CONTACT” section of this
preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments by
October 14, 2008, and submit an outline
of the topics to be discussed and the time
to be devoted to each topic (a signed original and eight (8) copies) by October 13,
2008. A period of 10 minutes will be allocated to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after
the deadline for receiving comments has
passed. Copies of the agenda will be available free of charge at the hearing.
Drafting Information
The principal author of these proposed
regulations is Mireille Khoury, Office of
Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), Internal Revenue Service. However,
personnel from other offices of the IRS and

2008–36 I.R.B.

Treasury Department participated in their
development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 54 is proposed to be amended as follows:
PART 54—PENSION EXCISE TAXES
Paragraph 1. The authority citation for
part 54 is amended by adding entries to the
table to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 54.4980G–6 also issued under
26 U.S.C. 4980G.
Section 54.4980G–7 also issued under
26 U.S.C. 4980G. * * *
Par. 2. Section 54.4980B–0 is amended
by adding a new Q–11 to §54.4980B–2 in
the list of questions to read as follows:
§54.4980B–0 Table of contents.
*****
List Of Questions
*****
§54.4980B–2 Plans that must comply.
*****
Q–11: If a person is liable for the excise
tax under section 4980B, what form must
the person file and what is the due date for
the filing and payment of the excise tax?
*****
Par. 3. Section 54.4980B–2 is amended
by adding a new Q&A–11 to read as follows:
§54.4980B–2 Plans that must comply.
*****
Q–11: If a person is liable for the excise
tax under section 4980B, what form must
the person file and what is the due date for
the filing and payment of the excise tax?
A–11: (a) In general. Any person who
is liable for the excise tax under section
4980B must report this tax by filing Form
8928, “Return of Certain Excise Taxes Under Chapter 43 of the Internal Revenue
Code”, and the tax must be paid at the time
prescribed for filing such return (without
extensions). The return must include the
information required by Form 8928 and
the instructions issued with respect to it.
(b) Due date for filing of return by employers or other persons responsible for

683

benefits under a group health plan. If the
person liable for the excise tax is an employer or other person responsible for providing or administering benefits under a
group health plan (such as an insurer or a
third party administrator), the return must
be filed on or before the due date for filing
the person’s income tax return and must reflect the portion of the noncompliance period for each failure under section 4980B
that falls during the person’s taxable year.
An extension to file the person’s income
tax return does not extend the date for filing Form 8928.
(c) Due date for filing of return by multiemployer plans. If the person liable for
the excise tax is a multiemployer plan, the
return must be filed on or before the last
day of the seventh month following the end
of the plan’s plan year. The filing of Form
8928 by a plan must reflect the portion of
the noncompliance period for each failure
under section 4980B that falls during the
plan’s plan year.
(d) Effective/applicability date. In the
case of an employer or other person mentioned in paragraph (b) of this Q&A–11,
the rules in this Q&A–11 are effective for
taxable years beginning after the date the
final regulations are published in the Federal Register. In the case of a plan mentioned in paragraph (c) of this Q&A–11,
the rules in this Q&A–11 are effective for
plan years beginning after the date the final regulations are published in the Federal Register.
Par. 4. Section 54.4980D–1 is added to
read as follows:
§54.4980D–1 Requirement of Return and
Time for Filing of the excise tax under
section 4980D.
Q–1: If a person is liable for the excise
tax under section 4980D, what form must
the person file and what is the due date for
the filing and payment of the excise tax?
A–1: (a) In general. Any person who
is liable for the excise tax under section
4980D must report this tax by filing Form
8928, “Return of Certain Excise Taxes Under Chapter 43 of the Internal Revenue
Code”, and the tax must be paid at the time
prescribed for filing such return (without
extensions). The return must include the
information required by Form 8928 and
the instructions issued with respect to it.

September 8, 2008

(b) Due date for filing of return by employers. If the person liable for the excise
tax is an employer, the return must be filed
on or before the due date for filing the employer’s income tax return and must reflect
the portion of the noncompliance period
for each failure under chapter 100 that falls
during the employer’s taxable year. An extension to file the employer’s income tax
return does not extend the date for filing
Form 8928.
(c) Due date for filing of return by
multiemployer plans or multiple employer
health plans. If the person liable for the
excise tax is a multiemployer plan or a
specified multiple employer health plan,
the return must be filed on or before the
last day of the seventh month following
the end of the plan’s plan year. The filing
of Form 8928 by a plan must reflect the
portion of the noncompliance period for
each failure under chapter 100 that falls
during the plan’s plan year.
(d) Effective/applicability date. In the
case of an employer or other person mentioned in paragraph (b) of this Q&A–1, the
rules in this Q&A–1 are effective for taxable years beginning after the date the final regulations are published in the Federal Register. In the case of a plan mentioned in paragraph (c) of this Q&A–1, the
rules in this Q&A–1 are effective for plan
years beginning after the date the final regulations are published in the Federal Register.
Par. 5. Section 54.4980E–1 is added to
read as follows:
§54.4980E–1 Requirement of Return and
Time for Filing of the excise tax under
section 4980E.
Q–1: If a person is liable for the excise
tax under section 4980E, what form must
the person file and what is the due date for
the filing and payment of the excise tax?
A–1: (a) In general. Any employer
who is liable for the excise tax under section 4980E must report this tax by filing Form 8928, “Return of Certain Excise
Taxes Under Chapter 43 of the Internal
Revenue Code”, on or before the 15th day
of the fourth month following the calendar
year in which the noncomparable contributions were made. The tax must be paid at
the time prescribed for filing such return
(without extensions), and the return must
include the information required by Form

