Benefits April 15, 2021

The Role of HSAs in Financial Wellness and Retirement

Plan sponsors can promote the HSA benefit as a part of employees’ financial wellness and liken its importance to other financial planning tools.

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Health savings accounts (HSAs) have long been utilized to pay for current medical expenses, but more employers and workers are now investing their account balances to establish better retirement security.

Experts at the 2021 PLANSPONSOR HSA Conference discussed the confluence of financial wellness and retirement, and how employers can maximize HSAs to achieve both financial wellness and retirement security.

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First, plan sponsors should converge both categories into one and discuss the two during the same season. “Plan sponsors think of retirement at one point in the year and health care in the other part of the year,” said Greg Puig, vice president of Benefits Consulting Services at Sentinel Benefits and Financial Group. “We need to bring the strategic initiative at an employer level, but also add benefits and education within that equation.”

The solution is to add retirement planning as part of the benefit, and not as its own separate category, noted Puig. Then, providing an HSA benefit offers a bridge strategy for workers in every age demographic, but especially for longer-tenured ones. This is because it aligns the thought process on health care and retirement for older employees, and also prepares them for it, Puig says.

Additionally, HSAs can serve as a cushion if a retiree needs to resolve issues with Medicare insurance. “A lot of people think Medicare as an entitlement policy, and then when they get to retirement, they believe that they made it,” explained Puig. “They go on Medicare and realize they didn’t sign up the right way and didn’t know about the donut holes that exist. With the HSA vehicle, they have this buffer to help them with retirement.”

Amy Ray, director, Advice and Wellness Product Development, Transamerica, spoke on the importance of integrating both retirement and HSA benefits, and especially on the same online platform. The idea is that every time a participant logs onto a site to view their retirement or HSA, they’re seeing both benefits side-by-side. Not only are participants integrating the two together, but memorizing one portal, login and password can incentivize them to engage with the benefits, Ray added.

The advantages to managing one single platform extend to the employer too, as plan sponsors can offer their benefits all in one space. Also, receiving different materials from several providers, rather than one, can be difficult for the plan sponsor to integrate and work with. By working with one provider, “you can analyze the trends and get engaged with how [participants] are using the different benefits,” Ray commented.

Ray remarked on the open enrollment process, and how the limited time affects how both participants and employers make decisions. For example, during open enrollment season, both groups have multiple decisions to consider during the process, including the type of health insurance to select and any other voluntary benefit options.

But, if an employer is looking to change HSA providers, they can choose to do so during a different time, Ray pointed out. This eliminates another stressor during open enrollment season and makes room for additional education and communication on HSAs. “The benefit of doing it off cycle is that you get more time to focus on education, the rollout and what makes most sense for your employees,” she said. “They are not bogged down with all of the things that are going around during open enrollment season.”

Offering an HSA may also mitigate common stressors seen during the pandemic, including employee burnout. Data from MetLife found that 19% of employees who participated in an HSA were likely to feel overall reduced financial stress. With the addition of flexible work environments including remote work, this translated into employees feeling more financially and physically healthy and having an overall sense of their wellbeing and benefits with their employer, added Juliane Kowalski, senior vice president of Product Development at MetLife. “These actionable steps can contribute to a feeling of resiliency in a workforce and combat those concerns of wellness,” she stated.

During the panel, experts also provided to-do lists when integrating an HSA to a plan. First, plan sponsors should ensure they have integrated partners to work with, suggested Puig. “Take a step back and look at who you are working with today, and make sure they have the knowledge base and the relationships to integrate these conversations,” he said.

Then, ask yourself where and how your employees are being educated in retirement, and then work in education on HSAs, encouraged Ray. Creating a partnership with an HSA provider can help plan sponsors achieve this. Building an alliance can drive this education forward, especially as employees are likelier to engage in employer notices, said Ray. “In our data, we see a higher read rate on emails if that’s coming from their employer and who they work for,” she explained. 

Benefits April 14, 2021

Selecting an HSA Service Provider

Experts say providers should be able to educate participants about how the accounts work and their triple tax benefits.

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During one of the virtual 2021 PLANSPONSOR HSA Conference panels, Greg Adams, a consultant with Fiducient Advisors, said there is a lot of growth potential ahead for health savings accounts (HSAs).

Keith Kotfica, senior vice president of partnerships at HealthEquity, agreed, saying, “What HSAs look like now are what 401(k)s looked like 25 years ago. Even through the COVID-19 pandemic, HSA adoption has continued to grow, with total accounts reaching 30.2 million in 2020, according to data from Devenir. The average account balance also continues to grow, reaching $3,428 at the end of 2020. However, half of all accounts contain less than $500, signaling the opportunity for organizations to provide more support. Ninety percent of folks with HSAs are using it as a spending vehicle, even though its benefits as a tax savings vehicle are off the charts.”

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Kotfica also noted that while many HSA accounts are in money market funds, more HSA account holders are investing their money; today, $40.9 billion of HSA assets are invested, and assets grow 50% each year. “HSA account balances among those who invest are 6.5 times larger than those who are not invested,” he said. As of December 31, invested balances averaged $13,939, he said.

Kevin McKechnie, founder and executive director of the HSA Council at the American Bankers Association, said that when selecting an HSA vendor, an employer should look for a provider that allows funds to be automatically deposited into the HSA account through payroll.

McKechnie said the HSA provider should also be able to educate participants about the tremendous health care costs they will face in retirement, and he cited Fidelity Investment’s research pointing out that a 65-year-old couple retiring this year will spend more than $300,000 on health care.

Adams noted that HSAs are individual accounts for participants and are not subject to the Employee Retirement Income Security Act (ERISA), so “the responsibilities of 3(38) fiduciaries does not apply to sponsors. Therefore, [to keep the HSA not subject to ERISA] employers should not be picking the underlying investments in the HSA. If they want to scrutinize them, they can hire a third party to do that.”

Adams added that it is important that the investment menu addresses the needs of those employees who are going to be using the HSA as a spending account, as well as the minority who will be using it as a savings account. “Also make sure that there are plenty of resources and education for participants on the investments,” he said.

Kotfica said that unlike a 401(k) or other defined contribution (DC) plan, which people do not begin using until they retire, participants use HSA funds for immediate medical needs, so the HSA provider needs to have 24/7 customer support available.

“The most important factor is ease of use,” he said. “The customer service folks should also be able to teach HSA holders to be good consumers of health care and to guide them to lower-cost solutions. They will be eternally grateful if you help them save money.”

Adams said the HSA provider should also be able to educate participants about the triple tax savings of these accounts to encourage them to save money in the account for health care costs in retirement. “Employees should definitely be educated on how to use these accounts for the maximum benefit,” he said. “The proper education of consumers is the single greatest challenge we face with HSAs.”

From the employer’s perspective, plan sponsors should look for a provider that can handle data whether it comes from the payroll provider, the health plan, the benefits administrator or from the employer directly, Kotfica said.

Adams said it is also important for employers to look at the fees the HSA charges; if a participant loses their HSA debit card, is there a charge to get a new one? Is there an annual or monthly maintenance fee the HSA provider will charge participants?

Finally, Kotfica said sponsors should make sure the health care plan is properly linked to the HSA.

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