How to Keep HSAs Exempt from ERISA

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We review the Employee Retirement Income Security Act of 1974 or ERISA for short, to see what is required to keep compliant and have an HSA.

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As a business owner, you know there are rules to protect your employees. If you don’t follow these regulations, you may have to answer to your city, state, or the federal government. One federal law — the Employee Retirement Income Security Act of 1974 or ERISA for short — keeps an eye on your company’s retirement and health plans.

To stay compliant, you may have a lot of extra paperwork to navigate. As you may imagine, it can be stressful to stay on top of all the rules. Luckily, there are some accounts, like health savings accounts (HSAs), that may be exempt from ERISA’s guidelines. We will cover how to make sure your company stays in the government’s good graces — and why it matters.

The basics of how ERISA works

Before diving into how to stay exempt, it may be helpful to learn some of the basics. The goal of ERISA is to protect your retirement and health plan participants. The law also watches out for your employees’ beneficiaries who may one day inherit the balance of their plans.

Here’s a basic breakdown of which departments oversee ERISA’s rules:

  • Department of Labor (DOL) – The DOL creates rules and fiduciary duties for plan managers. They are also in charge of your plan disclosures and reporting. You can learn more here.
  • Internal Revenue Service (IRS) – The IRS sets the rules for your plan’s funding and vesting. You can learn more about qualified plans here.
  • Pension Benefit Guaranty Corporation (PBGC) – The PBGC insures private pensions. Learn more about these protections here.

ERISA impacts your company’s health savings accounts (HSA)

As you can see, there are a lot of moving parts and organizations to deal with. Before getting buried by pages of instructions, you need to figure out if they apply to your business.  ERISA uses the term “employee welfare benefit plan” to describe which plans have to follow their guidelines. But the code doesn’t spell out whether this includes HSAs. To answer questions, the Department of Labor issued a couple of bulletins. These bulletins describe when HSAs are exempt and the rules you have to follow to stay compliant.

What happens when your company is not exempt from ERISA

No one would argue protecting workers is a bad thing. Still, ERISA creates a lot of extra legwork. That legwork takes time and money away from your business. If your company fails an audit, you could be stuck with attorney’s fees and fines. Some of ERISA’s disclosure and reporting requirements include:

  • File Form 5500
  • Give your employees written disclosures
  • Follow the Department of Labor’s claims procedures
  • Provide COBRA to employees
  • Comply with ERISA’s fiduciary standards

How to keep your HSA exempt for ERISA

If reading these guidelines makes you sweat, we have some good news — HSAs are generally exempt — but that doesn’t mean you are off the hook. If you want to steer clear of ERISA, you need to follow these rules.

  • Your involvement with your employees’ HSA must be limited. We have outlined some of the specifics below. You can read more in the Department of Labor’s first bulletin here.
  • Your employees can’t be forced to join your company’s HSA.
  • You can’t limit your employees’ ability to move their money to another HSA.
  • You can’t create restrictions on how your employees use their HSA money.
  • You can’t try to influence your employees’ HSA investment decisions.
  • You can’t refer to the company HSA as an “employee welfare benefit plan.”
  • You can’t receive compensation for establishing your company’s HSA.

The Department of Labor also issued a second bulletin to further clarify each of these rules. You can read those details here.

Don’t be afraid to seek outside guidance

When it comes to navigating ERISA, it’s easy to get confused. If the Department of Labor’s resources aren’t enough, don’t be afraid to seek outside help. A certified financial planner or an attorney specializing in employee benefits is well worth the expense. You may sleep better knowing you won’t encounter major mistakes down the road.

Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.