Employers Frequently Asked Questions

Transcription

1 Principal Health Savings Accounts Employers Frequently Asked Questions BACKGROUND QUESTION Why were health savings accounts (HSAs) created? ANSWER People are more careful about their health care purchases when spending their own money vs. when spending someone else s money. When coupled with a high-deductible health plan (HDHP), HSAs encourage people to save money that they can use to pay for qualified medical expenses, taxfree. The HDHP pays for covered medical expenses after the deductible has been met. Do federal or state laws govern HSAs? What are the key advantages of HSAs? Can the money in a person s HSA be taken away? Do HSAs, like flexible spending accounts (FSAs), have a use-it or lose-it rule? While HSAs were enabled by federal law, the HDHPs they work with are regulated by both federal and state legislation. HSAs offer triple tax savings: 1. Money can be contributed pre-tax 2. Funds can earn interest or investment returns taxdeferred. 3. The money can be used tax-free to pay for qualified medical expenses. Note: Check your state s HSA regulations, as some states do not allow for the same favorable tax treatment of HSAs as the federal government. Balances can be used in future years and the HSA is portable. No. Once money is contributed to an HSA, it belongs to the participant and can t be forfeited. 1

2 Does the employer (also known as the sponsor ) own any part of the participants HSAs? Can the employer control how participants spend the money in them? What is a qualified HDHP, also known as an HSAcompatible HDHP? Are there special rules for preventive care under an HDHP? When can the HSA be used to reimburse qualified medical expenses? Is there a joint or co-owned HSA? No. Sponsors can t control how the funds are used. Once the sponsor makes a contribution, the participant owns the funds. A qualified HDHP is health insurance that satisfies certain government requirements.* For 2009, an HDHP for an individual must have - An annual deductible of $1,150 or greater - An annual maximum out-of-pocket limit of $5,800. For 2009, an HDHP for a family must have - An annual deductible of at least $2,300 - An annual maximum out-of-pocket limit of $11,600. For 2010, an HDHP for an individual must have - An annual deductible of $1,200 or greater - An annual maximum out-of-pocket limit of $5,950. For 2010, an HDHP for a family must have - An annual deductible of at least $2,400 - An annual maximum out-of-pocket limit of $11,900. The deductible and out-of-pocket amounts change annually to account for inflation. Except for preventive care, the coverage may not provide benefits until the annual deductible for the year is met. Other benefit design restrictions also apply. *An HDHP may also be a self-funded design. Preventive care such as annual check-ups and wellchild doctor s visits can be covered with a small deductible or even no deductible without disqualifying the participant from using an HSA. The HSA can be used as of its established date, which is the date when the following are in place: The HSA is open The first contribution has been made HDHP coverage is effective No. Each eligible spouse may open his/her own HSA. The couple must then decide how to divide the maximum contribution between them. 2

3 Are HSAs tied to a job or position? What happens to an HSA balance if a participant loses HDHP coverage, and therefore eligibility? What happens to the HSA upon termination of employment? What happens to the HSA upon death of the participant? No. HSAs are completely portable. Variables such as job changes, changes in medical coverage, unemployment, a move to another state, changes in marital status, etc. do not affect ownership of the HSA. However, in order to continue to make HSA contributions, the participant must meet all eligibility requirements. The participant can still use the funds in the HSA to reimburse qualified medical expenses without penalty. The participant cannot make new contributions to the account. Upon termination of employment, you have a number of options for your HSA. 1. Leave it with Principal Life. 2. Transfer your HSA money to another custodian or trustee. 3. Withdraw your HSA money (may be subject to tax and penalty). If the spouse is the designated beneficiary, the funds can be transferred to an HSA in his or her name. If the beneficiary is anyone else and the account is no longer considered an HSA, the fair market value becomes taxable income in the year in which the death occurs. ELIGIBILITY QUESTION Who can have an HSA and who owns the account? Are there any employment requirements in addition to meeting the above requirements? Can an employee be excluded on the basis of job status? Are there age requirements for establishing an HSA? Can separate accounts be established for dependent children? Does a person's income affect the ability to have an HSA? Can a non-resident alien have an HSA? ANSWER To qualify: A person must be covered by an HDHP on the first day of the month. A person must not be covered by any medical benefit that is not a qualified HDHP. A person must not be enrolled in Medicare benefits. A person may not be claimed as a dependent on someone else s tax return. No. All U.S. citizens and resident aliens are eligible. Eligibility for an HSA is not based on employment. No. The regulations place no age restrictions on establishing an HSA. No. No. There are no income limits. No. We are unable to open an HSA account for nonresident aliens. 3