September 8, 2008

8928 and the instructions issued with respect to it.
(b) Effective/applicability date. The
rules in this Q&A–1 are effective for plan
years beginning after the date the final
regulations are published in the Federal
Register.
Par. 6. Section 54.4980G–1 is amended
by:
1. Revising the last sentence in A–1
and adding a new sentence at the end of
paragraph (a) in A–2.
2. Adding a new Q&A–5.
The revisions and addition read as follows:

regulations are published in the Federal
Register.
Par. 7. Section 54.4980G–3 is amended
by:
1. Revising the introductory text in
paragraph (a) of A–5.
2. Adding a new sentence at the end of
paragraph (c) of A–5 and paragraph (a) of
A–9.
The revision and additions read as follows:

§54.4980G–1 Failure of employer to
make comparable health savings account
contributions.

*****
A–5: (a) Categories. The categories of
employees for comparability testing are as
follows (but see Q&A–6 of this section for
the treatment of collectively bargained employees and Q&A–1 of §54.4980G–6 for a
special rule for contributions made to the
HSAs of nonhighly compensated employees)—

*****
A–1: * * * But see Q&A–6 in
§54.4980G–3 for treatment of collectively bargained employees and Q&A–1 in
§54.4980G–6 for the rules allowing larger
comparable contributions to nonhighly
compensated employees.
*****
A–2: (a) * * * See also §54.4980G–6
for the rules allowing larger comparable
contributions to nonhighly compensated
employees.
*****
Q–5: If a person is liable for the excise
tax under section 4980G, what form must
the person file and what is the due date for
the filing and payment of the excise tax?
A–5: (a) In general. Any employer
who is liable for the excise tax under section 4980E must report this tax by filing Form 8928, “Return of Certain Excise
Taxes Under Chapter 43 of the Internal
Revenue Code”, on or before the 15th day
of the fourth month following the calendar
year in which the noncomparable contributions were made. The tax must be paid at
the time prescribed for filing such return
(without extensions), and the return must
include the information required by Form
8928 and the instructions issued with respect to it. See Q&A–4 of §54.4980G–1
for the rules on computation of the excise
tax under section 4980G.
(b) Effective/applicabilty date. The
rules in this Q&A–5 are effective for plan
years beginning after the date the final

684

§54.4980G–3 Failure of employer to
make comparable health savings account
contributions.

*****
(c) * * * But see §54.4980G–6 for a
special rule for contributions made to the
HSAs of nonhighly compensated employees.
*****
A–9: (a) * * * See §54.4980G–6 for a
special rule for contributions made to the
HSAs of nonhighly compensated employees.
*****
Par. 8. Section 54.4980G–4 is amended
by:
1. Adding a new sentence at the end of
paragraph (a) of A–1.
2. Adding paragraphs (h) and (i) to
A–2.
The additions read as follows:
§54.4980G–4 Calculating comparable
contributions.
*****
A–1: (a) * * * But see Q&A–1 of
§54.4980G–6 for a special rule for contributions made to the HSAs of nonhighly
compensated employees.
*****
A–2: * * *
*****

2008–36 I.R.B.

