The Internal Revenue Service has completed final regulations that explain how employers are supposed to try to make health savings account programs fair to employees.

The final rule, Employer Comparable Contributions to Health Savings Accounts Under Section 4980G, gives employers and their benefits advisors advice about how to make HSA contributions for various employees “comparable.”

An employer need not contribute to employees’ HSAs, but, if it does, it must contribute a comparable amount to the HSAs of all comparable participating employees, according to guidance given in the final rule.

Employers can distinguish between employees working in different cities, and between employees who have self-only or family health coverage, but they cannot distinguish between employees in the same city who happen to be in different divisions, and they cannot link employee contribution amounts to the HSA program participants’ wages or HSA contribution levels, officials write.

But a draft of the rule released in August 2005 showed that employers could exclude some employees from comparability testing, and the IRS expanded on those sections in the final version.

One change lets employers exclude some union members.

“The final regulations provide that employees who are included in a unit of employees covered by a bona fide collective bargaining agreement between employee representatives and one or more employees are not comparable participating employees, if health benefits were the subject of good faith bargaining,” IRS officials write in a preamble to the regulation.

Employers also can exclude HSA contributions made through Section 125 cafeteria plans from comparability testing, and even peg Section 125 HSA contributions to employee participation in wellness programs, officials write.

But officials note that any HSA contributions made through Section 125 plans would be subject to Section 125 nondiscrimination rules.

Under Section 125, an employer must test to make sure that no more than 25% of the total nontaxable benefits go to key employees. Employers also must make sure that the average level of benefits going to ordinary employees is equal to at least 55% of the level of benefits going to highly compensated employees.

A copy of the final rule is on the Web at Document Link

The final rule has not yet appeared in the Federal Register.