Employers can take many commonsense steps without accidentally turning a health savings account program into an “ERISA plan,” but they should be careful about accepting any kind of compensation, including discounts on non-HSA services, from HSA vendors.
Robert Doyle, director of regulations and interpretations at the Employee Benefits Security Administration, an arm of the U.S. Department of Labor, has given that advice in a new batch of EBSA HSA questions and answers.
EBSA has published the guidance in EBSA Field Assistance Bulletin Number 2006-02, a document aimed at Labor Department field investigators who deal with employer-sponsored HSAs.
Many employers are eager to avoid subjecting HSA programs to the many requirements of the Employee Retirement Income Security Act.
EBSA announced in the first batch of HSA guidance, released in 2004, that HSA program sponsors could avoid coming under ERISA requirements.
To stay clear of ERISA, HSA program sponsors must be careful not to require employees to contribute to the plans or limit employees’ ability to move funds from one HSA to another.
Sponsors of non-ERISA HSA programs also must refrain from interfering with employees’ HSA investment decisions, describing their HSA programs as employee welfare benefit plans, or receiving payments or compensation in connection with the HSA program.
Many responses in the new field bulletin elaborate on the procedures employers must or must not take to keep HSA programs out of the scope of ERISA.
Simply paying employees’ HSA account fees or limiting the number of HSA vendors that can market their services at the employer’s worksite will not turn an HSA program into an ERISA plan, Doyle writes.
An HSA vendor can offer its own HSA product to its own employees without coming under the provisions of ERISA, and a vendor can attract HSA business by putting cash incentives into the HSAs, Doyle writes.
Doyle also has blessed the practice of using debit, credit and stored-value cards to link HSA funds with a credit line.
Under IRS rules, “an account beneficiary may not borrow or pledge the assets of the HSA or receive a benefit in his or her own individual capacity as a result of opening or maintaining an HSA because such a transaction would constitute a prohibited transfer to or use of the HSA assets by or for the benefit of the account beneficiary,” Doyle writes.
However, “a prohibited transaction would not result merely from an HSA accountholder directing the payment of HSA funds to the credit line vendor to reimburse the vendor for HSA expenses paid with a credit card,” Doyle writes.
But, Doyle says there are limits on what employers and HSA vendors can do.
Simply offering employees easy access to one HSA provider that offers one single investment option “would not, in the view the department, afford employees a reasonable choice of investment options,” Doyle warns.
Doyle also warns employers against creating a list of favored HSA vendors, then getting discounts from those vendors on non-HSA services in return for sending them the HSA business.
“In the department’s view, receiving a discount on another product from an HSA vendor selected by the employer would constitute the employer receiving a ‘payment’ or ‘compensation’ in connection with an HSA,” Doyle writes. “In the department’s view, the arrangement would also give rise to fiduciary and prohibited transaction issues.”
Employers also must abide by the HSA contribution-handling rules spelled out in Section 4975 of the Internal Revenue Code.
Even though an HSA program is not necessarily an employee benefit plan subject to the Employee Retirement Income Security Act, “the Medicare Modernization Act specifically provided that HSAs will be subject to the prohibited transaction provisions in Section 4975…,” Doyle writes. “As a result, employers who fail to transmit promptly participants’ HSA contributions may violate the prohibited transaction provisions of section.”