HSA Fiduciary Rules: What advisers should do now
The law won’t take full effect for two years. But for benefits advisers, one immediate area of concern in the wake of the Department of Labor’s new fiduciary standard is how the new rules apply to Health Spending Accounts.
In legal terms, advisers who assist employers with the investment property components of a group benefits plan, which would include an HSA, may themselves become fiduciaries—even if they provide their advice on a one-time basis. However, the DoL also established a “best interest contract exemption” or “BICE” that allows advisers to be paid commissions for their work, as long as they follow strict requirements.
Here we solicit the views of two legal experts on how they will affect advisers who assist employers with HSAs. Chris Hartmann, Vice-President for Congressional Affairs for National Association of Health Underwriters and Pat DiCarlo, an ERISA attorney with Alston & Bird in Atlanta, spoke with Employee Benefit Adviser contributing editor Joel Kranc about the rules governing HSAs and their implications:
Hartmann: I think the effect this rule will have on a lot of our people is that they will not be able to tell [plan sponsors] how to execute their HSAs once they have been set up. It will allow advisers to help set up the HAS, but not advise where it should be housed.
The good news is that there are two years before the rules take effect. That gives advisers ample amount of time to work around the rules and figure out the best course of action for their practices.
DiCarlo: Advisers have to understand they are now becoming fiduciaries and should advise their clients that they will be subject to ERISA prohibited transactions. If you don’t have a ‘level fee’ arrangement you will probably want to take advantage of the BICE exemption, which means having specific language in your contracts. Even if you do everything right you still might have litigation exposure if things go bad.
Plan sponsors will need to know about these issues and will have to sign contracts with the specific exemptions and arrangements, in order to make use of their advisers properly and without creating legal ramifications. Yes, some advisers will only advise on the set up of the HSA and will fall out of the scope of the rules, but those that do advise on investments will be part of the DoL’s fiduciary rules. It can happen either way, but both the adviser and client must be aware of it.
Hartmann: Plan sponsors may receive options from their advisers on where to house their HSAs, but will have the burden of picking from those options without a recommendation from the adviser. This creates an additional burden for employers who are offering the benefit of health insurance to their employees, and you don’t want to do anything that adds work or discourages them from doing this.
Agents, brokers and advisers will also have to look at things like errors and omissions insurance and making sure they are protected.
DiCarlo: In the intervening two years [before the law takes effect], advisers and their clients should educate themselves on what the fiduciary rules require and start the process of how the BICE language will appear in their contracts.
One positive development concerns participant education. [Prior to the fiduciary standard] it wasn’t clear if providing general information about investments was considered a recommendation. But the DOL has made it clear that not only can you provide general education, you can also explain the corresponding funds in your own plan.
In the meantime, plan sponsors and advisers have been given time to ensure they are compliant, that their contracts are in order and plans are being set up with attention to who is advising on the plan and where it is housed.