1. Flexible Benefit Service Corporation 888-FLEX1ST www.flexiblebenefit.com HSA 2008 Round-Up Presented by: Mark Lam, CFCI

2. Flexible Benefit Service Corporation Account-based Healthcare General Agency Expertise Products Services Technology Resources & Support Benefit Plans Sales & Service New Business Education Customized Programs Flex Brokers Clients

3. Flexible Benefit Service Corporation Recent HSA Legislative Changes  Tax Relief and Healthcare Act goes into effect Jan 1, 2007  Significantly enhances HSAs  Notice 2007-22 released in February 2007  Short-lived notice for FSA/HRA rollovers to HSAs  Proposed Comparability Regulations released in June 2007  Opens up the nondiscrimination standards for HSAs  New Proposed Cafeteria Plan Regulations released in August 2007  Contains many HSA-related modifications to Cafeteria Plan rules

4. Flexible Benefit Service Corporation Recent HSA Legislative Changes  Final Comparability Regulations released in April 2008  No significant changes to proposed regulations  2009 Minimums and Maximums released in May 2008  Adjustments match similar adjustments in past years  Notices 2008-51 and 2008-52 released in June 2008  2008-51 provides details on IRA to HSA transfers  2008-52 provides details on “full contribution” rules  Still to come – the “Grab Bag” of HSA guidance

5. Flexible Benefit Service Corporation 2008 – A Year of Evolution  HSAs are coming into their own  Recent AHIP study shows that over 6.1 million people are covered by an HSA-qualified HDHP  The January 2007 changes and subsequent tweaks are starting to have a significant impact in benefit planning for groups  The final comparability regulations are significantly more open than the original regulations  Much needed guidance has closed up many gaps in the rules  Plan sponsors now have a firm base to build on when implementing HSAs for their groups

6. Flexible Benefit Service Corporation 2008 HSA/HDHP Limits  Minimum Single Deductible: $1,100  Minimum Family Deductible: $2,200  Maximum Single OOP: $5,600  Maximum Family OOP: $11,200  Maximum Single Contribution: $2,900  Maximum Family Contribution: $5,800  Catch-up Contribution: $900

7. Flexible Benefit Service Corporation 2009 HSA/HDHP Limits  Minimum Single Deductible: $1,150  Minimum Family Deductible: $2,300  Maximum Single OOP: $5,800  Maximum Family OOP: $11,600  Maximum Single Contribution: $3,000  Maximum Family Contribution: $5,950  Catch-up Contribution: $1,000

8. Flexible Benefit Service Corporation HSA Final Comparability Regulations  These regulations deal with employer contributions to HSAs, a vital ingredient in any successful HSA program  The final regulations allow for three classes of employees:  Part-time Active  Full-time Active  Former  Within these three classifications, the employer has to treat everyone equally – however, variations in contributions based on tier of coverage elected are allowed

9. Flexible Benefit Service Corporation HSA Final Comparability Regulations  The rules issued April 2008 also clear up two very important issues:  What happens if an employee does not open up an HSA as soon as they are eligible?  Can an employer accelerate contributions to an employee?  The comparability regulations require that all employees receive comparable contributions on either a monthly or annual basis…  …but an employee has to open an HSA in order to received contributions – what happens if they don’t?

10. Flexible Benefit Service Corporation HSA Final Comparability Regulations  If an employee opens an HSA by December 31 st of the year the employer is making contributions, the employer can still meet the Comparability requirements by making a contribution that matches the amount the employee would have received, had they opened the account on time. The contribution must be made by April 15 th of the following year.  If an employee does not open an account by December 31, there’s no requirement for the employer to make a contribution

11. Flexible Benefit Service Corporation HSA Final Comparability Regulations  One common objection to an HSA from employees: “What if I have a big expense and I don’t have enough money in the account to cover it?”  The new guidance addresses this issue as well, by allowing employers to accelerate contributions to the HSA  The trigger that allows this is if the employee has eligible expenses in excess of the amount the employer has contributed to date  Once the employer does this for one employee, they must have a consistent policy for all employees running into the same situation

12. Flexible Benefit Service Corporation HSA Final Comparability Regulations  Last word on the Final Comparability Regulations: If an employer allows employees to salary reduce to fund their HSAs through a Cafeteria Plan, the Comparability Regulations do not apply

13. Flexible Benefit Service Corporation IRA to HSA Transfers  The biggest misconception about this funding method is that the amount moved from an IRA to an HSA is not a “rollover” – it’s a transfer, and it counts towards the maximum annual contribution  IRA to HSA transfers are allowed from regular and Roth IRAs, not SEP or SIMPLE IRAs  In order to retain the tax-free status of the transfer, the individual making the transfer must remain HSA eligible through the last day of the 12 th month following the month of the transfer

14. Flexible Benefit Service Corporation New Full Contribution Rules  Part of the 2007 guidance eliminated the up-front pro-ration of contributions previously required – as long as you are eligible by December 1 st of the year, you can make a full annual contribution to your HSA for that year  When taking advantage of this rule, you must remain HSA eligible through the testing period – which used to match the IRA -> HSA transfer testing period  Now, in order to retain the tax-free status of the contribution made through this rule, you must remain eligible through December 31 st of the following year

15. Flexible Benefit Service Corporation What about FSA rollovers to HSAs?  One of the most frequent questions we get deal with rolling unused FSA dollars into an HSA  General requirements to make this happen:  The FSA had to exist on September 21 st, 2006, and the employee had to have an available balance on that date  The FSA must have a Grace Period in order to satisfy the requirement that the employee is a participant in the FSA after the end of the FSA Plan Year  The rollover amount is capped by lesser of the 9/21/06 balance, or the balance on the date of the rollover  Implementing the FSA -> HSA rollover takes planning

16. Flexible Benefit Service Corporation What about FSA and HSAs in general?  Lastly, remember that participation in a normal FSA makes an employee ineligible to participate in an HSA – even if the employee enrolls in a qualified HDHP  A common mistake is to think that just because the employer is rolling out a qualified HDHP, an employee can drop their FSA election – this is particularly a problem when the health plan year and the FSA plan year are not in sync  Also remember – even if you are not enrolled in an FSA, you can be made ineligible if your spouse is in a normal FSA

17. Flexible Benefit Service Corporation

18. Flex HSA ® …the complete HSA experience Flex HSA Services

19. Flexible Benefit Service Corporation Flex HSA ® …the complete HSA experience

20. Flexible Benefit Service Corporation 888-FLEX1ST www.flexiblebenefit.com HSA 2008 Roundup Presented by: Mark Lam, CFCI