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The Department of Labor (DOL) recently released a final rule, expanding the definition of “investment advice” under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. While the rule is aimed at retirement plans, the final rules failed to provide an exception for health and welfare plans that include health savings accounts (HSAs), resulting in the potential for fiduciary compliance obligations for employers and health plan sponsors.
The New Rule
The final rule, which becomes effective on September 23, 2024, replaces the current five-part test under ERISA defining when an individual is an “investment advice” fiduciary. The new rule classifies an individual as an investment advice fiduciary if:
- They make an investment recommendation to a retirement investor,
- The recommendation is provided for a fee or other compensation, such as commissions, and
- The financial services provider holds itself out as a trusted adviser by
- specifically stating that it is acting as a fiduciary under Title I or II of ERISA, or
- making the recommendation in a way that would indicate to a reasonable investor that it is acting as a trusted adviser making individualized recommendations based on the investor’s best
This new rule closes what the DOL considered the “one-time advice” loophole, which practically may bring an HSA provider under ERISA fiduciary rules if the provider recommends an HSA investment or strategy and receives a commission. However, providing “investment education” such as the features or benefits of an HSA or the benefits of increasing contributions will not grant fiduciary status upon a provider or employer.
Employer Action Items
In light of this new rule and to avoid fiduciary status, health plan sponsors should:
- Avoid making recommendations regarding how employees and HSA account holders should invest their HSA
- Maintain thorough documentation of all communications and recommendations related to HSAs
- Ensure that all communications to employees about HSAs are clear, factual, and do not constitute investment
- Provide training for HR and employee benefits personnel to ensure they understand this new rule and the effect of providing HSA investment information.
- Review and amend, if necessary, investment service agreements to include fiduciary status for service
This information has been prepared for UBA by Fisher & Phillips LLP. It is general information and provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.
