CCPA2019-1 — Whether employers' contributions to employees' health savings accounts are earnings under the CCPA

U.S. Department of Labor
Wage and Hour Division
Washington , DC 20210
CCPA2019-l
September 10, 2019
Dear Name*:
This letter responds to your request for an opinion concerning whether employers' contributions
to employees' health savings accounts (HSAs) constitute earnings for wage garnishment
purposes under the Consumer Credit Protection Act (CCPA). This opinion
is based exclusively
on the facts you have presented. You represent that you do not seek this opinion for any party
that the Wage and Hour Division (WHO)
is currently investigating or for use in any litigation
that commenced prior to your request.
BACKGROUND
You request an opinion regarding employer HSA contributions on behalf of a firm that provides
human resources services to employers on matters such as payroll, time, and attendance. Section
1201 of the Medicare Prescription Drug Improvement and Modernization Act of2003 amended
the Internal Revenue Code to allow a deduction for the amount paid to an HSA by or on behalf
of an individual covered by a high-deductible health plan. 26 U.S.C. § 223. An HSA is a "trust
created
... exclusively for the purpose of paying the qualified medical expenses of the account
beneficiary."
Id. at§ 223(d). The Internal Revenue Code establishes requirements for the trust
and the trustee.
Id. at§ 223(d)(l). HSAs allow employees to set aside some of their pay pretax
to cover future medical expenses. Employers may also contribute to an employee's account.
HSAs allow rollover
of unused contributions, portability ofaccounts, and tax-free interest among
other benefits.
1
Your letter states that an HSA belongs to the employee, explaining that the
employer has no further control over the account after it has been funded.
You state that you understand many employers have established HSAs for their employees and
that some employers are treating contributions that they make to HSAs as earnings under the
CCPA. You note that
in doing so, particularly in regard to employees with higher disposable
earnings, employers may ultimately
be "exceeding CCPA limits in calculating wage
garnishments." Due to your concern that wage garnishments are possibly being "withheld
in
error and in excess of CCPA limits," you request guidance on whether employer contributions to
an employee's HSA qualify as earnings under the CCPA.
1
See 26 U.S.C. § 223; see also U.S. Bureau of Labor Statistics, "Pretax Benefits: Access to Section 125
Cafeteria Benefits and Health Savings Accounts in the United States, Private Industry," available at
https ://www.bls.gov/ opub/m Ir/ c wc/pretax-benefits-access-to -secti on- 125-cafoteria-benefi ts-and-hea I th­
savi ngs-accounts-i n-the-un ited-states-pri vate-i ndustry. pdf (Mar. 28, 2007).

GENERAL LEGAL PRINCIPLES
The CCPA limits the amount ofa debtor's disposable earnings that may be garnished. See 15
U.S.C. § 1673.
2
The CCPA defines "disposable earnings" as "that part ofthe earnings ofany
individual remaining after the deduction from those earnings
of any amounts required by law to
be withheld."
15 U .S.C. § 1672(b ). "Earnings" are "compensation paid or payable for personal
services, whether denominated as wages, salary, commission, bonus,
or otherwise, and includes
periodic payments pursuant to a pension
or retirement program." 15 U.S.C. § 1672(a).
OPINION
Based on the information provided, employer contributions to HSAs are not earnings under the
CCPA and are therefore not subject to the CCPA's garnishment limitations.
As an initial matter, contributions that are already in a HSA are past the point when they may be
withheld
by or garnished by an employer. They are similar to earnings that have been deposited
into a bank account.
In that regard, WHD has opined that "[t]he CCPA does not apply to an
employee's bank accounts comprised of earnings already received by the employee." WHD Op.
Letter CCPA2005-1NA, 2005 WL 6133123,
at *2 (July 27, 2005) (citing Long Island Trust Co.
v. US. Postal Serv., 647 F.2d 336,342 (2d Cir. 1981); Guidry v. Sheet Metal Workers Int'!
Ass '
n, 10 F.3d 700, 715 (10th Cir. 1993)); see also Field Operations Handbook§ 16al0. The
same is true
of a HSA containing an employer's contributions; thus, as the CCPA does not apply
to contributions already received
by the account, they are not subject to the CCPA's garnishment
limitations.
When a
HSA contribution is still in the employer's possession and is about to be paid to the
account, it could be subject to the
CCPA's limits on garnishment. In order to determine whether
it is, one must determine whether employers'
HSA contributions constitute "earnings." As
noted, the
CCPA defines "earnings" as "compensation paid or payable for personal services." 15
U.S.C. § 1672(a). Accordingly, in resolving this issue "the central inquiry for WHD is whether
the employer
paid the amount in question for the employee's services." WHD Op. Letter
CCPA2018-1
NA at 4 (Apr. 12, 2018).
3
In determining whether certain payments are earnings
under the CCPA, WHD has generally compared the nature
ofthose payments to wages, salaries,
commissions,
and bonuses.
4
2
The CCPA defines "garnishment" as "any legal or equitable procedure through which the earnings of
any individual are required to be withheld for payment ofany debt." 15 U.S.C. § 1672(c).
3
The CCPA gives four examples of what is meant by compensation for personal services, defining
earnings as "compensation
... whether denominated as wages, salary, commission, bonus, or otherwise."
15 U.S.C. § 1672(a). The CCPA also identifies "periodic payments pursuant to a pension or retirement
program" as
an example ofearnings. Id.
4
See WHO Op. Letter CCPA2018-INA at 4-5 (Apr. 12, 2018) (comparing certain lump sum payments to
wages, salaries, commissions, and bonuses
in determining whether the payments are earnings under the
CCPA);
WHO Field Assistance Bulletin No. 2016-3 at 3-5 (Nov. 30, 2016) (comparing disability
payments
from employment-based disability plans to wages and salaries in determining that the payments
are earnings under the CCPA).
2

