Employers often ask if they can make matching contributions based on a percentage of a participant’s pre-tax HSA contributions made through the company cafeteria plan (similar to a 401k matching program). The answer is: probably.
Some employers’ HSA contributions are subject to comparability requirements that effectively prohibit matching contributions because the contributions would trigger a 35% excise tax on the employer. To be comparable, contributions must generally be the same dollar amount or percentage of the high-deductible health plan (HDHP) deductible, a standard that matching contributions cannot satisfy. But the comparability requirements do not apply to employer HSA contributions that are made “through a cafeteria plan.” If your cafeteria plan permits HSA-eligible participants to make pre-tax salary reduction HSA contributions, any matching (or other) employer contributions made by the employer are also treated as made “through a cafeteria plan.”
Instead of comparability, your company’s matching HSA contributions would be subject to the Code §125 nondiscrimination requirements–i.e., the eligibility, contributions and benefits, and key employee concentration tests. Participants’ pre-tax HSA contributions are also subject to these rules. In general, those tests provide more flexibility for employers wishing to vary HSA contributions on a nondiscriminatory basis, but even that flexibility has its limits. For example, if non-key employees do not contribute or make only small contributions, contributions by key employees could cause the cafeteria plan to fail the key employee concentration test. Thus, any matching contribution should be carefully designed to satisfy the applicable nondiscrimination rules.
Matching HSA contributions (like other employer HSA contributions) are generally treated as employer-provided coverage for medical expenses under an accident or health plan and are excludable from a participant’s gross income. Once your company’s matching HSA contributions are made, they are nonforfeitable; they cannot be subject to a vesting schedule or be returned to the employer if the participant terminates employment midyear.
Keep in mind that HSA contributions are subject to annual dollar limitations. All contributions that are made for a year to a participant’s HSA–whether by the participant, the company, or another entity or individual–must be aggregated for purposes of applying these limits. If your company decides to make matching HSA contributions, this should be reflected in the cafeteria plan document, the cafeteria plan summary, and other applicable employee communications (e.g., open enrollment materials).
