Tactic to bolster HSA participation some companies don’t use

November 3, 2011 by Christian Schappel

Consistently encouraging employees to contribute to a health savings account (HSA) will only go so far. The best way to max out HSA participation rates is to stress its effectiveness as a retirement tool.

Here’s one thing many employees don’t know about HSAs: The funds left in them are not lost, they continue to grow.

The best way to relay that message to employees: Tell them HSAs work just like a 401(k), but with one big advantage — the tax-deferred funds that are put into the HSA can be withdrawn tax free when used to pay for qualified healthcare expenses.

And if a withdraw is made for another reason — say to pay for food, housing or a vacation — the money is taxed the same as a 401(k) withdrawal.

Now if employees wanted to use money from a 401(k) or IRA to pay for medical expenses, that money will be taxed as income by the IRS.

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IRS sets 2012 benefits limits

The Internal Revenue Service’s cost-of-living adjustments affecting dollar limitations for defined contribution and pension plans have been released. The IRS also made a few other changes employees will need to know about.

The 2012 retirement plan limits:

• 401(k), 403(b) and 457 plan deferrals. The largest annual contribution an employee can make through salary deferrals has increased to $17,000. That’s up from $16,500 in 2011.
• Catch-up contributions. The catch-up contribution limit for those 50 and older is unchanged at $5,500.
• Maximum contributions. The limit on what can be added to a defined contribution plan will increase to $50,000 from $49,000.
• Maximum pension benefits. The limit on the annual benefit under a defined benefit plan will increase to $200,000 from $195,000.

Other key changes

Two other changes employers need to be aware of:

• Definition of a highly compensated employee. The earning threshold used in the definition of a highly compensated employee has been increased to $115,000 from $110,000.
• Benefits calculation. The amount of employee compensation that can be considered in calculating pension benefits and compensation to plans will rise to $250,000 from $245,000.

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