There are two characteristics of wages, salaries, commissions, and bonuses that distinguish them
from employers' contributions to HSAs. First, wages, salaries, commissions, and bonuses relate
in some degree to the amount or value ofan employee's services. They normally reward
employees for their accomplishments, their amount
or length ofservice, or their contributions to
the enterprise. The information you provided indicates that the amounts employers contribute to
employees' HSAs do not vary
in proportion to the amount or value ofemployees' personal
services. Indeed, there are restrictions on the extent to which they may do so.
See 26 U.S.C.
§ 4980G; 26 U.S.C. § 125(b);
26 C.F.R. § 54.4980G-l, et seq. Our understanding is that
employers annually determine the amounts
oftheir contributions prior to the beginning ofthe
plan year
or agree to match employees' contributions up to fixed amounts. Thus, while an
employer contributes to an
employee's HSA because an employment relationship exists between
them, it
is not doing so to compensate the employee directly for the amount or value of his or her
services. Second, the examples
ofcompensation specified in the definition indicate that the
CCPA "is meant to protect funds as they pass from the employer to the employee." United
States
v. Laws, 352 F. Supp. 2d 707, 713 (E.D. Va. 2004).
5
In contrast, an employer's HSA
contributions are made to a trust, 26 U.S.C. § 223(d), and are not part ofthe employee's take­
home pay. In addition,
we assume that the contributions are not available to the employee before
they are made to the trust account. The employee
may not use the funds in the trust for anything
other than qualified medical expenses without subjecting the funds to income tax and a penalty.
Id. at§ 223(f)(l), (4).
For these reasons and based on
our understanding ofthe characteristics of HSAs, employer
contributions to HSAs are
not earnings as defined by the CCPA. Generally, as long as an
employer does not determine its HSA contributions on the basis
ofthe amount or value of
individual employees' services and does not give employees an option ofreceiving cash in lieu
ofan employer's contribution, the employer's contributions to an HSA are not earnings under
the
CCPA and are not subject to the CCPA's garnishment limitations. Therefore, the employer
should not include its
HSA contributions when calculating the employee's disposable earnings
for purposes
ofdetermining the maximum amount ofan employee's pay that may be garnished
under the CCPA.
We trust that this letter is responsive to your inquiry.
Sincerely,
~\~5~
Cheryl M. Stanton
Administrator
*Note: The actual name(s) was removed to protect privacy in accordance with 5 U.S.C.
§ 552(b)(7).
5
This is consistent with the CCPA's purposes of"avoid[ing] the necessity ofbankruptcy" and protecting
payments that "support the wage earner and
his family on a week-to-week, month-to-month basis."
Kokoszka v. Belford, 417 U.S. 642,651 (1974).
3