J. Kevin A. McKechnie

Executive Director

The HSA Council

kmckechn@aba.com

July 21, 2015

VIA E-MAIL (e-ORI@dol.gov)

Office of Regulations and

Interpretations, Employee Benefits Security Administration

Attn: Conflicts of Interest Rule (RIN 1210-AB32)

Room N–5655

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Re: RIN 1210-AB32: Comments Regarding Application of Proposed 

Fiduciary and Conflict of Interest Rules to Health Savings Accounts 

(HSAs) 

Dear Sir or Madam:

Thank you for the opportunity to comment on the Department of Labor’s proposed regulation 

(the “Proposed Rule”) pertaining to the definition of fiduciary and conflict of interest rules under 

the Internal Revenue Code (“Code”) and the Employee Retirement Income Security Act of 1974, 

as amended (“ERISA”). Specifically, we are writing to you on behalf of the American Bankers 

Association’s HSA Council (the “Council”), (i) to request that the Department exclude personal 

health savings accounts (“HSAs”) under the Proposed Rule because of the significant differences 

between IRAs and HSAs, and (ii) to set forth the Council’s position as to why it believes that 

HSAs should not be subject to the Proposed Rule. 

Currently, nearly 20 million Americans are covered by an HSA-qualified health plan that enables 

them to fund their healthcare expenses with an HSA. Under Section 223(d) of the Code, HSAs

are by definition personal accounts established exclusively to fund health care expenses. Unlike 

IRAs, HSAs are not established as retirement accounts with a primary purpose to fund retirement 

income needs. As we discuss below, investments are just an optional feature of HSA 

arrangements with fewer than 2-3% of accountholders taking advantage of it. Indeed many bank 

custodians do not even offer an investment feature. Rather, HSAs allow ready access to 

consumer funds in deposit-type accounts through the use of debit cards or consumer checks. 

Perhaps more importantly, unlike IRAs, HSAs are precluded from accepting significant rollovers 

from ERISA-covered retirement plans. 

The members of the ABA’s HSA Council,

1

as well as the employers they serve, are concerned 

that application of the Proposed Rule to HSAs will unnecessarily increase the cost of offering 

 

1 The ABA HSA Council is made up of financial institutions, health insurers, third party administrators and 

technology companies working to represent consumers insured with Health Savings Account qualified health plans. 

The Council is part of the American Bankers Association in Washington D.C.
2

HSAs and will preclude HSAs from achieving their Congressionally mandated purpose – i.e., to 

provide a source of funds for health care expenses. For the reasons set forth below, we believe 

that HSAs should be excluded from the Proposed Rule.

HSAs are Distinguishable From IRAs and Other Retirement Investment 

Arrangements and Should Be Exempt from the Proposed Rule. After justifying the 

need to regulate IRAs under the proposed Rule due to their role as a pass through of 

ERISA-covered retirement funds, the Department swept in other tax favored accounts 

(including HSAs). The Department has relegated to a mere footnote its solicitation of 

comments on whether it is appropriate to regulate HSAs as if they were IRAs.2 The 

Council believes that the answer to this question is a resounding “No. HSAs should not 

be treated like IRAs under the Proposed Rule.”

Under Section 223 of the Code, HSAs are individually owned trust or custodial 

arrangements established “exclusively for the purpose of paying qualified medical 

expenses.” Thus, unlike IRAs, which serve solely as investment oriented retirement 

arrangements, HSAs serve as deposit-type arrangements maintained by accountholders 

for current health care expenses with funds that are readily accessible by check or debit 

card access for current medical needs. Congress, while incorporating some of the rules 

applicable to IRAs, recognized that HSAs were different than IRAs, and thus subject to 

different rules. By way of example, while Congress incorporated certain prohibited 

transaction rules applicable to IRAs in Section 408(e)(2) and (e)(4), HSAs are not 

permitted to be commingled with retirement assets as is allowed for IRAs under Section 

408(e)(6). Likewise, in DOL FAB 2006-2, the DOL acknowledged that even though 

HSAs were subject to the tax prohibited transaction rules, HSAs were significantly 

different from IRAs so as not to allow wholesale adoption of the IRA prohibited 

transaction exemptions (PTEs). Courts have likewise differentiated HSAs from 

retirement investment accounts due to the ability to access funds freely and without 

penalty for current medical expenses.

