|
December
22, 2004
|
2004-09A
Code
Sec.
4975(c)
|
Thomas
G.
Schendt,
Esq.
Alston
&
Bird
LLP
601
Pennsylvania
Avenue,
N.W.
North
Building,
10th
Floor
Washington,
DC
20004-2601
|
Dear Mr.
Schendt:
|
This
is
in
response
to
your
request
for
an
advisory
opinion
from
the
U.S.
Department
of
Labor
(the
Department)
concerning
the
application
of
the
prohibited
transaction
provisions
under
section
4975(c)
of
the
Internal
Revenue
Code
of
1986,
as
amended
(the
Code),
to
certain
contributions
to
health
savings
accounts
(HSAs),
as
described
below.(1)
|
You
represent
that
your
client,
an
insurer
(the
Company)
and
its
affiliates,
offers
various
health
benefit
plans
in
the
individual
market,
including
high
deductible
health
plans
(HDHPs),
as
that
term
is
defined
in
section
223(c)(2)
of
the
Code.
In
addition,
the
Company
either
offers
HSAs,
as
defined
in
section
223(d)
of
the
Code,
to
individuals
covered
by
HDHPs
issued
by
the
Company,
or
enters
into
a
contractual
arrangement
with
a
specified
bank
that
will
offer
HSAs
to
such
individuals,
as
described
below.
|
Your
letter
contains
the
following
facts
and
representations.
|
Factual
Scenario
I
|
Under
Factual
Scenario
I,
only
persons
insured
under
HDHPs
issued
by
the
Company
in
the
individual
market
are
able
to
establish
HSAs
with
the
Company.
However,
a
person
does
not
have
to
establish
an
HSA
with
the
Company
to
participate
in
an
individual
HDHP
with
the
Company.
If
a
person
establishes
an
HSA
with
the
Company,
the
Company
will
serve
as
both
the
trustee
or
custodian
and
the
record-keeper
of
the
HSA.
The
Company
does
not
provide
HSA
custodial
services
in
the
employer
group
market.
|
To
encourage
participation
in
the
Company’s
HSA
program,
the
Company
will
offer
an
incentive
to
a
person
who
establishes
an
HSA
with
the
Company
when
he
or
she
first
enters
into
an
individual
HDHP
with
the
Company.
This
incentive
will
be
in
the
form
of
a
$100
cash
credit
by
the
Company,
as
trustee
or
custodian,
directly
to
the
individual’s
HSA.
This
credit
to
the
HSA
will
be
automatic.
The
account
holder
will
not
be
required
to
make
any
contribution
to
his
or
her
HSA
to
receive
the
credit
to
his
or
her
HSA.
The
credit
is
dependent
on
the
establishment
of
an
HSA
with
the
Company.
The
account
holder
will
not
be
able
to
divert
the
money
to
himself
or
herself
before
it
is
credited
to
the
HSA.
|
If
the
person
does
not
establish
an
HSA
with
the
Company,
he
or
she
will
not
receive
any
incentive
from
the
Company
under
this
incentive
program.
Thus,
for
example,
the
individual
will
not
receive
any
incentive
from
the
Company
in
the
form
of
a
credit
to
an
HSA
not
provided
by
the
Company
or
in
the
form
of
money
paid
to
him
or
her
outside
of
the
HSA.
The
credit
to
the
account
holder’s
HSA
with
the
Company
will
be
subject
to
the
statutory
requirements
for
HSAs
set
forth
in
section
223
of
the
Code,
and
the
tax
treatment
of
any
distributions
from
the
HSA
attributable
to
this
credit
will
be
governed
by
the
provisions
of
section
223(f)
of
the
Code.
|
With
respect
to
each
HSA
established
with
the
Company
pursuant
to
this
incentive
program,
the
Company
represents
that
any
arrangement
for
services
by
the
Company
to
the
HSA
(e.g.,
as
trustee
or
custodian
and/or
record-keeper
of
the
HSA)
will
meet
the
requirements
of
section
4975(d)(2)
of
the
Code
and
the
Treasury’s
regulations
at
26
CFR
§54.4975-6.
|
The
Company
represents
that
the
premiums
payable
under
the
HDHP
will
not
vary
based
on
the
individual’s
choice
of
HSA
custodian
or
trustee.
