Fiduciary Rule Applies To Health Savings Accounts

By Susan RupeInsuranceNewsNet

The Department of Labor (DOL) fiduciary rule does not apply only to products such as annuities. The rule also applies to health savings accounts (HSAs).

An alert sent out by The Wagner Law Group states that those who provide advice on HSAs may be considered fiduciaries subject to the DOL rule if their communications rise to the level of investment recommendations.

The DOL rule generally defines “investment advice” to include the following:

Recommendation to buy, sell hold or exchange investments or how to invest assets rolled over, transferred or distributed from a retirement plan or individual retirement account (IRA).
Recommendations concerning the management of retirement plan or IRA assets or rollovers, transfers, or distributions from a retirement plan or IRA.

In its rule, the DOL included HSAs in its definition of IRAs. In doing so, the DOL determined that HSAs have associated investment accounts that can be used as long-term savings accounts for retiree health care expenses, and that HSA account holders are entitled to receive the same protection as IRA owners.

Phase one of the DOL rule took effect June 9. It requires advisors and agents to act as fiduciaries, make no misleading statements and accept only “reasonable” compensation.

HSAs are individually owned accounts that are typically structured so that they are not employee welfare benefit plans subject to the Employee Retirement Income Security Act (ERISA) and its compliance requirements, according to the Society for Human Resource Management (SHRM).

However, the DOL rule covers advice offered to participants in non-ERISA plans, including IRAs and HSAs.

HSAs and Retirement

Where HSAs meet retirement advice has much to do with the “triple-tax free” treatment of HSA contributions, SHRM said.

HSA contributions are free of federal and state income taxes and FICA taxes in most states. In addition, money earned through HSA investments is not taxed, and there is no tax on funds withdrawn to pay for qualified medical expenses.

As a result of this “triple tax preference,” some individuals might find using an HSA to save for health care expenses in retirement to be more advantageous from a tax perspective than saving in a 401(k) plan or other retirement savings plan, the Employee Benefit Research Institute (EBRI) reported.

HSAs often have an investment account option that allows their owners to invest in mutual funds and other investment vehicles much like they would in a 401(k) plan, EBRI said.

Employers may be impacted by the final rule if they: 1) provide investment advice to their employees concerning HSAs, or 2) benefit from such advice being given to their employees (such as revenue sharing in connection with a specific HSA investment, or compensation for directing employees towards a particular HSA vendor).

HSA mutual fund options charge annual fees and also may charge separate fees to administer the account. This could result in possible conflicts of interest can arise, and trigger liability under the DOL rule.

In a new white paper, HSA Bank, a large administrator of HSA plans, described how the DOL rule can affect employers who contract with HSA services firms. Alternatively, health insurers that administer the employer's HSA-eligible high-deductible health plan may contract with an HSA firm. In either case, the employer typically funds these accounts by transmitting employer contributions and workers’ own salary deferred dollars to the HSA administrator.

"Employers may be impacted by the [DOL's fiduciary] rule if they provide information to their employees about HSAs that crosses the line from general investment education to investment advice, or if they benefit in some way from the advice being given," said Kevin Robertson, a senior vice president at HSA Bank and the white paper's author, told SHRM.

Ways that employers could “cross the line” might include "the employer receiving revenue sharing in connection with specific HSA investments suggested by financial planning tools it provides, or an employer receiving bonuses for steering employees toward particular HSA vendors. Most employers in those situations are likely to want to scale back those activities or revise their compensation arrangements."

But general information on HSA investment lineups that the employer makes available or communicates without endorsement, and over which the employer has no say, should not be subject to the DOL rule, Robertson said.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].