Safe harbor excludes HSAs from ERISA.

• Author: O'Driscoll, David
• Position: Health savings accounts

The Department of Labor (DOL) has ruled that Title I of the Employee Retirement Income Security Act of 1974 (ERISA) will not apply to employee health savings accounts (HSAs) when employer involvement with the HSA it limited, even if the employer sponsors the employee's health plan.

HSAs and HDHPs

Sec. 223 permits eligible individuals to establish HSAs. In general, HSAs may receive tax-favored contributions from an employee, employer or both, which are accumulated over the years and distributed tax free to pay or reimburse qualified medical expenses. Employers are not responsible for determining whether HSAs are used for qualified medical expenses or for investing or managing HSA contributions.

To establish an HSA, an eligible individual must be covered under a high-deductible health plan (HDHP). A number of employers that currently sponsor ERISA-covered group health plans want to add an HDHP option and offer programs to enable employees to establish HSAs to pay for medical expenses not covered by the HDHP. Neither Sec. 223 nor the legislation that created it (Section 1201 of the Medicare Modernization Act), specifically address the application of ERISA Title I to HSAs.

Analysis

Under existing rules, HSAs could be considered employee welfare benefit plans under ERISA Section 3(1), if they met the safe harbor for group insurance programs at 29 CFR [section] 2510.3-1(j)(1)-(4). In general, such programs are excluded if:

1. There are no employer contributions;

2. Employee participation is voluntary;

3. The employer does not endorse the program; and

4. The employer receives no consideration in connection with the program, other than reasonable compensation for administrative services actually rendered in connection with payroll deductions.

   However, an employer's contributions or payments of group insurance premiums are not necessarily significant in analyzing the status of HSAs under ERISA. HSAs are personal healthcare savings vehicles, rather than a form of group health insurance. For example, funds deposited in an HSA generally may not be used to pay health insurance premiums; the account beneficiaries have sole control and are exclusively responsible for expending the funds in compliance with the Code. Thus, court precedent on the significance of employer contributions to group insurance arrangements is inapposite to HSAs. In the group health insurance context, the employer, whether by choosing an insurance policy or creating a self-funded...