Thus,
the
individual’s
insurance
premiums
will
not
be
higher
or
lower
as
a
result
of
his
or
her
decision
to
establish
an
HSA
either
with
the
Company
or
with
some
other
custodian
or
trustee.
The
Company
also
represents
that
any
administrative
fees
the
Company
may
charge
the
account
holder
with
respect
to
his
or
her
HSA
will
not
change
(i.e.,
will
not
increase
or
decrease)
as
a
result
of
the
credit
to
his
or
her
HSA.
|
The
Company
states
that
although
the
duration
of
this
incentive
program
has
not
been
determined,
it
envisions
that
the
incentive
program
could
be
used
at
various
times
for
specified
periods
of
time.
The
Company
also
anticipates
that
the
amount
of
the
incentive
could
change
from
time
to
time.
However,
for
purposes
of
this
request,
the
Company
represents
that
the
amount
of
the
incentive
will
not
exceed
$100
per
person.
|
Factual
Scenario
II
|
Under
Factual
Scenario
II,
the
Company
and
its
affiliates
offer
various
health
benefit
plans
in
the
group
market,
including
HDHPs
as
defined
under
the
Code.
|
The
Company
enters
into
a
contractual
relationship
with
a
specified
bank
(the
Bank)
to
provide
HSAs
for
individuals
covered
by
HDHPs
issued
by
the
Company.
However,
an
individual
does
not
have
to
establish
an
HSA
with
the
Bank
to
participate
in
a
group
HDHP
issued
by
the
Company.
The
Bank
serves
as
the
trustee
or
custodian
and
the
record-keeper
of
those
HSAs
and
receives
remuneration
from
the
Company
for
its
services
in
that
regard.
The
Company
also
enters
into
a
contractual
relationship
with
a
specified
entity
(the
Vendor)
to
provide
various
services
in
relation
to
these
HSAs,
for
which
the
Company
compensates
the
Vendor.
Neither
the
Bank
nor
the
Vendor
is
a
member
of
the
Company’s
controlled
group
under
sections
414(b),
(c)
and
(m)
of
the
Code.
|
To
encourage
the
establishment
of
HSAs
with
the
Bank
in
connection
with
group
HDHPs
issued
by
the
Company,
the
Bank
will
offer
an
incentive
to
a
person
who
establishes
an
HSA
with
the
Bank
when
the
Company
first
covers
such
person
under
a
group
HDHP.
This
incentive
will
be
in
the
form
of
a
$100
cash
credit
from
the
Bank
directly
to
the
individual’s
HSA.
This
credit
to
the
HSA
will
be
automatic.
The
account
holder
will
not
be
required
to
make
any
contribution
to
his
or
her
HSA
to
receive
the
credit
to
his
or
her
HSA.
The
credit
will
be
dependent
on
the
establishment
of
an
HSA
with
the
Bank.
The
account
holder
will
not
be
able
to
divert
the
money
to
himself
or
herself
before
it
is
credited
to
the
HSA.
|
If
the
person
does
not
establish
an
HSA
with
the
Bank,
he
or
she
will
not
receive
any
incentive
from
the
Bank
under
this
incentive
program.
For
example,
the
individual
will
not
receive
any
incentive
from
the
Company
or
the
Bank
in
the
form
of
a
credit
to
an
HSA
not
provided
by
the
Bank
or
in
the
form
of
money
paid
to
him
or
her
outside
of
his
or
her
HSA.