4 Can an HSA be established before HDHP coverage begins? Who is responsible for maintaining the HDHP coverage? If an employer offers both standard health coverage and an HDHP, can the employees still apply for an HSA? If my HDHP is effective on a date other than January 1, can I make an HSA contribution for that calendar year? What happens when parents divorce and each parent covers a child under his/her health insurance? Example: Mother is covered through an HDHP and father has a traditional benefit. Can the mother contribute to the HSA? If a participant has family HDHP coverage and his/her spouse has self-only HDHP coverage, can either person contribute? If both eligible spouses have different family HDHP coverages, how is the contribution determined? If a participant has self-only coverage under a qualified HDHP and the participant's spouse has self-only non-hdhp coverage, can either contribute to an HSA? If a participant has either self or family HDHP coverage, but the participant's spouse has non- HDHP family coverage, can either contribute to an HSA? No. HDHP coverage must be in place first; however, an employee can complete the application and make a minimum deposit prior to the effective date of the HDHP to ensure his/her HSA is established as early as possible. The account is not officially established until the HDHP is effective. The HSA participant is responsible for enrolling in and maintaining qualified HDHP coverage. Yes. The employees who choose the HDHP and meet other eligibility requirements can apply for an HSA. Yes. Participants who have an HDHP effective on the first day of a month other than January can set up and establish an HSA as of that date. Participants whose HDHP coverage begins on a date other than the first day of the month can open and establish an HSA as of the first day of the following month. A full year contribution can be made; however, the participant must remain an eligible individual for 12 months following the end of the calendar year in which he or she became eligible. For example: An individual s HDHP is effective on May 1, He/she is first eligible to establish an HSA on June 1, The individual can make a full year s contribution for that calendar year as long as he/she remains eligible through Dec. 31, Yes. The mother can contribute up to the family limit. Yes. If either eligible spouse has family coverage, both are treated as having family coverage. The contribution limit is divided equally between the spouses unless they agree on a different division. If either eligible spouse has family coverage, both are treated as having family coverage. The contribution limit is divided equally between the spouses unless they agree on a different division. The participant covered under the qualified HDHP is eligible to contribute to an HSA. The spouse is not eligible to contribute. Since both participant and spouse are covered under a non-hdhp, neither is eligible to contribute to an HSA. 4

