On June 9, 2017, new Department of Labor (“DOL”) regulations (“Fiduciary Rules”) took effect which expand the categories of persons who may now be considered plan “fiduciaries” under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code (“Code”). The new Fiduciary Rules broaden the definition of plan “fiduciary” to include persons who provide investment advice to account holders of Individual Retirement Accounts and Health Savings Accounts (“HSAs”). As such, the new Fiduciary Rules have important implications for HSA service providers.
Insofar as HSA service providers are considered “fiduciaries” under the new rules, they are required to act impartially and solely in the “best interest” of HSA account holders and beneficiaries. They are also subject to the prohibited transaction provisions of ERISA and the Code, which limits their ability to receive commissions, fees and other compensation from plans, account holders and beneficiaries. The new Fiduciary Rules provide for a private cause of action for a breach of the “best interest” standard of care and also provide that, in the absence of an applicable prohibited transaction exemption, illegal fee arrangements may subject fiduciaries to penalty excise taxes of as much as 15%-100% of the total monetary amount involved.
The types of institutions most affected by the new Fiduciary Rules include financial planners and banking and investment firms. On the other hand, third-party administrators (“TPAs”) and employers will generally not face any increased risk or liability as a result of the new Fiduciary Rules—so long as they confine their role to a mainly passive one, that is. TPAs and employers who act like HSA service providers and give investment recommendations or advice or who receive a monetary benefit if employees elect certain HSA investment options would, in fact, be subject to the new Fiduciary Rules.
For more information about the types of activities that could subject TPAs and employers to the new Fiduciary Rules, please see the recent white paper published by Employee Benefits Corporation, entitled How the New Fiduciary Rules Apply to HSA Service Providers and Employers. This white paper is available on our website at www.ebcflex.com or by clicking here.