Health savings accounts are
swelling in popularity, and their growth could accelerate, depending on the fate of health-care changes currently being debated on Capitol Hill.
Retirement plan advisers have
taken notice: Observers say that lawmakers'
suggested HSA changes, which include doubling the contribution limit, expanding the list of qualified medical expenses and reducing the early withdrawal penalty, could make them competitive with 401(k)s as a workplace retirement savings vehicle.
And while HSAs generally are not subject to the Employee Retirement Income Security Act of 1974, a federal law establishing protections for participants in certain health and retirement plans like 401(k)s, employers could structure an HSA in such a way that they inadvertently subject the accounts to ERISA.
Not coming under ERISA allows employers to avoid assuming fiduciary duty with regard to their HSAs, as well as dodge some compliance responsibilities like filing a Form 5500, providing a written plan document and summary plan description, and following Department of Labor claims procedures.
Advisers can help their employer clients avoid ERISA's grasp by ensuring the employer doesn't exercise too much control over the HSA, which is generally how employers get into trouble, said Roberta Watson, a partner at The Wagner Law Group.
Here are a few tips advisers working with HSAs can pass on to employers to help them steer clear of ERISA.
Don't impose conditions on asset use.
Imposing certain HSA restrictions shows a level of employer involvement and ownership, said Brian Murray, a partner at the law firm Baker & Hostetler.
Employers should avoid specifying which medical situations qualify for use of HSA funds. They may otherwise inadvertently impose conditions on the HSA beyond those required by law. This concept may trip up employers, since they sometimes impose these limitations with another type of health account (health flexible spending arrangements, which are often subject to ERISA), Mr. Murray said.
Don't limit HSA choice.
Employers also shouldn't limit the ability of employees to move funds to another HSA. One condition of the ERISA exemption for HSAs is employees' complete control over the account, and their ability to move funds to a different account with a different custodian and investment manager, Ms. Watson said.
Employers may make this mistake due to different motivations, such as keeping money in one asset pool to build scale and drive down costs, Ms. Watson said.
Don't influence investment decisions.
Employers also shouldn't make or influence investment decisions with respect to funds contributed to an HSA. Rather, they should be a conduit of information and facilitate the transfer of account contributions, Mr. Murray said.
Limiting the forwarding of contributions through the payroll system to a single HSA provider wouldn't subject an employer to ERISA. However, it is important that the employer not "endorse" the HSA provider. Doing so risks violating the ERISA exemption, according to Ms. Watson.
Employers and advisers may also structure an HSA so it has the same investment options as the 401(k) plan. However, the HSA only avoids ERISA coverage if employees are "afforded a reasonable choice" of options and are not limited in moving funds to another HSA, Ms. Watson said.
Be careful with designation and compensation.
Employers shouldn't represent that HSAs are an employee welfare benefit plan established or maintained by the employer.
Creating a document saying the health account is provided by the employer would "probably go a long way toward ERISA coverage," Mr. Murray said.
"We always counsel employers not to get involved in the HSA as far as administration is concerned," he said.
The employer also must not receive any payment or compensation in connection with an HSA.
Employee HSA coverage must be voluntary.
Employers may open an HSA for an employee, and deposit employer funds into it, even without the employee's express consent, and still not violate this requirement. But employees must not be inhibited from moving or withdrawing funds.
