On Wednesday, the federal Department of Labor (DOL) released a final version of its much-anticipated rule to address conflicts of interest in retirement advice, which is widely referred to in the industry and news media as the "fiduciary rule." The new regulation establishes how investment advisors who assist employers and employees with “investment property” components of a group benefit plan governed by the Employee Retirement Income Security Act (ERISA), including Health Savings Accounts (HSAs), may have fiduciary responsibility even if they provide advice on a one-time basis. Typically individuals who are a fiduciary of a group benefit plan regulated by ERISA may not receive compensation or commissions from third-party vendors that provide services to the group benefit plan. However, a separate piece of guidance issued by the DOL yesterday establishes a “best interest contract exemption” that allows advisors to be paid commissions for their work, as long as they follow very specific requirements.

While almost all of the attention surrounding the rule is focused on advisors who help employers and employees with Individual Retirement Account (IRA) options, the new requirements also extend to brokers who help employers set up HSAs in conjunction with the sale and service of high-deductible health plans. NAHU and others argued to the DOL that the inclusion of HSA advice or advice associated with the sale and service of any group health insurance policy in the scope of this regulation was inappropriate, but unfortunately when it came to HSAs, the Obama Administration did not agree.

The final rule clearly establishes that advice regarding “investment property” does not include people who provide employer-sponsored benefit plans with health, disability, and term life insurance policies and other assets that do not contain an investment component. However, the final rule notes that HSA products may have associated investment accounts that can be used as long-term savings accounts for retiree healthcare expenses. HSA funds may be invested in investments approved for IRAs (e.g., bank accounts, annuities, certificates of deposit, stocks, mutual funds, or bonds). Even though the DOL acknowledged in the preamble to the rule that these accounts generally hold fewer assets and may exist for shorter durations than IRAs, they feel that owners of these accounts and the persons for whom these accounts were established are entitled to receive the same protections from conflicted investment advice as IRA owners. Accordingly, the final rule continues to include these “plans” in the scope of the final regulation, meaning that health insurance agents and brokers who help employers and employees set up HSA accounts could be taking on fiduciary responsibility for doing so, and could have to abide by the new rules established by the best interest contract exemption guidelines.

So what does this mean for licensed health insurance agents and brokers who sell HSA-compatible high-deductible health plans and help their employer and employee clients with the establishment of HSAs? First, it may be possible for a health insurance agent or broker to avoid triggering the fiduciary standard by simply educating themselves about the rules and modifying business practices accordingly. For example, the DOL has established that if client communications do not meet the definition of a "recommendation," then the communications will be considered non-fiduciary. A "recommendation" is a communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action. So it’s possible that by framing advice and communications within that definition, a broker could avoid the requirements. In addition, the regulation does allow for general investment education to be provided to clients without triggering the standard. Unfortunately, a wrinkle is that according to the rule, with regard to IRAs and HSAs, references to specific investment alternatives are treated as fiduciary recommendations and not merely "education,” so recommendations of specific HSA banks and options could be problematic. If an agent does trigger the fiduciary liability requirements, then they also would become subject to conflict-of-interest standards, “best interest contract exemption” provisions in the rule, which could be addressed by modifying current business and payment norms to meet the new standards.

In terms of a compliance timeframe, the provisions do not take effect immediately and previous advice given by agents is grandfathered. Most of the rule’s provisions are effective one year from today, or April 8, 2017. In addition, the DOL has adopted a phased implementation approach for the Best Interest Contract Exemption so that firms will have more time to come into full compliance. In particular, the full disclosure provisions, the policies and procedures requirements, and the contract requirement do not go into full effect until January 1, 2018.

Politically, a few are lauding the new rule, but many in the investment advisor industry and business groups are indicating concern. The U.S. Chamber of Commerce is currently mulling over whether to initiate litigation to stop the implementation of the rule. In addition, legislation has been pending in both the both the House and the Senate for quite some time that would require congressional approval of any final DOL fiduciary rule or replace the rule with alternative consumer protections to ensure that the financial services industry and retirement investment advisors act in the best interest of clients, disclose fees and more, but in a less onerous way. These replacement requirements would take agents and brokers and employers that offer HSAs out of the group retirement plan fiduciary standard equation. Yesterday, House Speaker Paul Ryan announced, “saving for the future is daunting enough without Washington trying to make it harder. That’s why House Republicans, led by Phil Roe, Peter Roskam, and Ann Wagner, have held the Obama Administration accountable throughout the fiduciary rule process. While it is clear that public and congressional scrutiny are making a difference, we will continue to look at every avenue to protect middle-class families and small businesses from government overreach.” Senator Johnny Isakson (R-GA), who has been leading charge against the rule in the Senate, told the media yesterday that he was working on a resolution of disapproval to be introduced in the Senate. However, all of these measures are likely to be vetoed by President Obama and none appear to have enough support for an override vote.

It’s unclear how the fiduciary rule would stand, and what priority its implementation would take in any new presidential administration. As the Washington Update went to press, only Secretary Hillary Clinton had made a statement about the new rule, noting, “Wall Street shouldn’t be allowed to put its own interests before those of American families and their retirement savings. Today’s announcement will stop Wall Street from ripping off families, save seniors billions, and help ensure American workers can retire with dignity and security.” Senator Sanders has previously indicated his support for the progress of new fiduciary standards and none of the GOP candidates have issued comprehensive statements on the matter to-date.

Another political option would be to seek smaller fixes to the regulation, including a potential exemption from HSAs from the scope of the requirements through the legislative process. If Congress knows the rule will not yield increased protections to HSA holders, but instead limit HSA access and support for millions of American employer plan participants, then perhaps bipartisan action could be taken to exempt this marketplace from onerous regulation before it hurts employers and consumers in the 2017 plan year. But health insurance agents and brokers and their employer clients will need to work together to make it happen.

Assuming that the final rule stands and is implemented as scheduled, brokers and employers offering HSAs as a group benefit option will need to become very familiar with the final rule’s standards and requirements and change their compliance standards or operating practices according to the liability they are willing to take on. Or, they could look for alternative product options for their clients. An option to avoid the compliance burden altogether would be for employer groups to drop their HSA-compatible coverage options and/or group HSA account support as an employee benefit in favor of other options requiring less compliance responsibility and liability. For example, employers and their licensed agents would have no new fiduciary responsibilities if they replaced an HSA option with a health reimbursement arrangement that was fully integrated with their group health insurance coverage. However, that option would likely be less financially advantageous for employees, doesn’t evoke the same degree of consumerism and has its own cost risks and burdens for the employer.

NAHU will continue to monitor this issue, and will work with Congress and coalition partners to seek modifications to the rule over its two-year implementation period. In addition, we will develop comprehensive compliance resources for our members, so that if and when the rule’s provisions do take effect full-force, you will be well prepared to make sound decisions about future business practices that make sense for both you and your employer clients.