Although employer-provided high-deductible health plans are subject to ERISA, the associated HSA offered to employees is generally not, as long as the employer limits its involvement with the HSA, explained panelists at PLANSPONSOR’s 2023 HSA Conference.
“It’s very important that these requirements be followed strictly, because if [plan sponsors] slip up and do not comply with one of them, you are stepping into ERISA territory,” said Carol Buckmann, partner at Cohen and Buckmann PC.
Employers have turned to offering HDHPs to limit the costs of health insurance, and an HSA is often paired with the HDHP as an additional benefit for employees.
Appropriate plan sponsor use of the HSA benefit requires employers to observe several “special rules that have been promulgated by the Department of Labor” to limit involvement with the HSA so that it will not be treated as an ERISA plan, Buckmann explained.
For HSA providers and plan sponsors, it is not in the best interest of either to be regulated under ERISA, added Buckmann.Plan sponsors and vendors regulated under ERISA “are going to have difficulty finding an administrator who will take on an HSA plan that is subject to ERISA, [because] … they know that’s a lot more exposure,” Buckmann said.
The DOL and IRS rules must be followed by plan sponsors to limit involvement with the HSA, preventing the greater oversight, paperwork and regulation that would be required under ERISA.
Proper plan sponsor HSA use requires employee participation to be voluntary, although employers may use automatic enrollment; employers cannot limit the ability of employees to transfer assets to different HSA administrators; employers cannot limit the use of HSA funds or withdrawals; employers cannot influence employees’ HSA investment decisions; and employers must offer a reasonable availability of investment options, Buckmann explained.
Under DOL guidance, the “broad range of investment alternatives” standard can be satisfied by the plan sponsor including a minimum of three investment options, said Ellen Goodwin of Groom Law Group.
“Probably 99% of the HSAs out there in the world work diligently to avoid ERISA coverage,” said Goodwin. “The Department of Labor has really provided a road map for employers, and almost all HSAs are set up to follow this roadmap.”
Invested account dollars—HSA assets not held in cash deposits—were $33.8 billion at year-end 2022, compared to $34.4 billion a year earlier and $23.8 billion at the close of 2020, research by Devenir found recently.
HSA holders can invest savings via investment lineups to cover qualified medical expenses, but plan fiduciaries should avoid influencing the investment offerings beyond selecting the provider, Goodwin said.
“It’s clear from DOL guidance that an employer can choose one or more providers to make HSAs available to employees, and those providers can offer the providers own curated lineup of investment alternatives,” Goodwin said. “That’s fine, but an employer should always seek to avoid customizing the providers lineup by striking particular funds from the lineup or adding new ones to the lineup. That you don’t want to do, because that can be viewed as influencing participant investment decisions and could cross you into the line of ERISA territory.”
DOL guidance affirms a plan sponsor can replicate the same menu offered in the 401(k) in the HSA or a subset of the lineup and still remain not be covered by ERISA, Goodwin added.
Plan sponsors will want to check beforehand, however, if certain conduct will spill over into ERISA territory. If they are unsure, they should check with in-house or outside employee benefits counsel, Buckmann added.
“You should be very cautious about crossing over the line, because there are many consequences, including [the plan sponsor] may find fact participants suing for losses because you’ve breached your fiduciary responsibilities, [and ] there’s possible fiduciary responsibility for administrators,” she said.
Plan sponsors with an HSA benefit that does fall under ERISA requirements will have to: complete a Form 5500 with the IRS and DOL Form 5500 every year and have a summary plan description for the benefit. Plan sponsors will also face greater regulatory risks and fiduciary liability if covered by ERISA, Buckmann said.