5 If a participant has family HDHP coverage and his/her spouse has self-coverage under a non-hdhp, can either person contribute to an HSA? The participant is eligible to contribute to an HSA, but the spouse is not. Can state laws create situations in which HSAs can t be established? Yes. Mandated benefits in certain states may disqualify high-deductible health plans, and therefore, HSAs. OTHER COVERAGE PARTICIPANTS CAN HAVE AND STILL BE ELIGIBLE What types of permitted insurance and other coverage can a person have in addition to an HDHP and still be eligible to have an HSA? Examples of permitted insurance include property and casualty, tort liability, workers compensation, insurance for a specified disease or illness, or insurance that pays a fixed amount per day for hospitalization. Permitted coverages include accident, disability, dental care, vision care, long-term care coverages, employee assistance programs, disease management programs, wellness programs, prescription drug discount cards, and Veterans Administration benefits if not received in the last three months. Can a person establish an HSA if his/her spouse has a health flexible savings account (FSA) or health reimbursement arrangement (HRA)? What kinds of FSAs and HRAs can people use while participating in an HSA? Can an employer offer a limited-purpose FSA to employees covered by an HDHP/HSA and a health FSA to those covered by a conventional benefit option? Does Principal Life offer a limited-purpose flexible spending account (FSA) for use with an HSA? No, not if the HRA or FSA pays for any medical expenses before the deductible is met. Some types of HRAs and FSAs, however, are specifically designed to work with an HSA. Limited-purpose FSAs that only reimburse benefits such as vision, dental or preventive care Limited-purpose HRAs that only reimburse benefits such as vision, dental or preventive care FSAs that only reimburse expenses after the minimum annual deductible has been satisfied HRAs that only reimburse expenses after the minimum annual deductible has been satisfied Suspended HRAs in which the participant foregoes any payment from the HRA for the coverage period Yes. Employers can establish two different FSAs. Yes. A limited purpose FSA can cover dental, vision or preventive care. Sponsors interested in an FSA product should contact a local Principal Life sales representative or the FSA Hotline at , ext

6 CONTRIBUTIONS QUESTION When and how can the HSA be funded? How quickly must a new HSA checking account with Principal Bank be funded? What is the deadline for contributing to an HSA for a given year? Do HSA contributions have to be made in equal amounts each month? Is there a minimum contribution to open an HSA? What is the maximum annual HSA contribution? What are HSA catch-up contributions? Can HSA and MSA funds be transferred or rolled over into an HSA? ANSWER The HSA may be funded at any time prior to the participant's tax filing deadline (usually April 15th of the following year). It must be funded in cash (i.e., it cannot be funded with credit, stocks or property). It may be funded at any time during the year as long as the participant is eligible. The first contribution must be made within 30 days of the effective date of the qualified HDHP. HSAs can be funded up to the participant's tax filing deadline (usually April 15th of the following year). No. The amount and frequency can vary. Funds can even be contributed in a single lump sum. The total can t exceed the annual contribution limit, however. There is no minimum balance required to open an HSA checking account with Principal Bank. Principal Bank certificates of deposit (CDs) require $1,000 per CD. Mutual fund accounts require $1,000 initial investment per fund. For 2009, the maximum contribution is $3,000 for self-only coverage $5,950 for family coverage For 2010, the maximum contribution is $3,050 for self-only coverage $6,150 for family coverage People between ages 55 and 65 can contribute an extra $1,000 every year. Contributions must be to separate HSAs. Yes. Participants may complete one rollover per year from an HSA or an MSA to another HSA. Funds must be rolled to the new HSA within 60 days of distribution or face income taxes and a 10 percent penalty on the amount. Participants can also complete a trustee-to-trustee transfer. To find the necessary forms, visit 6

7 Are rollover contributions permitted from individual retirement accounts (IRAs), health reimbursement arrangements (HRAs) or flexible spending accounts (FSAs)? Yes. These trustee-to-trustee transfers are allowed, but trustees or custodians are not required to accept them. Rollovers from FSAs and HRAs are not subject to the annual contribution limit. Rollovers from an FSA or HRA cannot exceed the lesser of: The balance in the FSA or HRA as of September 21, 2006 The balance in the FSA or HRA as of the date of transfer Rollovers are subject to the annual contribution limits in the case of IRAs. What is the mailing address for contributions? What if the contributions to an account exceed the set limits? EXCESS CONTRIBUTIONS The address is: Principal Bank, P.O. Box 9329, Des Moines, IA Excess contributions and the earnings from them may be withdrawn before April 15 of the following year to avoid penalties. If these funds are not withdrawn, they are added to the participant s gross income and are subject to income tax plus an additional 10 percent tax. How do I remove an excess contribution from my account? If a person contributes too much, is there a remedy after April 15 so that taxes will not continue to apply? Who is responsible for assuring that the limits are not exceeded? Contact the HSA Customer Center and they will assist you through the necessary steps to remove an excess contribution. This will allow us to properly code those funds for tax reporting purposes. The HSA Customer Center can be reached at , Monday through Friday 7 a.m. 7 p.m. CT. The participant can decrease the contribution the following year. Failure to do this subjects the owner to ongoing income and additional taxes on the excess contribution and associated earnings. The HSA participant is responsible for monitoring their contributions. Who can contribute to an HSA and take a tax deduction? WHO CAN CONTRIBUTE? Anyone can contribute to an individual s HSA, including relatives and the employer/sponsor. For contributions other than the sponsor s, the tax deduction would benefit the participant and not the contributor. Can someone who is self-employed contribute to HSAs? Yes, but self-employed participants can only take an above-the-line tax deduction. They cannot make pre-tax contributions and cannot receive pre-tax sponsor contributions on their behalf. 7

