In a special meeting, a state board on Wednesday authorized the health plans covering public-school and state employees to pay $224,000 "under protest" to transfer the employees' health-savings accounts from one company to another.
As part of the same vote, the State and Public School Life and Health Insurance Board also made a "strong recommendation" that the state Department of Finance and Administration seek reimbursement for the fees from San Mateo, Calif.-based WageWorks through legal action.
The fees -- $16 per account -- are being charged by Bank of New York Mellon to transfer the 14,000 health-savings accounts from the management of WageWorks to that of Little Rock-based DataPath.
State officials and board members contend the transfer fees, as well as the bank's monthly administrative fee of $2 for accounts with balances under $5,000, weren't disclosed when WageWorks took over management of the accounts at the beginning of this year.
The board voted to authorize paying the fees in a voice vote. Although no members audibly dissented, Janis Harrison abstained and another member, Shelby McCook, said he didn't vote.
McCook said state law doesn't appear to require the board to approve such expenditures. He also noted that the board wasn't involved in state officials' decision to terminate the WageWorks contract, effective Dec. 31, and issue an emergency contract to DataPath.
"We're in a hell of a mess," McCook said during the meeting. "I've never seen anything like this."
Harrison, a finance department manager who was interim director of the department's Employee Benefits Division from early January through late May, said after the meeting that she was afraid that paying fees could undercut the state's argument they shouldn't have been charged.
"I think we should allow [Bank of New York Mellon] to take the $16 out of [employees'] accounts, and then we need to research how we get that back, and then we either litigate or just make a decision to pay it," Harrison said. "I don't think all the possibilities have been examined."
The board manages the health plans covering about 45,000 school employees and 26,000 state employees in addition to retirees, and employees' and retirees' spouses and dependents.
WageWorks had told the Employee Benefits Division that it would charge only a monthly administrative fee of $1.90 per account, said Chris Howlett, director of the division,
But on Feb. 26, Bank of New York Mellon, the custodian of the accounts, notified state and school employees that it would begin charging the additional $2 monthly fee on some accounts effective April 1. The firm also said it would charge a $16 fee for employees who transfer their accounts to a different bank.
Lisa Ables, an attorney with the finance department's office of revenue legal counsel, found that the fees are "inappropriate" because they weren't disclosed when WageWorks submitted its bid last year to manage the accounts.
In a May 26 letter to Harrison, Ables noted that the company's contract requires it to absorb any fees not listed in its bid and makes it "fully liable for all services provided by its subcontractors."
WageWorks agreed to cover the bank's added $2 fee the rest of this year, but Howlett said he wasn't able to reach an agreement with the company on how the fees should be handled next year.
DataPath, which had administered the accounts before losing the contract to WageWorks last year, will charge the Employee Benefits Division an administrative fee of $2.25 per account, Howlett said.
DataPath has assured state officials that it won't charge any other fees, including transfer fees, he said.
In addition to the health-savings accounts, DataPath will take over the administration of the state and school employees' flexible spending accounts as part of the same contract.
Both types of accounts allow employees to accumulate money that is not subject to income taxes as long as it's spent on health care.
The WageWorks contract includes accounts available to state employees and employees of most school districts, although some districts have contracts with other companies to administer the accounts, Howlett said.
The state will solicit bids for a new contract in August, he said.
The board first considered approving the payment of the transfer fees last week but decided to put off a decision until it could get advice from the state attorney general's office.
Daniel Faulkner, an attorney with the office, told the board Wednesday that he "can't hazard a guess as to how litigation would turn out, but there's potentially a litigation issue there."
The board's benefits subcommittee had recommended paying the fees to transfer accounts with balances of at least $100, but the board on Wednesday approved paying the fees for all accounts, regardless of the balance.
Howlett said the Employee Benefits Division will pay the fees directly. Employees won't be charged, he said.
The board also voted Wednesday to seek written assurance that DataPath won't charge any fees to close or transfer employees' accounts if another company wins the contract to manage them.
Metro on 12/22/2016