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CUNA Regulatory Comment Call

May 28, 2004

EXECUTIVE SUMMARY

• Health savings accounts (HSAs) were approved as part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, which was passed last December. HSAs are tax-exempt accounts established for the purpose of paying qualified medical expenses. Any individual covered by a high-deductible health plan (HDHP) may establish an HSA. HSAs provide another tax-favored savings vehicle, along the lines of an individual retirement account (IRA) or a 401(k) plan, for those individuals who do not have to draw significantly from the accounts for medical needs. Amounts contributed to an HSA belong to the individual and are completely portable. More information about HSAs is available on CUNA’s website at http://www.cuna.org/reg_advocacy/member/hot_topic/hsa.html.
• Under the HSA guidance issued by the Internal Revenue Service (IRS) in January of 2004, a bank (or similar financial institution which would include a credit union) or insurance company can be an HSA trustee or custodian. IRS Bulletin 2004-2, which contains that HSA guidance, is available on the IRS website at http://www.irs.gov/irb/2004-02_IRB/ar09.html. This proposal would amend two parts of NCUA’s rules to authorize federal credit unions (FCUs) to serve as trustees or custodians for Health Savings Accounts (HSAs) established by members. CUNA has worked closely with NCUA to ensure that all relevant issues regarding authorization of FCUs to serve as trustees or custodians of HSAs are covered in this proposal.
• The proposal would amend Part 724 (Trustees and Custodians of Pension Plans) of NCUA’s rules in the following ways:

  • The caption of Part 724 would be changed to "Trustees and Custodians of Certain Tax-Advantaged Savings Plans." The substitution of the more inclusive term "tax-advantaged savings plans" reflects that trustee and custodial authority is no longer limited to pension and retirement plans.
  • The proposal would add HSAs to the section (724.1) that authorizes FCUs to act as trustees or custodians for retirement, pensions and education savings accounts. The proposal does this by inserting a reference to the Internal Revenue Code (IRC) section on HSAs (Section 223) to go along with the references to the IRC sections on retirement, pension and savings accounts. In addition, the title of Section 724.1 would be modified from "Federal credit unions acting as trustees and custodians of pension and retirement plans" to "Federal credit unions acting as trustees and custodians of certain tax-advantaged savings plans." And the reference in the section to "pension or profit-sharing plan" would be replaced with "tax-advantaged savings plan".
  • In the section (724.2) of the rule regarding the role FCUs may play in facilitating the transfer of funds for members for investments outside of share or share certificate accounts that the FCU maintains, the proposal would clarify that members may determine investment options for HSAs as well. The title of Section 724.2 would be changed from "Self-Directed Retirement Plans" to the broader "Self-Directed Plans."

• The proposal would amend the provision (Section 721.3(l)) in NCUA’s incidental powers regulation regarding the types of accounts for which trustee or custodial services are preapproved for FCUs. In addition to replacing the reference to profit and pension sharing plans with more expansive "tax-advantaged savings plans," the proposal would also add HSAs to the preapproved list of the types of plans for which an FCU may serve as trustee or custodian.
• The proposal does not include an amendment to NCUA’s share insurance rules to allow for separate share insurance coverage for HSAs. The Federal Deposit Insurance Corporation (FDIC) has indicated that it does not consider HSAs to be a separate category for insurance coverage purposes; NCUA traditionally has maintained parity with the FDIC on matters involving the scope of account insurance coverage. As with other types of revocable trust accounts, the interests of person(s) designated by the owner of an HSA to receive any balance in the account may qualify for separate insurance coverage under existing rules. To qualify for separate insurance, the designated beneficiary must be the spouse, child, grandchild, parent or sibling of the account owner; the other requirements in NCUA’s rule (Section 745.4) regarding share insurance for revocable trust accounts must also be satisfied. The Board will monitor developments in this area and may reconsider its position at a later time if circumstances warrant.
• The U.S. Treasury Department and Internal Revenue Service are expected to issue guidance later this summer regarding: (1) the disclosures that must be provided to explain the terms and conditions of the HSA account such as eligibility, prohibition on pledging and tax consequences and (2) the forms to be used for reporting – both to the HSA accountholder and to the IRS. CUNA recommends that credit unions wait until the forms and guidance are issued to fully evaluate whether they should serve as trustees or custodians of HSAs.
• State chartered credit unions need to determine what authority they have under their state law or regulations to actually serve as HSA trustees.
• Comments are due to NCUA by June 25, 2004. Please send your comments to CUNA by June 16, 2004. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com; or mail them to Mary or Catherine in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, 6th Floor - South Building, Washington, DC 20004-2601. You may also contact us if you would like a copy of the NCUA proposal, or you may access it on the CUNA website at the following address:

  http://www.cuna.org/reg_advocacy/member/download/rcc_052804_HSA.pdf

1. Do you agree with the proposed rule changes to provide authority for credit unions the authority to serve as trustees or custodians of HSAs?
   
   Yes ______ No ______
   
   If not, why not?
   
   

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2. Is your credit union interested in acting as an HSA trustee/custodian for your members now or in the foreseeable future?
   
   Yes ______ No ______
   
   Please explain.
   
   

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3. Do you agree with NCUA’s current position that HSAs will not be treated as a separate category for insurance coverage purposes?
   
   Yes ______ No ______
   
   Please explain.
   
   

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4. Other comments?
   
   

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