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DOL: Employer HSA Contributions Generally Are Not Earnings Subject to Consumer Credit Protection Act Wage Garnishment Limits
Practical Law Legal Update w-022-0095 (Approx. 5 pages)
DOL: Employer HSA Contributions Generally Are Not Earnings Subject to Consumer Credit Protection Act Wage Garnishment Limits
by Practical Law Labor & Employment
| Published on 13 Sep 2019 • USA (National/Federal) |
The Department of Labor's (DOL's) Wage and Hour Division (WHD) has issued an opinion letter addressing the interaction of health savings accounts (HSAs), which are permitted under the Internal Revenue Code, and the Consumer Credit Protection Act (CCPA). The WHD concludes in its letter that employer contributions to employees' HSAs generally are not earnings for wage garnishment purposes under the CCPA.
On September 10, 2019, the DOL's Wage and Hour Division (WHD) issued Opinion Letter CCPA2019-1, which provides that an employer's contributions to employee health savings accounts (HSAs) are not "earnings" as defined by the Consumer Credit Protection Act (CCPA).
As background, HSAs are tax-favored accounts similar to IRAs that:
- Are governed by Section 223 of the Internal Revenue Code (26 U.S.C. § 223).
- Can be contributed to on behalf of certain eligible employees who are covered by high-deductible health plans (HDHPs).
- Can be used to pay for qualified medical expenses.
For more information on HSAs and related compliance considerations, see Practice Note, Defined Contribution Health Plans: Overview: Health Savings Accounts (HSAs).
The opinion letter request, submitted by a human resources consulting firm, noted that:
- Many employers have established HSAs for their employees.
- Some of those employers are treating HSA contributions as earnings under the CCPA and may be exceeding CCPA limits in calculating wage garnishments as a result.
(Regarding who can make HSA contributions and annual HSA contribution limits, see Practice Note, Defined Contribution Health Plans: Overview: HSA Contributions and Legal Update, TCJA Changes Reflected in IRS 2019 COLAs for Health and Welfare Plans: HSA Limits for 2019.)
The WHD stated in its letter that HSA contributions that are already part of an HSA account are past the point when they can be withheld or garnished by an employer. These amounts therefore are similar to earnings deposited into a bank account (and the WHD has previously indicated that the CCPA does not apply to these bank accounts). As a result, the WHD concluded that the CCPA does not apply to employer HSA contributions that already have been received by an employee's HSA account.
By contrast, the WHD determined that HSA contributions that are still in an employer's possession (but are about to be paid into an HSA) are conceivably subject to the CCPA's garnishment limits. However, the WHD concluded that even employer HSA contributions in an employer's possession are not earnings for CCPA purposes. The WHD reasoned that:
- Unlike wages, salaries, commissions, and bonuses, HSA contributions generally do not vary in proportion to the amount or value of an employee's services. (The WHD's guidance does not expressly reference the Code's comparability guidance regarding employer contributions to HSAs (see Practice Note, Defined Contribution Health Plans: Employers Must Make the Same Contribution to Comparable Employees).)
- The CCPA is intended to protect funds as they pass from an employer to an employee, whereas HSA contributions are:
- made to a trust; and
- not part of an employee's take-home pay.
- An employer's HSA contributions on an employee's behalf are not available to the employee (and, once deposited to the HSA account, remain subject to use restrictions involving qualified medical expenses (see Practice Note, Defined Contribution Health Plans: Overview: HSA Reimbursement Restrictions Under the ACA)).
The WHD concluded that employer HSA contributions are not earnings under the CCPA and are not subject to the CCPA's garnishment limits, provided that an employer does not:
- Determine its HSA contributions based on the amount or value of an individual employee's services.
- Give employees an option of receiving cash instead of an employer contribution.
Although HSAs are governed by the Code and the Internal Revenue Service (IRS) routinely issues guidance addressing HSA contributions, the WHD did not indicate in its letter whether it coordinated with the IRS (or the DOL's Employee Benefits Security Administration (EBSA)) regarding the opinion letter's conclusions.