3

The Department notes that the primary justification for extending the reach of the 

statutory conflict of interest provisions beyond their reach is its concern that “as baby 

boomers retire, they are increasingly moving money from ERISA-covered plans, where 

their employer has both the incentive and fiduciary duty to facilitate sound investment 

choices to IRAs.”4 This risk simply does not exist with respect to HSAs. HSAs are 

statutorily prohibited from accepting significant funds from IRAs or other ERISA-

 

2

See 80 Fed Reg. 21947

3

For example, courts have found that the ability to instantly access HSA funds without penalty distinguishes them 

from IRAs and other retirement plans for state bankruptcy law purposes. See Roup v. Commercial Research, LLC,

2015 WL 3452615 (Colo. 2015). Available

at https://www.courts.state.co.us/userfiles/file/Court_Probation/Supreme_Court/Opinions/2014/14SC50.pdf

4

See 80 Fed Reg. 21932
3

covered plans.5 As a result, blanket application of the investment rules applicable to 

deferred compensation plans (and for that matter even IRAs) is inappropriate. The 

Proposed Rule should specifically exclude HSAs since HSAs do not include ERISAcovered funds and HSAs operate more like retail bank and savings accounts than 

depositories of retirement plan funds. 

Application of ERISA-Type Investment Rules is Inappropriate for HSA DepositType Arrangements. The Department implicitly acknowledged that ERISA is ill-suited 

for application to HSAs when it adopted specific rules carving the vast majority of HSAs 

out of ERISA coverage in DOL FAB 2004-1 and DOL FAB 2006-2. Indeed, we are 

unaware of any HSA arrangements that are currently subject to ERISA regulation. This 

broad exception is fitting as the vast majority of HSA assets (86%) are held in deposittype arrangements.6 While HSA accountholders may be allowed an investment option 

if/when HSA assets exceed a certain threshold level, only a minority of accountholders 

(less than 4%) utilize such options and any investment activity is ancillary to providing a 

ready source of funds for current medical expenses. Indeed, the average HSA balance is 

less than $1760 with approximately 56% of accounts having less than $500. 7 These 

amounts are far less than the amount necessary to cover a single year’s deductible since 

the average HSA-qualified HDHP is $2205 for single coverage and 4391 for family 

coverage.8 These numbers underscore the true function of these accounts as deposit-type 

accounts for current health expenses -- far from suggesting that HSAs are savings 

accounts or investment vehicles warranting protection from loss of assets set aside solely 

for retirement. As deposit-type accounts, HSAs are already subject to numerous federal 

and state banking requirements and regulatory agencies. The imposition of an additional 

layer of regulation as set forth in the Proposed Rule will unnecessarily increase costs and 

reduce effective rate of return. 

Congress already concluded that the imposition of investment requirements is 

unnecessary for deposit-type arrangements (See Code Section 4975(d)(4)). 

Consequently, the option to deposit HSA funds in two or more interest bearing accounts 

shouldn’t be considered “investments” or “investment advice” for purposes of these rules. 

Choosing such an account is no different than choosing which checking account to 

establish—an activity in which most if not all HSA accountholders have sufficient 

experience. Therefore, the purported investment protections of the Proposed Rule need 

not be extended to such actions and language should be added to clarify that the Proposed 

Rule does not apply to funds held in an HSA since any investment activity is ancillary. 

 

5 While Section 408(d)(9) of the Code allows for a limited once in a lifetime time opportunity to rollover IRA funds 

, the maximum rollover amount is reduced by any contribution made that year and is capped at that year’s 

contribution limitation (currently $3350 for an individual and $6650 for a family). Council members report that this 

provision is seldom (if ever) utilized. 