(h) Maximum contribution permitted
for all employees who are eligible individuals during the last month of the taxable
year. An employer may contribute up to
the maximum annual contribution amount
for the calendar year (based on the employees’ HDHP coverage) to the HSAs of
all employees who are eligible individuals
during the last month of the taxable year,
including employees who worked for the
employer for less than the entire calendar
year and employees who became eligible
individuals after January 1st of the calendar year. For example, such contribution
may be made on behalf of an eligible
individual who is hired after January 1st
or an employee who becomes an eligible
individual after January 1st. Employers
are not required to provide more than a
pro-rata contribution based on the number of months that an individual was an
eligible individual and employed by the
employer during the year. However, if an
employer contributes more than a pro-rata
amount for the calendar year to the HSA
of any eligible individual who is hired
after January 1st of the calendar year or
any employee who becomes an eligible
individual any time after January 1st of
the calendar year, the employer must contribute that same amount on an equal and
uniform basis to the HSAs of all comparable participating employees (as defined in
Q&A–1 in §54.4980G–1) who are hired or
become eligible individuals after January
1st of the calendar year. Likewise, if an
employer contributes the maximum annual contribution amount for the calendar
year to the HSA of any eligible individual
who is hired after January 1st of the calendar year or any employee who becomes an
eligible individual any time after January
1st of the calendar year, the employer must
contribute the maximum annual contribution amount on an equal and uniform basis
to the HSAs of all comparable participating employees (as defined in Q&A–1 in
§54.4980G–1) who are hired or become
eligible individuals after January 1st of the
calendar year. An employer who makes
the maximum calendar year contribution
or more than a pro-rata contribution to
the HSAs of employees who become eligible individuals after the first day of the
calendar year or eligible individuals who
are hired after the first day of the calendar
year will not fail to satisfy comparability
merely because some employees will have

2008–36 I.R.B.

received more contributions on a monthly
basis than employees who worked the entire calendar year.
(i) Examples. The following examples
illustrate the rules in paragraph (h) in this
Q&A–2. In the following examples, no
contributions are made through a section
125 cafeteria plan and none of the employees are covered by a collective bargaining
agreement.
Example 1. On January 1, 2009, Employer Q contributes $1,000 for the calendar year to the HSAs of
employees who are eligible individuals with family
HDHP coverage. In mid-March of the same year,
Employer Q hires Employee A, an eligible individual
with family HDHP coverage. On April 1, 2009, Employer Q contributes $1,000 to the HSA of Employee
A. In September of the same year, Employee B becomes an eligible individual with family HDHP coverage. On October 1, 2009, Employer G contributes
$1,000 to the HSA of Employee B. Employer Q does
not make any other contributions for the 2009 calendar year. Employer Q’s contributions satisfy the comparability rules.
Example 2. For the 2009 calendar year, Employer
R only has two employees, Employee C and Employee D. Employee C, an eligible individual with
family HDHP coverage, works for Employer R for
the entire calendar year. Employee D, an eligible individual with family HDHP coverage works for Emst
st
ployer R from July 1 through December 31 . Employer R contributes $1,200 for the calendar year to
the HSA of Employee C and $600 to the HSA of Employee D. Employer R does not make any other contributions for the 2009 calendar year. Employer R’s
contributions satisfy the comparability rules.

*****
Par. 9. Section 54.4980G–6 is added to
read as follows:
§54.4980G–6 Special rule for
contributions made to the HSAs of
nonhighly compensated employees.
Q–1: May an employer make larger
contributions to the HSAs of nonhighly
compensated employees than to the HSAs
of highly compensated employees?
A–1: Yes. Employers may make larger
HSA contributions for nonhighly compensated employees who are comparable
participating employees than for highly
compensated employees who are comparable participating employees.
See
Q&A–1 in §54.4980G–1 for the definition
of comparable participating employee.
For purposes of this section, highly compensated employee is defined under section 414(q). Nonhighly compensated employees are employees that are not highly
compensated employees. The comparability rules continue to apply with respect to

685

contributions to the HSAs of all nonhighly
compensated employees. Employers must
make comparable contributions for the
calendar year to the HSA of each nonhighly compensated employee who is a
comparable participating employee.
Q–2: May an employer make larger
contributions to the HSAs of highly compensated employees than to the HSAs of
nonhighly compensated employees?
A–2: (a) In general. No. Employer
contributions to HSAs for highly compensated employees who are comparable
participating employees may not be larger
than employer HSA contributions for
nonhighly compensated employees who
are comparable participating employees.
The comparability rules continue to apply
with respect to contributions to the HSAs
of all highly compensated employees.
Employers must make comparable contributions for the calendar year to the HSA
of each highly compensated comparable
participating employee. See Q&A–1 in
§54.4980G–1 for the definition of comparable participating employee.
(b) Examples. The following examples
illustrate the rules in Q&A–1 and Q&A–2
of this section. No contributions are made
through a section 125 cafeteria plan and
none of the employees in the following examples are covered by a collective bargaining agreement. All of the employees in the
following examples have the same HDHP
deductible for the same category of coverage.
Example 1. In 2009, Employer A contributes
$1,000 for the calendar year to the HSA of each fulltime nonhighly compensated employee who is an eligible individual with self-only HDHP coverage. Employer A makes no contribution to the HSA of any
full-time highly compensated employee who is an eligible individual with self-only HDHP coverage. Employer A’s HSA contributions for calendar year 2009
satisfy the comparability rules.
Example 2. In 2009, Employer B contributes
$2,000 for the calendar year to the HSA of each fulltime nonhighly compensated employee who is an eligible individual with self-only HDHP coverage. Employer B also contributes $1,000 for the calendar year
to the HSA of each full-time highly compensated employee who is an eligible individual with self-only
HDHP coverage. Employer B’s HSA contributions
for calendar year 2009 satisfy the comparability rules.
Example 3. In 2009, Employer C contributes
$1,000 for the calendar year to the HSA of each fulltime nonhighly compensated employee who is an eligible individual with self-only HDHP coverage. Employer C contributes $2,000 for the calendar year to
the HSA of each full-time highly compensated employee who is an eligible individual with self-only
HDHP coverage. Employer C’s HSA contributions