8 Can a partnership contribute to a partner s HSA? Can an S-corporation contribute to shareholders HSAs? Once someone receives Medicare benefits, can he or she contribute to an HSA? Can participants who are age 65 or older still contribute to an HSA? Yes, but contributions may be treated differently depending on whether they are a distribution of money or for services rendered. Consult your tax advisor for specifics. Yes. Contributions by an S corporation to a 2 percent shareholder are deductible by the corporation and included in the shareholderemployees gross income. The shareholderemployees can deduct the contribution. Consult your tax advisor for specifics. No. Once a person enrolls in Medicare, no further contributions can be made. A participant who is eligible for Medicare but not enrolled in Medicare may contribute to an HSA. Can participants who are enrolled in Medicare make catch-up contributions? If a person is receiving VA benefits, can he or she contribute to an HSA? How are employer contributions treated? No. Once participants are enrolled in Medicare they cannot make any contributions. No. Contributions may not be made if the participant has received medical benefits from the VA during the previous three months. Contributions made by an employer are taxdeductible for the company, do not require income-tax withholding and are not subject to FICA, FUTA or the Railroad Retirement Act. HOW TO CONTRIBUTE How are employer contributions made? Can employees make HSA contributions through their employer s Section 125 plan? If a participant does not have access to a Section 125 plan, how can contributions be made? These contributions are made pre-tax and are not included in the employees' income. The best way for employers to make contributions is through a Section 125 plan (also known as a cafeteria plan). Yes. This permits employer-matching, additional contributions for participating in wellness and disease management, and catch-up contributions as long as non-discrimination rules are followed. Contributions can also be made after taxes. The participant then takes an above-the-line deduction which reduces federal taxable income, making the contributions tax-free. It is not necessary to itemize in order to take this deduction. 8

9 If a Section 125 plan is used, how often can participants change their HSA contribution amounts? Do comparability rules apply to contributions made through a cafeteria/section 125 plan? Contributions could be changed as often as monthly. Eligibility requirements and contribution limits for HSAs are determined monthly, so participants who make contributions through a cafeteria plan may start, stop, increase or decrease their elections at any time as long as the change is effective after the request for the change is received. If a sponsor places additional restrictions on the election of HSA contributions under a cafeteria plan, the same restrictions must apply to all participants. No, but contributions (including matching contributions ) made through a Section 125 plan are subject to the Section 125 non-discrimination rules (eligibility rules, contributions and benefits tests, and key employee concentration tests). What is comparability? COMPARABLE CONTRIBUTIONS Employers who make contributions must make comparable contributions to all eligible participants within specifically defined groups with comparable coverage during the same period. Contributions must be either the same amount or same percentage of the HDHP deductible. There are four categories of participants: 1. full-time 3. former 2. part-time 4. non-highly compensated employees Those categories are also broken down to: 1. self-only coverage 2. family coverage An employer may make higher contributions to non-highly compensated employees. A sponsor can discriminate between categories, but not within. The comparability rule does not apply to rollovers from another HSA or Archer MSA. If a sponsor does not pass comparability, a 35 percent tax penalty is assessed on all of the sponsor s contributions to all employees. Can employers place requirements on employer matching contributions? When must employers contribute to satisfy comparability rules? Employer contributions can t be tied to employee participation in health assessments, disease management or wellness programs unless all comparable employees are required to enroll. They also can t be conditioned on employee age, service or whether the employee is eligible to make catchup contributions. These contribution strategies may be allowed under a Section 125 plan, however. Employers can contribute on a pay-as-you-go, lookback, or pre-funded basis as long as the method is used for all comparable participating employees. 9