6

http://www.devenir.com/research/2014-year-end-devenir-hsa-market-research-report/

7

http://www.devenir.com/research/2014-year-end-devenir-hsa-market-research-report/

8 The Kaiser Family Foundation and HRET Employer Health Benefits 2014 Annual Survey.
4

At a minimum, the Department should exclude funds held in a deposit type arrangement 

with an HSA custodian or trustee. 9

 If HSAs Are Not Excluded From the Proposed Rule, Clarify That The Platform 

Provider Exception Applies. As noted above, the Department acknowledged that it 

was blazing new ground when it included HSAs within the definition of IRA and 

solicited comments on application of the Proposed Rule through such incorporation. As 

outlined above, we believe such an approach is overly broad given the nature of HSAs 

and the ancillary nature of any investment activity. However, if the Proposed Rule is

ultimately made applicable to HSAs, the Council believes that the Department carried 

this bootstrapping too far by excluding HSAs from the platform provider exception due 

to their purported similarity to IRAs. For the reasons discussed below, we believe that 

HSAs should be eligible for the platform provider exception. In most cases the HSA 

trustee or custodian is selected by an employer or exchange provider. 

As noted above, the transactional nature of HSAs makes them distinguishable from IRAs. 

Moreover, unlike IRAs, HSAs do not receive funds from arrangements previously subject 

to ERISA’s conflict of interest requirements. In contrast to IRAs, the vast majority of 

HSAs (and HSA contributions) are made available to employees through employersponsored and/or employer funded arrangements.10

 More recently, exchanges (both 

private and public) have selected HSA custodians and trustees as business partners. As a 

result, HSA accountholders are not without a third party looking out for their interests. 

DOL carefully considered and recognized the scope of employer involvement in HSA 

arrangements in FAB 2004-1 and FAB 2006-2 and, while it concluded that ERISA was 

not applicable, DOL acknowledged the important role employers play in selecting HSA 

service providers. 

Based on this carefully considered DOL guidance it is common for employers to take an 

active role in selecting n HSA custodian and to facilitate the establishment of employee 

owned HSAs. Consistent with the DOL FAB guidance employers routinely engage in 

one or more of the following on behalf of their HSA account holders:

o Select an HSA custodian or trustee for employer sponsored arrangements;

o Open an HSA account on behalf of consenting employees to receive employer 

contributions;

o Fund the HSA with employer contributions;

o Limit payroll deductions and employer contributions to a selected HSA 

custodian/trustee;

o Pay a portion of the HSA administration fees assessed by the custodian or trustee;

 

9 We note that even though structured as deposit type accounts, HSAs qualify as a bona fide trust/custodial account 

for purposes of certain bank regulatory requirements. 

10 A recent AHIP study reflects that 89% of HSAs are offered in conjunction with employer sponsored coverage.
5

o Decide whether to offer their own 401(k) menu of investment options or select an

HSA custodian or trustee that offers its own “menu” of self-directed HSA 

investment options.

Notwithstanding this significant employer involvement, which might be considered 

“endorsement” (e.g., for purposes of determining whether ERISA applied under the 

voluntary safe harbor provisions of 29 C.F.R. § 2510.3-1(j)), the Department concluded 

that ERISA did not apply. In this unique role, employers (and organizers of public and 

private exchanges) wield sophisticated bargaining power in selecting an HSA service 

provider more analogous to a commercial transaction between two informed companies. 

This is in stark contrast to the atypical IRA arrangement where the employer has no 

involvement at all (indeed employer contributions to IRAs are generally prohibited). 

It is also important to note that HSA custodian/trustees must make available a slate of 

investment options that is acceptable to all of their employer sponsored HSA 

arrangements. This single slate approach is required because employers are prohibited 

from making or selecting the investment options included in the menu. This same menu 

of investment options is generally made available “enterprise-wide” to individuals who 

set up an HSA outside of the employer context as well as those who establish an HSA 

through an employer. Thus, the exception for HSAs from the Proposed Rule should 

apply across the board. Same rule can apply to HSAs generally.

