What employers should know to avoid an ERISA application to an HSA

With the increase in Health Savings Accounts (HSAs), the Department of Labor has seen an increase in questions. As a result, the DOL recently issued Field Assistance Bulletin (FAB) 2006-02, which clarifies the Department’s prior guidance (FAB 2004-01) on how employers can avoid ERISA application to HSAs made available to employees who participate in high deductible health plans (HDHPs).

Employers will typically want to avoid ERISA application because ERISA plans have additional compliance obligations, like summary plan descriptions (SPDs), 5500s, COBRA and HIPAA.

Under FAB 2006-02, employers may undertake the following actions and still avoid ERISA application:

• Open an HSA for an employee, without individual consent, and deposit employer funds into the HSA. This practice would not give rise to an ERISA covered plan.
• Limit the HSA providers who can market their HSA products in the workplace or provide employees with general information on using an HSA with an HDHP, on condition that the employer does not “endorse” a particular HSA provider or program.
• Select an HSA provider that limits investment options, even if such a limitation matches those options available in the employer’s 401(k) plan, as long as employees have a reasonable choice of investment options and are not limited in moving their funds to another HSA.
• Reap the gains from FICA and FUTA savings for contributions made under a cafeteria plan.
• Pay administrative fees associated with the HSA.
• Offer an HSA product that the employer also offers to the public.
• Permit the HSA provider to offer an incentive to individuals who establish an HSA by depositing cash directly into the individual’s HSA.

Conversely, employers who undertake the following actions will have ERISA application:

• Receive a discount on another product offered by the HSA provider in exchange for HSA participation by its employees. This would be considered a prohibited transaction.
• Fail to promptly transfer participants’ HSA contributions that have been deducted from their paychecks. The DOL did not define “promptly.” This would be considered another prohibited transaction.
• Provide a line of credit with an HSA where the participant borrows from or pledges HSA assets to receive a benefit. Once again, this would be considered a prohibited transaction. However, the DOL did allow that a mere line of credit to which a participant could direct HSA funds to reimburse HSA expenses paid by credit card would be acceptable. Ultimately, whether such an arrangement is permissible would be a facts and circumstances determination.

Some employers may be surprised that prohibited transactions – an ERISA concept – apply to HSAs. The law that created HSAs (the Medicare Modernization Act) specifically provides for this. The DOL further explained how the prohibited transaction rules apply to HSA administration.

To better serve you, we have made FAB 2006-02 available on our website at www.benefitsolved.com/benefit_resources/docs/DOL_Field_Assist_Bull_2006-2_HSA.pdf. If you have any questions about HSA administration offered through Infinisource, please contact our Sales Team at: 800-779-6384.

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