September 8, 2008

for calendar year 2009 do not satisfy the comparability rules.
Example 4. In 2009, Employer D contributes
$1,000 for the calendar year to the HSA of each fulltime nonhighly compensated employee who is an eligible individual with self-only HDHP coverage. Employer D also contributes $1,000 to the HSA of each
full-time highly compensated employee who is an eligible individual with self-only HDHP coverage. In
addition, the employer contributes an additional $500
to the HSA of each nonhighly compensated employee
who participates in a wellness program. The nonhighly compensated employees did not receive comparable contributions, and, therefore, Employer D’s
HSA contributions for calendar year 2009 do not satisfy the comparability rules.
Example 5. In 2009, Employer E contributes
$1,000 for the calendar year to the HSA of each
full-time non-management nonhighly compensated
employee who is an eligible individual with family
HDHP coverage. Employer E also contributes $500
for the calendar year to the HSA of each full-time
management nonhighly compensated employee who
is an eligible individual with family HDHP coverage. The nonhighly compensated employees did not
receive comparable contributions, and, therefore,
Employer E’s HSA contributions for calendar year
2009 do not satisfy the comparability rules.

Q–3: May an employer make larger
HSA contributions for employees with self
plus two HDHP coverage than employees
with self plus one HDHP coverage even
if the employees with self plus two are
all highly compensated employees and the
employees with self plus one are all nonhighly compensated employees?
A–3: (a) Yes. Q&A–1 in §54.4980G–4
provides that an employer’s contribution
with respect to the self plus two category of
HDHP coverage may not be less than the
contribution with respect to the self plus
one category and the contribution with respect to the self plus three or more cate-

September 8, 2008

gory may not be less than the contribution
with respect to the self plus two category.
Therefore, the comparability rules are not
violated if an employer makes a larger
HSA contribution for the self plus two
category of HDHP coverage than to self
plus one coverage, even if the employees
with self plus two coverage are all highly
compensated employees and the employees with self plus one coverage are all nonhighly compensated employees. Likewise,
the comparability rules are not violated if
an employer makes a larger HSA contribution for the self plus three category of
HDHP coverage than to self plus two coverage, even if the employees with self plus
three coverage are all highly compensated
employees and the employees with self
plus two coverage are all nonhighly compensated employees.
(b) Example. The following example illustrates the rules in paragraph (a) of this
Q&A–3. In the following examples, no
contributions are made through a section
125 cafeteria plan and none of the employees are covered by a collective bargaining
agreement.
Example. In 2009, Employer F contributes
$1,000 for the calendar year to the HSA of each
full-time employee who is an eligible individual with
self plus one HDHP coverage. Employer F contributes $1,500 for the calendar year to the HSA of
each employee who is an eligible individual with self
plus two HDHP coverage. The deductible for both
the self plus one HDHP and the self plus two HDHP
is $2,000. Employee A, an eligible individual, is
a nonhighly compensated employee with self plus
one coverage. Employee B, an eligible individual, is
a highly compensated employee with self plus two
coverage. For the 2009 calendar year, Employer F
contributes $1,000 to Employee A’s HSA and $1,500

686

to Employee B’s HSA. Employer F’s HSA contributions satisfy the comparability rules.

Par. 10. Section 54.4980G–7 is added
to read as follows:
§54.4980G–7 Special comparability
rules for qualified HSA distributions
contributed to HSAs on or after December
20, 2006 and before January 1, 2012.
Q–1: How do the comparability rules
of section 4980G apply to qualified HSA
distributions under section 106(e)(2)?
A–1: The comparability rules of section 4980G do not apply to amounts contributed to employee HSAs through qualified HSA distributions. However, in order to satisfy the comparability rules, if
an employer offers qualified HSA distributions, as defined in section 106(e)(2), to
any employee who is an eligible individual
covered under any HDHP, the employer
must offer qualified HSA distributions to
all employees who are eligible individuals covered under any HDHP. However, if
an employer offers qualified HSA distributions only to employees who are eligible
individuals covered under the employer’s
HDHP, the employer is not required to offer qualified HSA distributions to employees who are eligible individuals but are not
covered under the employer’s HDHP.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on July 15, 2008,
8:45 a.m., and published in the issue of the Federal Register
for July 16, 2008, 73 F.R. 40793)

2008–36 I.R.B.