Most significantly, in the FAB guidance, the Department concluded that the interests of 

HSA account holders were adequately protected in part because HSA assets could be 

readily withdrawn or transferred to another HSA. This continues to be the case for all 

HSAs regardless of their origin as HSA account funds can be withdrawn at any time and 

used for medical expenses (or any other purpose) or rolled over to another HSA 

arrangement. 

In light of the foregoing, we believe that the platform provider exception should be 

modified to specifically apply to HSAs. At a minimum, this carve-out should be 

amended to exclude HSAs from the new investment rules when the same broad menu of 

investment options is made available to all HSAs (including both employer and retail 

marketed HSAs).

 The Proposed Rule Should Clarify That HSA Trustees/Custodians Do Not Provide 

Individualized Investment Advice by Merely Providing a Menu of Pre-selected HSA

Investment Options. As noted above, the vast majority of HSA assets are kept in 

deposit-type accounts and should not be subject to the investment related requirements of 

the Proposed Rule. Nonetheless, even if the Proposed Rules is ultimately considered to 

be applicable to HSAs, HSA trustees/custodians that provide a menu of investment 

options for employer groups are not providing individualized investment advice. 
6

The preamble to the Proposed Rule makes it clear that the Department intentionally 

intended to move away from assigning fiduciary status with respect to investment 

decisions based on nominal fiduciary status (as was the case under the 2010 proposed 

rule) and move toward a more functional definition.11 The key elements under this new 

functional definition are: i) the provision of investment advice; that ii) is individualized 

or directed to a specific individual. In stark contrast to providing individualized advice, 

HSA custodians and trustees generally make available a reasonable menu of investment 

options (typically mutual funds regulated under the Investment Company Act). In some 

cases the “menu” may be open-ended (i.e., a so-called brokerage account) or may be preselected (e.g., by an RIA selected by the HSA custodian or trustee).

Employers are then free to evaluate the HSA custodian or trustee (including the 

suitability of investment options) and choose to select or not select the services of that 

custodian or trustee. Given the intervening role of the employer (or exchange), no 

individualized advice is provided when an HSA trustee or custodian makes a menu of 

investment options available through an employer group. Indeed HSA custodians take 

significant steps to make it clear to the employer and HSA accountholders that 

individualized advice is not provided. The role of an HSA custodian/trustee as a nominal 

fiduciary does not change this result.

Instructive in this regard is DOL’s prior guidance under FAB 2006-2. In that guidance 

DOL carefully considered the role of selecting a “menu” of HSA investment options and 

determined that an employer would not be “influencing or making an investment 

decision” when it selected an HSA trustee or custodian that offered the 

trustee/custodian’s own proprietary menu of investment options. This FAQ is reproduced 

below:

Would an employer be viewed as "making or influencing" the HSA investment 

decisions of employees, within the meaning of the FAB, merely because the 

employer selects an HSA provider that offers some or all of the investment 

options made available to the employees in their 401(k) plan?

No. The mere fact that an employer selects an HSA provider to which it will forward 

contributions that offers a limited selection of investment options or investment 

options that replicate the investment options available to employees under their 

401(k) plan would not, in the view of the Department, constitute the making or 

influencing of an employee's investment decisions giving rise to an ERISA-covered 

plan, so long as employees are afforded a reasonable choice of investment options 

and employees are not limited in moving their funds to another HSA. The selection of 

a single HSA provider that offers a single investment option would not, in the view 

the Department, afford employees a reasonable choice of investment options. 

 

11 80 Fed reg. 21935
7

As noted above, providing a menu of HSA investment options does not rise to “making 

or influencing an [individual] investment decision” as long as employees are afforded a 

reasonable choice of investment options and can move HSA funds to another HSA 

(which is always the case).

In conclusion, the Council believes that the current disclosure rules applicable under 

existing law adequately protects the interests of HSA owners and that the extensive 

requirements outlined in the Proposed Rule and the consequences for failing to meet such 

requirements should not apply to HSAs.

Thank you for the opportunity to express the Council’s views with respect to the 

Regulations and we would be happy to answer any questions the Department may have.

Sincerely, 

J. Kevin A. McKechnie

Executive Director