More DOL Guidance on Health Savings Accounts and ERISA: Employers and Administrators' Rights

• Employers may open HSAs for employees without an employee's prior consent, and such "nonvoluntary" establishment of an HSA will not violate the earlier DOL advice that the establishment of an HSA must be "completely voluntary" by the employee.

• Employers offering high-deductible health plans may limit the number of HSA providers without causing the HSA to become an ERISA plan. To do so the employer may rely on the group health insurer exemption outlined in DOL regulations, which prohibits the employer from contributing to the HSA or from "endorsing" the HSA operator, but permits the employer to discuss the benefits of HSAs in general. Alternatively, the employer could rely on earlier guidance in FAB 2004-01, which requires completely voluntary employee participation in the HSA, but permits the employer to limit the number of HSA marketers in the workplace.

• An employer will not be treated as influencing HSA investment decisions merely because the employer selects an HSA provider that also provides some of the employer's 401(k) plan investment options.

• The fact employee contributions to an HSA through an IRC § 125 cafeteria plan save the employer FICA and FUTA taxes will not be treated as "compensation received in connection with an FSA."

• The employers' payment of HSA fees will not convert the HSA into an ERISA plan.

• An HSA provider may offer those same HSAs to its own employees without creating an ERISA plan with respect to those HSAs.

• An employer who does decide to limit the number of HSA vendors to which it will forward employee contributions cannot accept discounts on other products from those selected vendors.

• The DOL emphasized the fact the Medicare Modernization Act, which created HSAs, specifically provides that HSAs are subject to the "prohibited transaction" rules contained in IRC § 4975. Consequently, even though certain actions would not be challenged by the DOL or an HSA might not be treated as an ERISA plan by the DOL fiduciary rules, prohibited transactions are subject to sanctions by the IRS.

• Class prohibited transaction exemptions issued for IRAs do not apply to HSAs.

• An HSA vendor may offer a cash incentive to a prospective HSA holder without creating a prohibited transaction, so long as that incentive is deposited in the HSA.

• HSA vendors may provide a line of credit for HSA expenses in credit card situations, but these arrangements will be subject to a "facts and circumstances" test. The FAB specifically states, "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."

If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Laura Morrison 202.879.5653, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Carlisle Toppin 202.220.2067, Tom Veal 312.946.2595, Deborah Walker 202.879.4955.

Copyright 2006, Deloitte.

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