The
credit
to
the
account
holder’s
HSA
with
the
Bank
will
be
subject
to
the
statutory
requirements
for
HSAs
set
forth
in
section
223
of
the
Code,
and
the
tax
treatment
of
any
distributions
from
the
HSA
attributable
to
this
credit
will
be
governed
by
the
provisions
of
section
223(f)
of
the
Code.
|
With
respect
to
the
HSAs
established
with
the
Bank
pursuant
to
this
incentive
program,
the
Company,
the
Bank
and
the
Vendor
intend
that
any
arrangements
for
services
by
the
Bank
or
the
Vendor
to
the
HSA
(e.g.,
as
the
trustee
or
custodian
and/or
record-keeper
of
the
HSA)
will
meet
the
requirements
of
section
4975(d)(2)
of
the
Code
and
the
Treasury’s
regulations
at
26
CFR
§54.4975-6.(2)
|
The
Company
represents
that
the
premiums
charged
for
the
individual’s
coverage
under
the
group
HDHP
will
not
vary
based
on
the
individual’s
choice
of
HSA
custodian
or
trustee.
Thus,
the
premiums
charged
by
the
Company
for
the
individual’s
coverage
under
the
group
HDHP
will
not
be
higher
or
lower
as
a
result
of
his
or
her
decision
to
establish
an
HSA
either
with
the
Bank
or
with
some
other
custodian
or
trustee.
In
addition,
any
administrative
fees
the
Bank
or
the
Vendor
may
charge
the
account
holder
with
respect
to
his
or
her
HSA
will
not
change
(i.e.,
will
not
increase
or
decrease)
as
a
result
of
this
credit
to
his
or
her
HSA.
|
The
Company
states
that
although
the
duration
of
this
incentive
program
has
not
been
determined,
it
envisions
that
the
incentive
program
could
be
used
at
various
times
for
specified
periods
of
time.
The
Company
also
anticipates
that
the
amount
of
the
incentive
could
change
from
time
to
time.
However,
for
purposes
of
this
request,
the
Company
represents
that
the
amount
of
the
incentive
will
not
exceed
$100
per
person.
|
Advisory
Opinions
Requested
|
With
respect
to
Factual
Scenario
I,
you
have
requested
an
advisory
opinion
that
the
credit
to
an
account
holder’s
HSA
will
not
constitute
a
prohibited
transaction
under
section
4975(c)
of
the
Code
for
either
the
account
holder
or
the
Company.
|
In
addition,
with
respect
to
Factual
Scenario
II,
you
have
requested
an
advisory
opinion
that
the
credit
to
an
account
holder’s
HSA
will
not
constitute
a
prohibited
transaction
under
section
4975(c)
of
the
Code
or
section
406
of
the
Employee
Retirement
Income
Security
Act
of
1974,
as
amended
(ERISA).
|
Prohibited
Transactions
under
the
Internal
Revenue
Code
|
Section
4975(e)(1)(E)
of
the
Code
defines
the
term
“plan”
to
include
“…a
health
savings
account
described
in
section
223(d)”
of
the
Code.
|
A
“prohibited
transaction”
under
section
4975(c)(1)
of
the
Code
includes,
among
other
things,
any
direct
or
indirect:
|
(A)
sale
or
exchange,
or
leasing,
of
any
property
between
a
plan
and
a
disqualified
person;
|
(C)
furnishing
of
goods,
services,
or
facilities
between
a
plan
and
a
disqualified
person;
|
(D)
transfer
to,
or
use
by
or
for
the
benefit
of,
a
disqualified
person
of
the
income
or
assets
of
a
plan;
|
(E)
act
by
a
disqualified
person
who
is
a
fiduciary
whereby
he
deals
with
the
income
or
assets
of
a
plan
in
his
own
interest
or
for
his
own
account;
or
|
(F)
receipt
of
any
consideration
for
his
own
personal
account
by
any
disqualified
person
who
is
a
fiduciary
from
any
party
dealing
with
the
plan
in
connection
with
a
transaction
involving
the
income
or
assets
of
the
plan.
|
A
“disqualified
person”
is
defined
under
section
4975(e)(2)
of
the
Code,
in
pertinent
part,
to
include
a
person
who
is
a
fiduciary
or
a
person
providing
services
to
the
plan.
|
Analysis
of
Factual
Scenarios
I
and
II
|
Under
Factual
Scenario
I,
the
Company
will
be
a
trustee
or
custodian
of
the
HSA.
As
such,
the
Company
would
be
a
disqualified
person
with
respect
to
the
HSA.
|
Under
Factual
Scenario
II,
the
Bank
will
be
a
trustee
or
custodian
of
the
HSA.