10 If an employer contributes to all participants with self-only coverage, are they required to contribute to all participants with family coverage? If an employer chooses to make contributions, is he or she obligated to contribute to employees who have HDHP coverage provided by someone other than the employer? Are Social Security or Medicare withholding taxes assessed on employer contributions to the HSA? Is an employer required to continue making HSA contributions if a participant goes on COBRA and the employer is contributing to other participants? No. No. However, employers who choose to make contributions to the HSAs of employees covered by a non-company-sponsored HDHP must make comparable contributions to all eligible employees, regardless of what qualified HDHP they have. No. There is no withholding under the Federal Insurance Contributions Act (FICA), the Federal Unemployment Tax Act (FUTA) or the Railroad Retirement Tax Act. No. COBRA does not apply to HSAs. INVESTMENT OF FUNDS QUESTION How can the funds in an HSA be invested? What investments are not approved for use with an HSA? What prohibited transaction rules apply to HSAs? ANSWER HSAs may be invested in products approved for IRAs including bank accounts, annuities, CDs, stocks, bonds and mutual funds. HSAs may not be invested in life insurance contracts or collectibles. Participants may not sell, exchange or lease property; borrow or lend money; furnish goods, services or facilities; or pledge HSA assets. These are all prohibited transactions under IRS regulations. USING HSA FUNDS QUESTION What is a qualified medical expense? Is there a list of qualified medical expenses? Are there any taxes or penalties associated with distributions for qualified medical expenses? ANSWER Qualified medical expenses are defined in section 213(d) of the Internal Revenue Code, but only to the extent the expenses are not covered by insurance or otherwise. Expenses must be incurred after the HSA has been established in order to be reimbursed from the HSA. Yes. Section 213(d) of the Internal Revenue Code defines qualified medical expenses. Please check for more information. You can also find additional information at No. 10

11 Are there any taxes or penalties associated with distributions for non-qualified medical expenses? Is there any time that participants can withdraw funds from their HSA for things other than qualified medical expenses and not be assessed a penalty by the IRS? Yes. Participants under age 65: Non-qualified withdrawals subject to income tax plus an additional 10 percent penalty. Participants age 65 and older: Non-qualified withdrawals subject to income tax. Yes. At age 65, or if disabled, withdrawals may be made from an HSA for any reason without being subject to an additional tax; however, the withdrawals will be taxed as ordinary income. Who is responsible for determining that a medical expense is qualified? What medical expense records must be kept? Can medical expenses be reimbursed if they were incurred before the HSA was established? For example: My HDHP was effective on April 1 and my HSA was established April 15. Can medical charges incurred between the 1st and 15th be reimbursed by the HSA? Are over-the-counter drugs considered qualified medical expenses? Can HSA funds be used to pay premiums for an HDHP? Can HSA funds be used to pay premiums for Medicare? Are Medigap premiums qualified medical expenses? Can HSA funds be used for payment of qualified long-term care insurance premiums? The participant is responsible for determining the status of medical expenses reimbursed from an HSA. Records must show: That the money was used for qualified medical expenses That the expenses had not been previously paid or reimbursed from another source That the expenses had not been taken as an itemized deduction in any year To utilize our expense tracking form, please visit No. Claims incurred from April 1to April 14 cannot be reimbursed because the HSA was not established on April 1. Yes, if they are listed in Section 213(d) of the Internal Revenue Code. No. Health insurance premiums are not considered qualified except for the following: Qualified long-term care insurance COBRA health care continuation coverage Health care coverage while a participant is receiving unemployment compensation Yes. Medicare Part A, B and D; Medicare Advantage (HMO); or retiree contributions to employersponsored coverage are qualified medical expenses. No. Yes. However, the amount is subject to limits based on age and is adjusted annually. Please check these limits in the instructions for Form 1040 Schedule A. 11

