Highlight on Arkansas: State forced to pay $224K to transfer public employee health savings accounts

The Arkansas State and Public School Life and Health Insurance Board agreed to pay fees to ensure that state employees’ health savings accounts (HSAs) are available for the new year, but is not happy about it. On December 21, 2016, the Board voted to pay the $224,000 to the Bank of New York Mellon (the bank) “under protest” to facilitate the transfer of 14,000 health savings accounts, but may pursue litigation to recover the fees that the state says were not clear when the contracts were signed. These accounts are also available to public school employees.

Contract debacle

Without involvement from the board, state officials decided to terminate its contract with the former HSA manager, WageWorks (located in California) and issue an emergency contract to DataPath, based in Little Rock. Officials made this decision due to another fee dispute between WageWorks and the bank. WageWorks had originally stated it would charge an administrative fee of $1.90 per account each month. Then in late February, the bank, acting as account custodian, notified state and school employees that accounts with less than $5,000 would be subject to an additional $2 monthly fee and that employees would be charged $16 if they transferred to another bank.

An attorney with the finance department noted that the contract with WageWorks require the company to absorb fees not listed in the original bid, and that it is fully liable for all subcontractor services. Although WageWorks agreed to cover the added $2 fees for 2016, an agreement was not reached for 2017. DataPath, which had previously administered the accounts before the state switched to WageWorks, agreed to charge administrative fees of $2.25 per account, with no other fees imposed.

Transfer fees

The 2017 DataPath contract, which includes administration of flexible spending accounts, did not put an end to surprise fees. The bank is making good on its notification of the $16 transfer fee, which totals $224,000. The board was reluctant to approve the fees, but did so (in spite of a board member’s assertion that state law does not require such an approval). A finance department manager expressed concern that paying the fees would undermine the state’s position that the fees were improperly imposed. Although the state attorney general’s office is unsure if litigation would be successful, it believes that there is a potential lawsuit.

Future preparation

Employees will not see any charges to their accounts upon transfer, as the fees will be paid by the Employee Benefits Division. The board also voted to try to obtain a written commitment from DataPath not to charge fees to close or transfer accounts if another company wins the management contract in the future. The 2018 bidding process will begin in August.