As
such,
the
Bank
is
a
disqualified
person
with
respect
to
the
HSA.
However,
as
we
understand
the
facts,
the
Company
would
not
be
a
disqualified
person
with
respect
to
the
HSA.
In
both
scenarios,
the
account
holder
is
a
fiduciary
and
disqualified
person
with
respect
to
the
HSA.
|
Under
both
Factual
Scenarios,
the
$100
credit
proposed
by
either
the
Company
or
the
Bank,
respectively,
would
be
a
cash
contribution
to
the
account
holder’s
HSA.
The
Department
notes
that
in
accordance
with
IRS
Notice
2004-50,
Q&A
28,
wherein
it
states
that
"any
person
.
.
.
may
make
contributions
to
an
HSA
on
behalf
of
an
eligible
individual,"
Code
section
223
does
not
prohibit
the
Company
or
the
Bank
from
making
such
contributions
to
its
customers’
HSAs.
A
cash
contribution
to
a
plan
is
not
generally
a
sale
or
exchange
of
property
prohibited
by
section
4975(c)(1)(A)
of
the
Code.
Additionally,
the
cash
contribution
would
not
be
a
transfer
of
an
asset
of
a
plan
for
the
benefit
of
a
disqualified
person
or
an
act
of
self-dealing
by
either
the
Company
or
the
Bank
under
section
4975(c)(1)(D)
or
(E)
of
the
Code
involving
the
assets
of
a
plan.
Therefore,
neither
the
Company’s
nor
the
Bank’s
contribution
of
a
cash
credit
to
the
account
holder’s
HSA,
as
described
herein,
would
be
a
prohibited
transaction
under
section
4975(c)(1)
of
the
Code.(3)
|
Similarly,
the
HSA's
receipt
of
the
Company’s
or
the
Bank’s
contribution
of
a
cash
credit,
under
the
facts
described
above,
would
not
be
an
act
of
self-dealing
on
the
part
of
the
account
holder
nor
a
receipt
by
the
account
holder
in
his
or
her
individual
capacity
of
any
consideration
from
a
party
dealing
with
the
HSA
in
connection
with
a
transaction
involving
assets
of
the
HSA.
Even
though
the
Company
or
the
Bank,
respectively,
would
make
the
contribution
as
an
incentive
to
encourage
the
account
holder's
participation
in
the
Company’s
or
the
Bank’s
HSA
program,
the
contribution
goes
to
the
HSA
and
not
to
the
account
holder.(4)
Therefore,
the
receipt
by
the
HSA
of
such
cash
contributions
would
not
be
a
prohibited
transaction
under
section
4975(c)(1)
of
the
Code.(5)
|
Since
the
Company
is
not
a
disqualified
person
with
respect
the
HSA
under
Factual
Scenario
II,
the
Bank’s
contribution
of
the
credit
to
the
account
holder’s
HSA
would
not
be
a
prohibited
transaction
under
section
4975(c)
of
the
Code
with
respect
to
the
Company.
|
Finally,
with
respect
to
the
contribution
of
any
cash
credits
by
the
Bank
to
an
account
holder’s
HSA
under
the
facts
described
above,
the
same
analysis
and
conclusions
would
apply,
for
purposes
of
the
prohibited
transaction
provisions
contained
in
section
406(a)
and
(b)
of
ERISA,
to
an
HSA
that
would
be
an
“employee
benefit
plan”
covered
under
Title
I
of
ERISA(6)
under
the
principles
discussed
in
the
Department’s
Field
Assistance
Bulletin
(FAB)
2004-01
(April
7,
2004).
Further,
in
such
instances,
the
fiduciary
responsibility
provisions
of
Title
I
would
apply
to
the
selection
of
service
providers
to
the
HSA.
|
In
discussing
whether,
and
under
what
circumstances,
HSAs
established
in
connection
with
employment-based
group
health
plans
would
be
subject
to
the
provisions
of
Title
I
of
ERISA,
FAB
2004-01
states
that
generally
such
HSAs
would
not
constitute
an
“employee
welfare
benefit
plan”
as
defined
under
section
3(1)
of
ERISA,
if
employer
involvement
with
the
HSA
is
limited.
