Benefits January 27, 2015

Employees Accumulating Small Savings in HSAs

A study from EBRI shows average HSA account balances have grown over the longer term regardless of how long the account has been open.
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Findings from the 2014 Employee Benefit Research Institute (EBRI)/Greenwald & Associates Consumer Engagement in Health Care Survey (CEHCS) show an increasing number of individuals have held their health savings accounts (HSAs) or health reimbursement accounts (HRAs) for three or more years.

One-quarter (27%) had held their account for three to four years, up from 19% in 2008. Thirteen percent had held their account five or more years, up from 4% in 2008.

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While the total amount rolled over into HSA and HRA accounts dipped last year ($8.9 billion in 2014, down from $9.4 billion in 2013), the average rollover amounts rose slightly (from $1,165 in 2013 to $1,244 in 2014). Rollover amounts went up with the length of time an individual had held an account. In 2014, those who had held an account one to two years rolled over an average of $982; those who had held an account three to four years rolled over an average of $1,421; and those who had held an account five or more years rolled over an average of $1,428.

Eleven percent of individuals had held an account for more than a year without a rollover in 2014.

Individuals who had held an HRA or HSA for five years or more had $3,092 in their account. Those who had held an account for less than a year had less than $1,500 in their account.

The latest analysis by EBRI shows that the overall, average account balances in HSAs and HRAs was $2,077 in 2014, up from $1,356 in 2008. But, accounts with an employer contribution had higher average balances than those without one: $2,403 for those in which the employer contributed in 2014 versus $2,046 for those in which the employer did not.

The level of the employer contribution also seems to make a difference: Workers whose employers kicked in at least $1,000 a year had an average of $2,768 in their accounts versus $2,183 for those who got less than $1,000 from their employers.

The full report, “Health Savings Accounts and Health Reimbursement Arrangements: Assets, Account Balances, and Rollovers, 2006‒2014,” is published in the January EBRI Issue Brief, online at www.ebri.org

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Compliance January 27, 2015

Council Supports Keeping Participants in Retirement Plans

The ERISA Advisory Council has made recommendations to support the idea of retirement plan participants keeping their savings in ERISA-covered plans for life.
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The 2014 ERISA Advisory Council examined recent movement of participant assets out of defined contribution (DC) and defined benefit (DB) plans—as plan distributions or rollovers into retirement accounts not covered by the Employee Retirement Income Security Act (ERISA), such as individual retirement accounts (IRAs) or other savings accounts.

The Council’s report provides ideas for plan administrators and plan participants, including communication strategies and plan design options to facilitate lifetime retirement plan participation.

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The Council noted it heard considerable testimony about the various factors terminating employees might consider in evaluating whether to keep assets in an employer-sponsored retirement plan, take a cash distribution, or roll assets into an IRA. According to the report, some factors participants may wish to consider include:

  • The plan’s fees versus the fees of an IRA;
  • Investment vehicles offered in the plan versus another savings vehicle;
  • Availability of loans;
  • Tax considerations;
  • IRAs are not subject to ERISA;
  • Protection against creditors;
  • The need for immediate cash; and
  • The health of the participant.

In addition, the Council looked at considerations for plan sponsors when deciding whether to encourage participants to keep assets in the plan. According to the report, Robert Hunkeler, vice president of investments at International Paper and a former chair of the Committee on Investment of Employee Benefit Assets (CIEBA), indicated  90% of CIEBA members surveyed (who primarily represent the investment functions at plan sponsors) indicated that keeping participants in ERISA-covered DC plans after termination of employment is a good idea because it will result in lower participant costs and provide ERISA fiduciary protections. On the other hand, only around 60% of the surveyed plan participants felt that their company wanted to keep participants in the plan, and less than one-quarter of the plan sponsors had a program in place to encourage retention.

Hunkeler attributed this difference more to the newness of the concept than to opposition, as less than 10% of those surveyed felt their organization would be opposed to the concept of employee retention in their plan. He said the primary reasons for not having a retention program were that “it was a low corporate priority and that there were concerns about fiduciary liability and cost.”

The Council looked at notices required when a retirement plan participant requests a distribution and the information available about distribution options on certain websites. It offered communication steps for plan sponsors to consider to encourage participants to stay in their plans and for the Department of Labor (DOL) to consider in educating and encouraging plan sponsors and participants.

“Based on the testimony and statements presented, it is the Council’s view that participants need more information and advice to make informed decisions about how to handle potential plan distributions and that DOL can play a role in providing this information directly through its educational programs and indirectly by encouraging plan sponsors to provide educational materials to participants at various stages during their employment relationship and beyond after employment has ended,” the Council wrote in its report.

The Council noted that if employer-sponsored plans are to encourage lifetime plan participation, they will need to include more products and services geared towards retirees in the decumulation phase of saving. Lifetime income options, such as annuities, will likely play a more prominent role in the future. The Council said it believes additional guidance to sponsors about lifetime income, including an updated DC plan annuity safe harbor, would result in reducing some of the biggest barriers to inclusion of such options in plans today. Specifically, the Council recommends that DOL provide additional guidance to encourage plan sponsors to offer lifetime income options, including an updated defined contribution plan annuity selection safe harbor; and look for additional ways to make useful tools available, including the DOL’s Lifetime Income Calculator, and integrate existing tools such as My Social Security.

The ERISA Advisory Council’s report, “Issues and Considerations Surrounding Facilitating Lifetime Plan Participation,” is here.

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