12 What is the deadline for reimbursing expenses from an HSA? What happens if medical expenses the participant thought were qualified actually were not qualified? Qualified medical expenses incurred in the current year can be reimbursed in later tax years. There is no time limit; however, the participant must keep appropriate records to show that the reimbursements are qualified. If there is clear evidence that a distribution was made due to reasonable mistake of fact, the distribution may be repaid no later than April 15 following the first year the participant knew or should have known the distribution was a mistake. Under these circumstances, the distribution is not included in gross income or subject to the 10 percent additional tax, and the repayment is not subject to the additional tax on excess contributions. To repay a mistaken distribution, please complete the mistaken distribution section on the HSA Deposit slip and mail to: P.O. Box 9329 Des Moines, IA Can a participant borrow funds from the HSA and use future contributions as repayment? On whose behalf can expenses be reimbursed with HSA funds? If the HSA is partially or fully funded at the beginning of the calendar year, can the participant withdraw the entire balance? No. Qualified distributions may be taken on behalf of the participant, his/her spouse and his/her eligible dependents. Expenses of a domestic partner cannot be reimbursed from the HSA as a qualified medical expense. Yes. The entire available balance could be withdrawn from the HSA. PRINCIPAL FINANCIAL GROUP ACCOUNT ADMINISTRATION QUESTION ANSWER Who is responsible for HSA administration? Principal Life Insurance Company is the custodian for the HSA, with products and services provided by Principal Bank and Principal Funds. Where are miscellaneous checking account forms located? Miscellaneous forms can be found online at Click on Health Savings Accounts (HSA) Forms for Participants. Where can the interest rates be found for HSAs? Will the claims submitted to an HDHP provider be automatically reimbursed from the HSA? HSA rate information for Principal Bank products is available online at Click on get details on investment options and rates. No. The HSA funds can be accessed only by the participant or an authorized signer. 12

13 Who should people call if they have questions about HSAs and claim processing? Can Principal HSA information be accessed through The Principal Interactive Voice Response (IVR) or Internet? There is no claim processing within the HSA. For claim processing questions regarding an HDHP, the participant should contact the carrier that underwrites or administers his or her HDHP coverage. Yes. You can use the Internet or IVR to access account information for HSAs. Can Principal Bank accept a fax of the enrollment form? ACCOUNT SET-UP No. The original enrollment form must be sent. How does a participant open an HSA with The Principal through his or her sponsor? Where should the Sponsor/Employer Enrollment Form and paper (new and subsequent) participant applications be sent? Please refer to Principal Life publication GP 53808, HSA Employer Checklist, for a complete description. Sponsor HSA enrollment forms should be sent to: Principal Financial Group HSA Processing th Street Clive, IA They can also be faxed to Attn: HSA Processing, or ed to hsaprocessingteam@exchange.principal.com. Can participants HSA enrollment forms be processed before the sponsor sends the HSA Sponsor/Employer Enrollment form and the setup fees, if applicable? Is the process different if a sponsor wants to open a stand-alone HSA? What is included in the Principal HSA welcome kit? Participant applications should be mailed to: Principal Bank P.O. Box 9351 Des Moines, IA No. Principal Bank can not process the participants forms without the Sponsor/Employer form. With the Principal HSA SM, if the sponsor is paying the $25 set-up fee, it will be billed through Direct Connect electronically. If participants are paying the set-up fee, it is due at the time the participants enrollment forms are submitted. No. It is the same process for all forms of HSA. The bank welcome kit includes: Welcome letter* Principal Bank terms and conditions* Bank fee schedule* HSA brochure* Deposit slips Business reply envelopes Privacy notice* Additionally, certificate of deposit (CD) customers receive: CD receipt plus * items above 13