Specifically,
HSAs
meeting
the
conditions
of
the
safe
harbor
for
group
or
group-type
insurance
programs
at
29
CFR
§2510.3-1(j)(1)-(4)
are
not
considered
employee
welfare
benefit
plans
within
the
meaning
of
section
3(1)
of
ERISA.
However,
a
finding
that
an
HSA
established
by
an
employee
is
not
covered
by
ERISA
does
not
affect
whether
an
HDHP
sponsored
by
the
employer
is
itself
a
group
health
plan
subject
to
Title
I.
In
fact,
FAB
2004-01
states
that
unless
otherwise
exempt
from
Title
I
(e.g.,
governmental
plans,
church
plans),
employer-sponsored
HDHPs
will
be
“employee
welfare
benefit
plans”
within
the
meaning
of
section
3(1)
of
ERISA
and,
thus,
subject
to
the
fiduciary
responsibility
provisions
of
Title
I.
|
This
letter
constitutes
an
advisory
opinion
under
ERISA
Procedure
76-1,
41
Fed.
Reg.
36281
(Aug.
27,
1976).
The
letter
is
issued
subject
to
the
provisions
of
that
procedure,
including
section
10
thereof,
relating
to
the
effect
of
advisory
opinions.
|
Sincerely,
Louis
J.
Campagna
Chief, Division of
Fiduciary
Interpretations
Office of Regulations and Interpretations
|
|
|
-
Under
Reorganization
Plan
No.
4
of
1978,
43
Fed.
Reg.
47713
(Oct.
17,
1978),
the
authority
of
the
Secretary
of
the
Treasury
to
issue
rulings
under
section
4975
of
the
Code
has
been
transferred,
with
certain
exceptions
not
here
relevant,
to
the
Secretary
of
Labor.
See
5
USC
App.
at
214
(2000
ed.).
-
The
Company
is
not
requesting,
and
the
Department
is
not
providing,
an
opinion
as
to
whether
any
arrangement
for
services
by
the
Company,
the
Bank
or
the
Vendor
to
an
HSA
will
satisfy
the
requirements
necessary
for
relief
under
section
4975(d)(2)
of
the
Code
and
the
regulations
relating
thereto.
In
this
regard,
the
Department
ordinarily
does
not
issue
advisory
opinions
on
questions
that
are
inherently
factual
in
nature.
-
With
respect
to
contributions
or
transfers
of
property
to
a
plan
that
are
considered
to
be
an
“exchange,”
see
Adv.
Op.
81-69A
(July
28,
1981)
and
the
Department’s
Interpretative
Bulletin
at
29
CFR
2509.94-3,
relating
to
in-kind
contributions
to
employee
benefit
plans.
-
This
distinguishes
the
arrangement
from
others
that
have
been
found
to
involve
prohibited
transactions.
See
Adv.
Op.
89-12A
(July
14,
1989)(personal
receipt
of
“free
checking”
account
services
by
a
customer
from
a
bank
in
connection
with
the
investment
of
assets
of
the
customer’s
individual
retirement
account
(IRA)
in
the
bank’s
financial
products
would
constitute
a
violation
of
section
4975(c)(1)
of
the
Code.)
See
also
PTE
93-33,
58
Fed.
Reg.
31053
(May
28,
1993)
(exempting
certain
arrangements
benefiting
an
IRA
account
holder).
-
This
advisory
opinion
does
not
address
payments
to
the
individual
account
of
any
person
who
is
a
disqualified
person
for
reasons
other
than
as
the
account
holder
of
an
HSA.
-
Section
3(3)
of
ERISA
defines
the
term
“employee
benefit
plan”
or
“plan”
as
an
employee
welfare
benefit
plan
(see
section
3(1)
of
ERISA)
or
an
employee
pension
benefit
plan
(see
section
3(2)
of
ERISA)
or
a
plan
which
is
both
an
employee
welfare
benefit
plan
and
an
employee
pension
benefit
plan.
|