Call it a lotta interest with little education.
Across discussions with 401k and defined contribution industry executives throughout 2018, global research and consulting firm Cerulli Associates notes an increased interest in the health savings account (HSA) market.
“Interest in the HSA market from the DC community (i.e., defined contribution investment-only asset managers, recordkeepers, advisors/consultants) has peaked in the last 12 to 24 months due to an increased emphasis on holistic financial planning and financial wellness programs,” Dan Cook, an analyst in the retirement practice at Cerulli, said in a statement.
However, HSAs are often used as spending accounts to fund short-term needs (e.g., medical expenses incurred during the year) rather than saving accounts for long-term healthcare expenses.
“Many DC plan participants miss the opportunity to accumulate savings for healthcare needs in retirement, not because they do not want to invest, but because they do not know that they can use an HSA to invest,” Cook added. “This knowledge gap can be addressed through education efforts aimed at getting participants, plan sponsors, and advisors to view HSAs as a retirement benefit.”
A useful starting point, he explained, is to clearly explain the key benefits for account holders associated with HSAs, such as the triple tax advantage.
Employees can claim a tax deduction on their contribution, assets in the account grow tax-deferred, and distributions are tax-free when used for qualified medical expenses.
In addition, employers’ contributions are excluded from employees’ gross income, contributions remain in the account until they are used, and the accounts stay with the investor if they change employers or leave the workforce.
Another important consideration is the timing and frequency of HSA-related communications.
“Cerulli advocates for consistent HSA communications (i.e., conducted year-round) that are linked with the employer’s retirement plan offering (e.g., DC plan),” Cook concluded. “By fostering a strong connection between HSA and DC plans, providers can help participants associate the HSA with retirement savings.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
