Ask the Experts April 25, 2023

Understanding Contribution Limits on Unrelated Entities and Across Plan Types

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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Q: I read with great interest your Ask the Experts column that references the 415 limit on contributions for an employee working for two entities within the same controlled group. Does the same logic apply if the entities are unrelated? Do the types of plans matter?

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

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A: Yes, the same logic applies if the entities are unrelated, and the types of plans sponsored do indeed matter. If the entities are determined by counsel to be truly unrelated (and, once again, as stated in our original column, this is a complicated legal determination beyond the scope of this column), then one 415 limit per employer generally applies (i.e., the two employers would have separate 415 limits.)

However, even with unrelated employers, the types of plans involved can still matter, but only if the employee owns or controls more than 50% of one of the plan sponsors. If there is no such control, there will be separate 415 limits for each employer, regardless of plan type. However, if there is such control, the 415 limit for any 403(b) plan would be combined with any 415 limit for a 401(a) or 401(k) plan. For example, if a doctor has a 403(b) plan through a hospital at which he is employed and also has a 401(k) plan through the private practice where he is more than a 50% owner, the two plans must be aggregated. However, this special rule is unique to 403(b) plans, so if the unrelated employers sponsored 401(a) or 401(k) plans, and no 403(b) plan was present, the 415 limits would be separate for each employer, regardless of whether the employee owned or controlled more than 50% of one of the plan sponsors.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.

Administration April 24, 2023

2023 HSA Conference: HSA Administration Structure

The proper administration of health savings accounts by plan sponsors is critical so employers do not face ERISA regulations, experts explained.

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Plan sponsors offering health savings accounts must be careful to practice proper administration—by following Department of Labor and IRS guidance—or risk being subject to Employee Retirement Income and Security Act regulations.

Although employer-provided high-deductible health plans are subject to ERISA, the associated HSA offered to employees is generally not, as long as the employer limits its involvement with the HSA, explained panelists at PLANSPONSOR’s 2023 HSA Conference.

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“It’s very important that these requirements be followed strictly, because if [plan sponsors] slip up and do not comply with one of them, you are stepping into ERISA territory,” said Carol Buckmann, partner at Cohen and Buckmann PC.

Employers have turned to offering HDHPs to limit the costs of health insurance, and an HSA is often paired with the HDHP as an additional benefit for employees.

Appropriate plan sponsor use of the HSA benefit requires employers to observe several “special rules that have been promulgated by the Department of Labor” to limit involvement with the HSA so that it will not be treated as an ERISA plan, Buckmann explained.

For HSA providers and plan sponsors, it is not in the best interest of either to be regulated under ERISA, added Buckmann.Plan sponsors and vendors regulated under ERISA “are going to have difficulty finding an administrator who will take on an HSA plan that is subject to ERISA, [because] … they know that’s a lot more exposure,” Buckmann said.

HSA Administration

The DOL and IRS rules must be followed by plan sponsors to limit involvement with the HSA, preventing the greater oversight, paperwork and regulation that would be required under ERISA.   

Proper plan sponsor HSA use requires employee participation to be voluntary, although employers may use automatic enrollment; employers cannot limit the ability of employees to transfer assets to different HSA administrators; employers cannot limit the use of HSA funds or withdrawals; employers cannot influence employees’ HSA investment decisions; and employers must offer a reasonable availability of investment options, Buckmann explained.  

Under DOL guidance, the “broad range of investment alternatives” standard can be satisfied by the plan sponsor including a minimum of three investment options, said Ellen Goodwin of Groom Law Group.

“Probably 99% of the HSAs out there in the world work diligently to avoid ERISA coverage,” said Goodwin. “The Department of Labor has really provided a road map for employers, and almost all HSAs are set up to follow this roadmap.”

In-Plan Investments

Invested account dollars—HSA assets not held in cash deposits—were $33.8 billion at year-end 2022, compared to $34.4 billion a year earlier and $23.8 billion at the close of 2020, research by Devenir found recently.

HSA holders can invest savings via investment lineups to cover qualified medical expenses, but plan fiduciaries should avoid influencing the investment offerings beyond selecting the provider, Goodwin said.

“It’s clear from DOL guidance that an employer can choose one or more providers to make HSAs available to employees, and those providers can offer the providers own curated lineup of investment alternatives,” Goodwin said. “That’s fine, but an employer should always seek to avoid customizing the providers lineup by striking particular funds from the lineup or adding new ones to the lineup. That you don’t want to do, because that can be viewed as influencing participant investment decisions and could cross you into the line of ERISA territory.”

DOL guidance affirms a plan sponsor can replicate the same menu offered in the 401(k) in the HSA or a subset of the lineup and still remain not be covered by ERISA, Goodwin added.

Plan sponsors will want to check beforehand, however, if certain conduct will spill over into ERISA territory. If they are unsure, they should check with in-house or outside employee benefits counsel, Buckmann added.

“You should be very cautious about crossing over the line, because there are many consequences, including [the plan sponsor] may find fact participants suing for losses because you’ve breached your fiduciary responsibilities, [and ] there’s possible fiduciary responsibility for administrators,” she said.

Plan Consequences

Plan sponsors with an HSA benefit that does fall under ERISA requirements will have to: complete a Form 5500 with the IRS and DOL Form 5500 every year and have a summary plan description for the benefit. Plan sponsors will also face greater regulatory risks and fiduciary liability if covered by ERISA, Buckmann said.

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