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CCH® BENEFITS — 11/07/06

EBSA Issues Additional ERISA/HSA Guidance

On October 27, the Department of Labor’s Employee Benefit Security Administration (EBSA) issued Field Assistance Bulletin 2006-02, which amplifies the information in a 2004 bulletin and provides additional guidance on many of the frequently asked questions regarding health savings accounts (HSAs) and ERISA.

In April 2004, the EBSA released Field Assistance Bulletin 2004-01, which concluded that even employer contributions to HSAs would not cause it to be an ERISA-covered plan where the establishment of the HSA is completely voluntary on the part of the employees and the employer does not do the following:

• limit the ability of eligible individuals to move their funds to another HSA beyond restrictions imposed by the Internal Revenue Code;
• impose conditions on utilization of HSA funds beyond those permitted by the Internal Revenue Service;
• make or influence the investment decisions with respect to funds contributed to an HSA;
• represent that the HSAs are an employee welfare benefit plan established or maintained by the employer; or
• receive any payment or compensation in connection with an HSA.

2006 Additional Guidance

The 2006 guidance is in the form of 11 questions and answers, many of which refer to and amplify Field Assistance Bulletin 2004-01.

The first two questions concern the employer’s ability to establish and maintain HSAs for employees. The bulletin states that an employer may open an HSA for an employee and deposit employer funds into the HSA without violating the condition that requires that the establishment of an HSA by an employee be “completely voluntary. The fact that an employer unilaterally opens an HSA for an employee and deposits employer funds into the HSA does not divest the HSA accountholder of control and responsibility and, therefore, would not give rise to an ERISA-covered plan.”

As noted in the 2004 bulletin, the employer can limit the HSA providers that it allows to market its HSA products in the workplace or can select a single HSA provider to which it will forward contributions without making the HSA part of the employer’s ERISA-covered group health plan. An employer may offer an HSA to its employees without establishing an ERISA-covered plan in one of two ways. The employer may rely on the group-type insurance safe harbor in DOL Reg. Sec. 2510.3-1(j), in which case the employer cannot make contributions to the HSA; or it may rely on the separate conditions outlined in FAB 2004-01, in which case the employer may or may not elect to make employer contributions to the HSA.

Prohibited Transactions

Three questions and answers in FAB 2006-02 involve prohibited transactions:

• HSAs are subject to the prohibited transaction provisions of IRC Sec. 4975. Consequently, employers that fail to transmit promptly participants' HSA contributions may violate the prohibited transaction provisions.
• The class prohibited transaction exemptions for owners of individual retirement accounts do not apply to accountholders of HSAs.
• It is not a prohibited transaction for an HSA provider to offer a cash incentive for establishing an HSA with that provider, as long as the provider deposits the incentive into the HSA.

Other Issues

The bulletin also notes the following about HSAs:

• An employer would not be viewed as “making or influencing” the HSA investment decisions of employees merely because the employer selects an HSA provider that offers some or all of the investment options made available to the employees in their 401(k) plan. This is permitted so long as employees are afforded a reasonable choice of investment options and employees are not limited in moving their funds to another HSA.
• If contributions to an HSA are made through a cafeteria plan, the savings that benefit the employer from avoidance of FICA and FUTA taxes on those contributions are not considered “payment or compensation received in connection with an HSA” that would subject the HSA to ERISA.
• An employer can pay the fees associated with the HSA that the employee would normally be expected or required to pay without causing the HSA to become an ERISA-covered plan.
• An HSA vendor may offer an HSA product that it offers to the public to its own employees without the HSAs being considered employee benefit plans covered by ERISA.
• If the employer limits the number of HSA vendors to which it will forward contributions, the employer may not receive a discount on another product from one of the selected HSA vendors.
• The bulletin notes that the IRS previously issued guidance in Notice 2004-02 and Notice 2004-50 permitting debit and credit card use with an has that provides a line of credit for HSA expense. The bulletin also notes “Whether a credit card arrangement between a vendor and owner of an HSA results in a prohibited transaction would depend on specific facts and circumstances. A prohibited transaction would not result merely from an HSA accountholder directing the payment of HSA funds to the credit line vendor to reimburse the vendor for HSA expenses paid with a credit card.”

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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