Compliance November 14, 2023

Republican Budget Proposal Would Cut EBSA Budget, Roll Back ESG Rule

The budget, which President Joe Biden has pledged to veto, would also prevent the DOL from implementing the fiduciary adviser proposal.

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Republicans in the U.S. House of Representatives have proposed a budget for the Department of Labor that would block the DOL’s final rule on environmental, social and governance considerations in retirement plans and a proposed rule that would modify the definition of independent contractor. The House also approved amendments to the bill—H.R. 5894, the Labor, Health and Human Services, Education, and Related Agencies Appropriations Act of 2024—which would block proposed changes to the definition of a fiduciary.

The House passed, on a 336-95 vote, legislation funding the government past the Friday midnight deadline at current levels. Funding for four of the 12 annual appropriations bills is being extended through Jan. 19 and the other eight through Feb. 2. The Senate will need to approve the measure before Friday to avoid a shutdown as the continuing resolution currently funding the government expires at the end of the day Friday. There is unlikely to be sufficient time to pass a full budget for 2024 by then..

The base text of the DOL funding bill would prevent the DOL from implementing the ESG fiduciary final rule, which permits plans to consider ESG factors in qualified retirement plan investment selection, and from finalizing an October 2022 proposal which would modify the definition of independent contractor. The latter would make it easier for a worker to be classified as an employee and make workers less likely to be classified as independent contractors.

The White House explicitly opposed both measures and announced that President Joe Biden would veto the bill if it reached his desk; on March 20, Biden vetoed a prior Congressional attempt to overturn the ESG fiduciary rule via the Congressional Review Act.

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The House also approved amendments to H.R. 5894 that would block the new retirement security proposal that redefines the terms of being a fiduciary adviser to include one-time recommendations, including plan rollovers and annuity sales. The spending bill that those amendments are attached to has not yet been voted on.

The three amendments were proposed by representatives Rick Allen, R-Georgia, Anne Wagner, R-Missouri, and Ralph Norman, R-South Carolina. The amendments would prevent the changes to the definition of fiduciary adviser and related PTE changes proposed by the Employee Benefits Security Administration on October 31. They would also prevent EBSA from promulgating a substantially similar proposal in 2024.

The budget proposal would allocate $152.88 million to EBSA, another provision the White House opposes. The White House statement noted that this amount is inconsistent with the budget agreement reached between Biden and former House Speaker Kevin McCarthy, R-California, in May, when the Fiscal Responsibility Act was passed.

EBSA was funded with $233.87 million in 2023. The Senate Appropriations Committee, controlled by Democrats, planned to fund EBSA at $249 million for 2024, based on a funding bill passed by the committee in July by a vote of 25 to 1.

Neither the bill nor the amendments have been voted on, but H.R. 5894 is likely to pass the House in some form in the coming days. The bill is unlikely to pass the Senate in its current form, and the White House has already announced its intent to veto it.

Data and Research November 14, 2023

HSAs Gain Popularity, but Few Users Invest Assets, and Education Remains Big Concern

While health savings account balances are growing and more people are contributing, employers remain concerned that employees should be educated on their complexities.

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Participant contributions to and the overall balances of health savings accounts are on the rise, according to the Plan Sponsor Council of America’s recently published 2023 HSA Survey.

At the same time, however, plan sponsors are increasingly concerned about their employees’ ability to fund their HSAs, and they report struggling to educate employees about these accounts.

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The HSA Survey, sponsored by HSA Bank, sought responses from 529 organizations that offer an HSA program to employees, up from 464 companies surveyed last year.

The PSCA’s research found that nearly 70% of employers offer multiple health plan options in addition to the HSA-qualifying option, with large organizations twice as likely to offer multiple health plans to employees. But for those that offer multiple options, 37.3% of employers stated that more employees choose the HSA-qualifying health option, whereas 44.4% responded that more employees choose other options (11.8% reported roughly equal take-up rates, and 6.6% said they were unsure which was greater).

The average participant contribution in 2022 was $2,323, lower than in the last few years. The average account balance, at the end of 2022, however, was $6,130, up from $4,237 in 2020.

When offered the opportunity, nearly 60% of eligible employees enrolled in the HSA-qualifying health option. Of those that enrolled, 80.1% made contributions to their account, PSCA found.

More than one-third of employers also reported that less than 25% of employees spent their entire HSA balance in 2022, but 60% of organizations surveyed did not have access to that data. Additionally, only a small percentage of employees contributed the maximum allowed.

Few Invest HSA Assets

Even though 60% of organizations offer investment options for HSA contributions, most participants do not use this option, according to the report.

Fewer than 20% of participants invested assets when given the option, and nearly 70% of all HSA assets remain in cash. Investment of HSA assets was also found to be used more by participants at small organizations than at large organizations.

The average percentage of participants who invested assets actually dropped to 18.7% in 2022 from 21.5% in 2021.

A vast majority of plan sponsors (92%) also stated that they do not try to mirror the HSA investment lineup with their 401(k) lineup and that doing so is not a goal. In terms of the types of investment options provided, 91% provide mutual funds, and half also reported they provide brokerage accounts.

Educating Participants

Most employers surveyed (60%) said they primarily educate employees about HSAs during open enrollment, though one-third said they also provide education throughout the year.

The dominant topic on which employers focus education efforts is teaching participants about the tax benefits of HSAs, as contributions can go into the account tax-free, grow tax-free and can be withdrawn tax-free. Employers also reported a focus on educating participants about contribution limits and the overall HSA-eligible health care plan.

For 2024, the maximum HSA contribution will be $4,150 for an individual and $8,300 for a family, the Internal Revenue Service announced in May.

The House Committee on Ways and Means recently approved legislation intended to raise contribution limits in order to make out-of-pocket health care expenses more affordable. The HSA Modernization Act, backed by Representative Beth Van Duyne, R-Texas, proposes increasing the HSA contribution limit to equal the sum of the annual deductible and out-of-pocket limitation permitted under a high deductible health plan.

In addition, 11% of organizations said they use or suggest a default savings rate to employees for their HSA, and only 6% of organizations offer additional education to employees who do not contribute to the HSA or only contribute a nominal amount.

More than one-third of employers indicated they position the HSA to employees as part of a retirement savings strategy, up from 27.2% the year before.

Although nearly 58.3% of employers indicated that employee education is a top concern, that is down from 69.7% last year. Concern about employees being able to fund their HSAs appears to be slowing employer advocacy, as well as the difficulty of administering the accounts.

With open enrollment season beginning for many employers, HSAs will be widely considered in November, especially as the cost of health care in retirement continues to increase.

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