Plan sponsors are increasingly positioning health savings accounts (HSA) as retirement savings vehicles rather than healthcare spending tools, according to the Plan Sponsor Council of America and Empower Retirement.
More than half of employers (51.5%) now position HSAs for retirement, reinforcing the notion that HSAs “can be a powerful retirement savings tool,” the organizations report.
However, employers remain concerned about how to best explain HSA benefits to employees, and employee education topped the list of HSA concerns for the second year in a row, though the percentage indicating so did drop five points this year to just more than half of respondents.
While the top education priority for nearly half of survey respondents is explaining the HSA tax preferences, 20 percent target contribution limits as the primary goal.
“While HSAs have been around for more than a decade and a half, employers and participants are only just coming to appreciate their power as an additional way to save for retirement,” Jack Towarnicky, principal researcher for the American Retirement Association (ARA), said in a statement. “Employers need continued support in explaining the unique benefits of HSAs to employees—aligning it with their retirement savings programs rather than solely as a separate health benefit can help overcome some of these education barriers.”
Offering the same, or some of the same, investment options in the HSA program as in the 401k plan can help ease the education barrier around HSAs.
However, only 4% of employers are currently doing so. Among the 15% that would like to, provider capability (or lack thereof) is the primary reason they are unable to at this time. This is an opportunity for continued innovation with HSAs and retirement plan providers.
“Employers and employees are still learning about the advantages of using HSAs as a retirement savings vehicle,” added Tina Wilson, Senior Vice President Chief Product Officer at Empower Retirement. “As healthcare costs continue to rise, we want to help employees understand the best way to use these healthcare savings accounts and to begin saving specifically for their healthcare expenses in retirement. Our challenge is helping workers understand that HSAs can be part of a multi-pronged retirement plan.”
Important findings
- The average participant contribution in 2019 was $2,595, the same as in 2018 while the average account balance at the end of 2019 was up slightly from a year ago, at $5,627
- The vast majority of responding organizations (83.8%) offer investment options for HSA contributions, though more than 80 percent require a minimum balance of at least $1,000 to invest assets.
- Nearly a third of organizations automatically enroll employees in the HSA if they enroll in the HSA-qualifying health option but fewer than ten percent of organizations use or suggest a default savings rate.
- While education occurs primarily at open enrollment for the vast majority of respondents, a growing number are doing so at other times throughout the year.
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.