14 Additionally, mutual fund customers receive: Welcome letter Confirmation of funds received Do sponsors receive a welcome kit? How does a sponsor know when new participants have opened their HSAs? Who should participants contact to open an HSA mutual fund account? No. Sponsors receive a phone call from the HSA Customer Center within 72 hours of sponsor account set-up. The Customer Center provides the HSA sponsor account number, sets up login access, explains Direct Connect functionality and provides the unique URL for online enrollment. A sponsor will receive notification each week via e- mail if new participants have been associated to their Direct Connect account. The sponsor can log in to Direct Connect to see which participants accounts can now accept contributions. Participants should call the HSA Customer Center at (800) to request information about purchasing an HSA mutual fund product. How do employers submit their contributions or payroll deductions? Contributions are submitted via Direct Connect, our Web-based administrative tool that allows employers to make HSA contributions electronically. Set-up fees can be paid and participant data can also be managed via this tool. A $2 processing fee applies to any contribution that is not submitted through Direct Connect. PRINCIPAL HSA ACCOUNTS Are Principal Bank accounts FDIC insured? How often does The Principal produce account statements? When is the HSA debit card sent to participants? If the debit card is stolen, what is the owner s liability? Can an Authorized Signer's name be printed on the HSA checks? Yes. Principal Bank HSA options are FDIC insured for CDs and checking accounts. HSA checking account statements are produced monthly. CDs do not have statements. Mutual fund statements are created quarterly. Debit cards should arrive approximately 10 days after the enrollment form arrives at Principal Bank and the account is opened. Per Visa requirements, if the card is reported with 24 hours of loss, the owner s liability is zero. Otherwise, there is a standard liability of up to $50. Liability could be greater than $50 if the card is misused by the cardholder. Yes. 14

15 Will checks be ordered when the Authorized Signer form is received after the account is opened? Is online bill pay available for the HSA? How does it work? Is there a fee to use BillPay? How can additional deposit slips be ordered? Yes, if new checks are requested on the Authorized Signer form. The fee will be deducted from the participant s account. Yes, online bill pay is available. Our BillPay allows participants to pay bills online through Principal Bank. Participants can pay anyone in the United States they would normally pay by check or automatic debit, even if they do not receive billing statements from a company or person they want to pay. There is no additional fee to use BillPay, although each BillPay transaction counts toward the number of transactions allowed per statement cycle. An excess transaction fee is assessed for each transaction exceeding 12 in a cycle. Deposit slips are provided free of charge. To request, call the HSA Customer Center at (800) How much do additional debit cards for the checking account cost? Is there a renewal fee on the debit card? ACCOUNT FEES There is no cost for an additional card, but the maximum per account is two. No. Is there a fee for a lost debit card? How many free withdrawals or distributions are allowed on the checking account? What fees apply to Principal Bank HSA products? Why is sales tax included in monthly service fee and other bank charges? Is there a total cap on the Principal HSA SM $25 per participant set-up fee? Who pays the one-time set-up fee with the Principal HSA SM? Is there an inactive/dormant account fee? How are monthly maintenance fees billed? Yes. The card replacement fee is $10 (plus tax). If the card must be rush delivered, there is an additional overnight delivery fee. Twelve distributions per monthly cycle are allowed. After 12, a $10 (plus tax) per withdrawal fee is charged to the account. Distributions include debit card transactions, checks and online bill pay. A schedule of fees is available in both the welcome kit and online at: Click on Health Savings Accounts (HSA) Forms for Participants. The State of Iowa requires sales tax be charged on certain bank services. No. It is $25 per new account with Principal Bank. Either the participant or the sponsor can pay the fee. The sponsor will determine who pays the fee. No, as long as there is money in the HSA. If applicable, monthly maintenance fees are debited directly from the checking account each month. If an average daily balance of $3,000 or more for the month is maintained, the monthly maintenance fee is waived. 15

