Administration October 30, 2023

CalSavers Sees Retirement Plan Registrant Increase

Other state plans lag behind, but the Golden State’s program continues to welcome more registered employers and participant-funded accounts. 

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The CalSavers retirement savings program continued to support an increase in registered employers, submitted retirement plan contributions and participant-funded accounts in September, according to its latest participation report.

In September, the number of employers registered with the state-run program for private sector employees hit 119,045, while 44,755 made payroll deductions, and funded participant accounts reached 455,255.

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CalSavers is one of 21 retirement savings programs sponsored by local governments: 19 state programs and two city programs. CalSavers’ automatic individual retirement account program held $613.7 million in total assets at the end of September, a slight drop from $615.4 million at the end of August.

“With enforcement efforts in full swing, CalSavers saw increases in many key areas in September, including registered employers, employers submitting contributions and—most importantly—funded accounts,” a CalSavers press release stated.

The dollar value of assets held in the CalSavers program dwarfs all other state-facilitated plans combined, according to data from Georgetown University’s Center for Retirement Initiatives. By comparison, through the end of August, OregonSaves held $215.5 million in total assets; Illinois Secure Choice held $133.7 million; the Massachusetts Defined Contribution CORE Plan held $25.1 million; Colorado SecureSavings held $14.3 million; Connecticut’s MyCTSavings program held $9.2 million; and MarylandSaves held $2.9 million. The programs were established at different times; those in California, Oregon and Illinois were all established by 2018.

In 2022, California passed a law to expand the state mandate to all employers with at least one employee, and, at the time, CalSavers surpassed 100,000 enrolled employers. The state has mandated that employers operating in California must register to participate in the program at different periods based on the number of workers employed.

Among those who have not received a notice to register in past year, employers with five or more employees must register by December 31. The California state-mandated registration deadline for employers with between one and four employees is December 31, 2025. CalSavers opened to all eligible employers in July 2019.

According to research from the Pew Charitable Trusts, as many as 56 million private sector workers lack access to a retirement savings plan through their jobs. States have stepped in, approving programs to provide workers with access to retirement plans.

During the 2023 state legislative sessions, at least 25 states and Washington, D.C. considered legislation to either establish new programs, amend existing programs or form study groups to examine options, according to data from the Georgetown Center for Retirement initiatives. Three new auto-IRA programs have been enacted this year—Minnesota, Nevada and Vermont—along with one new multiple employer plan in Missouri.

Data and Research October 27, 2023

HSAs Still Have Room for Improvement, Morningstar Reports

Despite the rapid growth of HSAs in recent years, providers can still do more to encourage HSA participants to use their accounts as investment vehicles.

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Health savings accounts have grown at a furious pace, with total assets invested in HSAs rising by a factor of 21 since 2006 to roughly $116 billion, according to a report released by Morningstar Inc.

But although the industry has matured over the years, analysts from the firm say there is room for improvement in areas that include user education, transparency, ease of use and cost. Beyond those adviser- and provider-led initiatives, the firm also noted the potential for legislation to allow HSAs as an option to receive automatic income deferral.

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Morningstar evaluated 10 of the largest HSA providers for individuals on two different use cases: as spending accounts to cover current medical costs and as investment accounts to save for the long term.

In a ranking of the providers by Morningstar, seven out of the 10 received “above average” or “high” for overall assessment as a spending account, with Associated Bank ranking as “average,” and Bank of America and Saturna ranking “below average.”

For using the HSA as an investing account, only four firms ranked as “high” or “above average,” with the other six coming in as “average.”

Only two providers earned assessments of either “high” or “above average” in both cases: Fidelity (“high” in both) and HealthEquity (“above average” in both).

Morningstar did not assess HSAs offered by employers, as details can vary depending on relationships and headcount. Each of the 10 providers responded to Morningstar’s survey with detailed information.

Improving Use

According to Morningstar, HSA providers and regulators should do more to encourage HSA participants to use their accounts as long-term investment vehicles.

“Advisers can address these issues by guiding clients to HSA plans that charge lower fees,” Greg Carlson, senior manager research analyst of equity strategies at Morningstar, says via email. “Advisers can also seek out plans that have better tools and educational materials and put up fewer hurdles to accessing HSAs’ full feature set, including investment options.”

One barrier to increased investing within HSAs is that participants are not always aware of the investment-account option, according to Morningstar. The firm’s report suggested that advisers can help providers o simplify the account-opening process and give participants more educational materials on how to use HSAs in coordination with retirement savings. Providers that offer better guidance and tools tend to have higher average investment account balances, according to the analysts.

“While HSAs have seen enhancements as the industry has matured, such as decreased fees and improved investment options, they still face challenges in terms of transparency, user-friendliness, and cost-effectiveness,” according to the report’s authors. “The process of exploring account details, enrolling in an HSA, and funding it remains intricate. Some leading providers still impose maintenance and investment fees, as well as requiring a minimum account balance before allowing participants to invest.”

In addition, according to Morningstar, many providers offer “meager” interest rates on account balances that fall below relatively high thresholds.

Long-Term Savings

While employers are allowed to automatically enroll employees in employer-sponsored retirement plans, the government has not ruled on whether they can do the same for HSAs. If HSAs were made part of automatic enrollment, the vehicles would see more use and, with that, potentially better services, Morningstar noted.

If the savings accounts grow more popular, especially if they become part of automatic deferrals, participants will need to consider factors that do not apply to retirement plan investment decisions, Morningstar’s analysts wrote. For example, because at least some HSA money may be needed to cover sudden medical expenses, it makes sense to avoid large allocations to aggressive investments.

Morningstar did find that participants using HSAs as investment vehicles endured market declines in 2022 well. Despite losses in both broad equity and bond indexes, “both the total and average assets in HSA investing accounts among the providers Morningstar surveyed rose from the end of 2021 to the end of 2022,” the firm wrote.

That same investment tracking has continued to grow in the first half of 2023.

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