HSAs and 401ks: Not an ‘Either/Or’ Discussion

Does one 'cannibalize' the other?

401k, HSA, retirement, health savings accountCoexist.

The whole is greater than the sum of its parts.

A recent HSA and 401k contribution analysis from benefits administration and solutions-provider Alight found that participants who contribute to both a health savings account and a 401k do so in greater amounts than those who contribute to just one or the other.

Specifically, the firm found that 57 percent of people who are offered both and HSA and 401k from an employer contribute to both.

“We took a look at who is using both the employer-sponsored medical plan and who is using the employer-sponsored 401(k) plans,” said Rob Austin, Alight’s head of research. “We have recordkeeping data on both and we often hear how one might cannibalize the other since there is only so much of a dollar-spend that participants can afford.”

So, does offering an HSA deter people from contributing to a 401k?

“For the most part, no,” Austin claimed. “The majority of people that are eligible to be contributing to a 401k plan and an HSA are actually putting money into both of those vehicles.”

He concedes the 57 percent figure “is not a great number, it’s not a terrible number.”

While there’s room for improvement, it’s a sign both can be used in conjunction “as an ‘and’ rather than an ‘either/or.’”

And the findings were independent of income level, which further dispelled the “cannibalizing” narrative.

The biggest surprise to come from the analysis was the size of the difference in contribution amounts, with Austin noting an 8.9 percent average savings rate to the 401k and HSA, yet only a 6.8 percent average when saving in a 401k alone.

“That’s a pretty big difference. I was expecting to maybe see some differences, but you see something with that much of a change and I think it was really somewhat eye-opening.”

Austin said he and the Alight team have been looking into the data for some time, and have had clients ask about instituting an HSA, but worry about its effect on the company-sponsored plan currently offered.

“The impetus for the report was that people were thirsty for this information and we have it available,” he concluded. “The HSA discussion now kind of almost feels like where 401ks were 30 years ago. It’s new, so how can we make it work? Only time will tell how much the HSA catches on, and it’s in its infancy, but we’re definitely getting a lot of those questions.”

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