16 Can the monthly maintenance fee be paid in an annual lump sum? What is the fee for overdrawing an HSA checking account? No. If a sponsor is paying the fees on behalf of their participants, the fees must be submitted on a monthly basis via Direct Connect. This allows for appropriate processing and reporting. For more information, contact HSA customer service at A $30 fee will be charged to the account and the check will be returned non-paid. The fee is displayed as a Non-Sufficient Fund (NSF) fee. If an HSA is overdrawn due to monthly maintenance fees and the participant requests the account be closed, how is the account handled? What if the participant s account is overdrawn due to an excessive transaction fee? What happens when an HSA checking account has a zero balance? If the account is overdrawn solely because of the monthly service fees, the account will be closed. This type of fee will not be waived. The participant must send funds to bring the account balance to positive. The participant is allowed 30 days to bring the account current before it is closed. The monthly fee continues to be charged and the account will be overdrawn until a deposit is made. How does Principal Bank handle an overdrawn HSA checking account? CLOSING ACCOUNTS The participant receives an overdraft notice. If the account remains overdrawn at month s end, a call is placed to discuss the account status. Accounts overdrawn more than 30 days may be closed and reported to the appropriate credit bureaus. Can a participant close his or her HSA over the phone? Checking accounts, CDs and mutual funds can be closed with appropriate authentication. Is there a fee to close the HSA? Checking accounts no CDs yes, early withdrawal penalties may apply Mutual Funds 1 percent contingent deferred sales charge is deducted from the account if closed in the first 18 months Will a checking account with Principal Bank automatically close due to inactivity? Only if the account has a negative balance due to monthly fee charges. Then the account will close after 60 days of continuous overdraft status. Can a checking account be closed and later reopened? No. An HSA that has been closed cannot be reopened. A new enrollment form and set-up fee, if applicable, would need to be submitted to open a new HSA. 16

17 TAX REPORTING QUESTION What tax forms are provided to participants? What tax forms must participants complete? Can both the above-the-line deduction for an HSA and the itemized deduction for medical expenses be claimed? ANSWER Form 5498-SA shows HSA contributions and is provided by May 31 of the year following contributions. Form 1099-SA shows distributions and is provided by January 31 of the year following distributions. Employer contributions are also shown in box 12 of Form W-2, Wage and Tax Statement, with Code W. All contributions and distributions must be reported on Form 8889 and filed with Form 1040, even if the only contributions to the HSA are made by another party. No. If HSA contributions are deducted above-theline one cannot also deduct the contributions as a medical expense as defined under Section 213(d). If employers make HSA contributions through payroll deduction, is there a line item on the IRS W-2 form? Yes Box 12, Code W ADDITIONAL SOURCES OF INFORMATION WE'LL GIVE YOU AN EDGE Principal Life Insurance Company Des Moines, Iowa This material is a summary of HSAs. It is not a complete statement of the provisions or requirements of HSAs. It is intended to provide accurate and authoritative information in regard to the subject matter covered. The accuracy of the information is not guaranteed and is provided with the understanding that The Principal is not rendering legal, accounting, or tax advice. While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is not a marketing opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax or accounting obligations and requirements. Future guidelines and clarifications from the IRS may modify the information provided in this summary. Custodial services for HSAs offered by Principal Life Insurance Company. Bank products and services provided by Principal Bank, Member FDIC, Equal Housing Lender. HSA monies held in a Principal Bank account are FDIC insured. Securities offered through Princor Financial Services Corporation, 800/ , member SIPC. Principal Funds distributed by Principal Funds Distributor, Inc. HSA monies held in a mutual fund account are not FDIC insured, have no bank guarantee and may lose value. Principal Life, Principal Bank, Principal Funds Distributor and Princor are members of the Principal Financial Group, Des Moines, IA BZ / Principal Financial Services, Inc. 17