Fiduciary Reforms Will Impact Expanding HSA Market

Chad Wilkins, president of HSA Bank, and Kevin Robertson, senior vice president, recently sat down with PLANADVISER to talk about their expectations for health care reform and other hot-button items on the policy agenda in Washington.

The pair had some important commentary to share regarding the implementation of the Department of Labor (DOL) fiduciary rule and related exemptions. It is surely common industry knowledge by now that the DOL rulemaking has greatly expanded the number of advisers and investment/recordkeeping service providers deemed fiduciaries under the Employee Retirement Income Security Act (ERISA). But the pair warned the rules apply not only to traditional retirement products such as 401(k)s, but also to health savings accounts (HSAs).

“This fact has generated no small about of confusion and concern among employers who make HSAs available to their employees,” Wilkins suggests. “While HSAs aren’t normally thought of as a retirement vehicle, the DOL broadened the scope of the rules to include these plans due to their long term savings and investment aspects.”

Wilkins and Robertson feel the jury is actually still out regarding the question of whether the employers will become fiduciaries to their HSA-using employees. Advisers making investment recommendations for individuals using HSAs will likely take on some new level of fiduciary responsibility, they expect, but as it pertains to an employer’s own fiduciary exposure, the general consensus within the industry is that the new regulations “probably do not automatically require employers offering HSA plans to be considered fiduciaries.”

As is commonly the case in examining ERISA standards, any given employer’s fiduciary exposure will depend on the particulars of their HSA programming and to what degree they offer advice versus education.

“This is one of the first questions an employer will need to answer for their HSA plan as the DOL rules come into play,” Robertson says. “There may be no technical or legal responsibility of an employer to act as a fiduciary for their HSA plan, but we strongly recommend that employers implement certain features of ERISA best practices, to mitigate risk for themselves and their employees.”

NEXT: Fiduciary management of HSAs 

“While ultimately the steps taken to ensure compliance with the rules will be unique to each employer group, there are some foundational components of the rules that hold true in many cases,” Wilkins says. “Additionally, there are some requirements that apply to all employers, regardless of whether they are a fiduciary or not.”

At a high level, the themes of fiduciary compliance within HSA programs will be very similar to those applying to defined contribution (DC) plans and individual retirement accounts (IRAs):

• Know and understand the structures of fees within the plan, and specifically the flow of money with regard to what and how providers get paid within the program;
• Take appropriate measures to ensure that the fees charged to participants within their program are reasonable and fully disclosed;
• Review their education and communication materials and practices to ensure that they are appropriate and do not constitute investment advice or direct recommendations;
• Potentially make changes to the investment (or vendor) options within their plans, as prudence requires; and
• Potentially initiate new contracts or addendums with vendors as a result of the above impacts.

“The four main areas of concern are account structures, appropriate fees and disclosures, investments, and communication and educational materials,” Wilkins explains. “Again, even if an employer is not a fiduciary, we encourage all groups to understand these same concerns and take them under advisement in the evaluation and delivery of their own plans.”

Wilkins and Robertson further recommend employers learn the answers to these questions: “Where are the funds located, and how are they being protected? Are they FDIC insured? What criteria is the vendor using to vet the banks or insurance companies that hold cash, and how often are they being evaluated? What safeguards are in place to ensure the recordkeeping and the assets balance for each participant? What notice is provided when funds are moved among banks or annuity contracts?”

“At first glance, this list of questions may appear to be too detailed, but even if an employer is not a fiduciary under the rule, most will want to perform due diligence on their vendors, and arrive at a determination that their vendors are acting in the best interest of their employees,” Wilkins concludes.

NEXT: New responsibilities are manageable 

“At first glance, this may sound a bit daunting for employers,” Robertson admits. “However, it really isn’t a far stretch from the current processes that most employers undertake in the planning, selection, and delivery of their retirement and benefit programs. The fiduciary rule will require new disclosures. Employers should take full advantage of that information in the vendor selection process.”

Another piece of practical advice is that HSA custodians, “or any vendor for that matter,” should be happily providing the necessary information to the employer so that they can effectively manage their vendor selections and program delivery. Robertson encourages employers to be aggressive in their demands for clarity, transparency and consistency from vendors.

“We also highly recommend that employers engage their own counsel to help with the overview and compliance of their entire retirement and benefit plans, but there should be plenty of support made available from reputable vendors,” he concludes. “Vendors should have systems to provide the necessary information, including full disclosure of account structure, fees, investments, and all elements of their product offering. From there, the employer should be able to quickly and accurately make determinations on the compliance of their plans.”

Additionally, employers may want to review their formal agreements with their vendors. The changes and requirements associated with the expanded fiduciary rule may necessitate either new contracts or addendums in contractual language.

“With all of this in mind, employer oversight of HSA plans should be an easily accomplished task.”