Advisors have long played a key role in advising plan sponsors and their employees on their 401(k) plans. However, as the role of advisor has continued to evolve, another area has garnered a lot of attention — defined contribution health care “accounts.” These “accounts” have been around for decades, but they came to prominence in 2004 with the rise of health savings accounts (HSAs). A slightly older type of account is a health reimbursement arrangement (HRA), which were created in 2002.
As the number of HSAs and HRAs continued to grow over the last decade, a lot has been said about the opportunities for advisors to support their clients in this space. Most recently, the Trump administration issued initial guidance that, when finalized, is expected to allow employers to provide HRAs to employees so that they can purchase individual coverage on the Affordable Care Act (ACA)’s public health insurance exchanges while continuing to satisfy the employer mandates under the ACA.
What does this new guidance mean to advisors and their clients? Even more DC health care — whether through HRAs, HSAs, or other vehicles.
As retirement plan advisors consider focusing on the DC health care market as an addition to their practice, there are many core considerations to keep in mind, including:
- The Defined Contribution Health Care Account “Client.” An advisor’s “client” can vary depending on the type of DC health care account involved and the exact services provided by an advisor. Is the advisor helping an employer select an HSA vendor, and/or is the advisor helping to select the investments in the HSA? If the account is an HRA, is the advisor helping to pick a funding vehicle — usually a voluntary employees’ beneficiary association (VEBA), which is subject to its own regulations and requirements — and the investments inside the trust or in an employer’s general assets? Importantly, if an HSA is involved, the account is more like an IRA that is owned individually by each employee. In fact, an employer is required to have very limited involvement with the HSA if it does not want the HSA to be treated as a separate benefit “plan” of the employer.
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- Standards of Care. Most advisors are very familiar with the ERISA standards of care owed by a fiduciary advisory. HRAs are subject to these same standards of care, although how they are applied can vary slightly in the health versus retirement context. HSAs are subject to the Internal Revenue Code’s IRA fiduciary rules unless the HSA program itself does not satisfy Department of Labor’s guidance on what keeps an HSA from being an employer-sponsored plan — which then could mean that both the ERISA fiduciary and IRA fiduciary rules apply!
- Players in the DC Health Space and Potential Barriers to Entry. A key point for advisors to keep in mind is that there are various HRA and HSA options available. While some of the familiar trust companies and recordkeepers offer HRA and HSA products, there are other key players as well — health insurance brokers and insurers with products of their own that may already be in use by your retirement clients. Figuring out how you integrate into this landscape as an advisor is key.
Defined contribution health care accounts can present opportunities for advisors looking to diversify their businesses. However, it is important to have a strong plan and understanding of this market because while it is an opportunity, it is not identical to the retirement space. Being well informed about these distinctions can make the difference between success and failure in this space.
David N. Levine is a principal with Groom Law Group, Chartered, in Washington, DC. This column appears in the latest issue of NAPA Net the Magazine.