4 important questions about HSAs under the new fiduciary rule
It has been difficult to avoid talk about the Department of Labor’s new Conflict of Interest Rule (also called the fiduciary rule) over the past several months. One area that caused a great deal of confusion even before the rule’s announcement was ERISA’s application to high-deductible health plans and health savings accounts. How do you determine whether there are fiduciary obligations in these scenarios?
First, it is important to understand that group health plans, including high-deductible health plans, are generally ERISA plans. HSAs, meanwhile, are individually owned bank accounts and not subject to ERISA requirements as long as certain conditions are met. This was all true even before the introduction of the new rule.
There is now a gray area, however, because HSA assets are investable. If you provide participants with investment advice regarding their HSAs, you may be subject to ERISA-like fiduciary requirements. The following list of questions will help you to determine where the rule is applicable and understand your fiduciary obligations.
Am I a fiduciary?
- Do you make investment recommendations to participants regarding HSA assets? As an adviser, you have a responsibility to educate employers about HSA benefits and best practices. Providing this information on its own does not make you a fiduciary. When you begin making investment suggestions for HSA dollars, however, this could change.
- Do you receive a fee in return for the HSA recommendations? If you receive a fee in return for HSA investment recommendations, your suggestions are considered fiduciary advice and therefore are subject to ERISA regulations.
I am a fiduciary under the new rule. Now what?
- Does your fee vary depending on the recommendation you provide? If it does not, then you receive a level fee and must acknowledge fiduciary status. In the case of a varying fee, you are receiving variable compensation and should enter into a contractual agreement with the participant.
- Do you understand ERISA’s requirements? As a fiduciary, you are required to 1) act in the best interest of plan participants, 2) follow a well-defined process, and 3) set reasonable fees. Of course, all three of these action items are subjective to some degree. It is crucial that you have a thorough understanding of the advice you provide and fully document your decisions. For more details, including a checklist of best practices, download our new IRA Advisors’ Fiduciary Handbook.
Although additional regulations can be daunting, it is only a matter of time before these standards become the new normal. Awareness will help you to protect yourself and ultimately better serve your clients.