HSAs and the ERISA Fiduciary Rule: What Employers Should Know
With the fate of health care reform—and its repeal and/or replacement—up for grabs in Washington, there is a health-related compliance item outside of health care reform that should be on employers’ radars: health savings accounts (HSAs) and the new Employee Retirement Income Security Act (ERISA) fiduciary rule.
We have previously kept you apprised concerning the evolving saga of the ERISA fiduciary rule, the Best Interest Contract Exemption (BICE), and other related exemptions in a series of posts. As you likely know, post-inauguration, this hotly-debated and controversial rule and its exemptions largely became effective June 9, 2017 (with a transition period extending through year-end).
At this stage, most employers and plan sponsors have engaged in dialogue with their retirement plan investment advisors and recordkeepers to understand what is being done to comply with the rule. However, employers offering HSAs, the custodial accounts that can be paired with high deductible health plans (HDHPs) to gain significant tax benefits, should not turn a blind eye to this rule.
Discussing the ERISA fiduciary rule in context of HSAs may seem surprising or bizarre given that HSAs are generally not plans governed by ERISA. These accounts are employee-owned (no “use it or lose it” applies) and not employer-sponsored. That said, the Department of Labor has taken the position that an HSA should be treated like an Individual Retirement Account for purposes of the ERISA fiduciary rule, given that its investment accounts may be used as savings accounts for retiree health care expenses. Depending upon the level of involvement an employer has with the HAS, including whether the employer offers or actively facilitates the provision of investment recommendations/advice on the HSA investments or receives a benefit (including revenue sharing) from an HSA vendor or investment, ERISA’s expanded fiduciary rule could come into effect.
At a minimum, an employer who offers a HDHP and facilitates HSA contributions should consider whether its involvement could trigger ERISA fiduciary status. This undertaking could involve reviewing HSA vendor agreements and related practices touching investments. Even if it is determined that the employer is unlikely to be a fiduciary for its HSA plan, an employer may still benefit from implementing certain features of ERISA best practices to mitigate risk for their organization and employees during this transition time period.