Products January 18, 2019

Franklin Templeton and Principal Each Make HSAs a Priority

Franklin Templeton is rolling out R6 shares for health savings accounts, while Principal has announced its first collaboration with an HSA provider.

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Franklin Templeton announced it has expanded eligibility of the increasingly popular institutional R6 share class for health savings accounts (HSA), while another retirement plan services provider, Principal Financial Group, unveiled its first collaboration with an HSA provider, HealthEquity.

Franklin Templeton explains its move is aimed at establishing the firm as a leading “HSAIO” provider, short for “HSA investment only,” as opposed to DCIO—or “defined contribution investment only.” Principal says its new partnership is designed to give retirement customers a holistic picture of their retirement outlook, including their HSA balances.

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Talking about his firm’s recent work with PLANSPONSOR, Kevin Murphy, Franklin Templeton’s head of strategic accounts for the defined contribution division, said the HSA topic has been front and center for his team and is about to gain a significant amount of momentum in the DC plan space. Murphy said advisers and plan sponsors are asking questions about how to effectively integrate HSAs with retirement plan benefits in order to promote more holistic financial wellness for participants.

This matches to a significant degree Principal’s explanation for its own HSA-focused activity. Its agreement with HealthEquity allows Principal customers with an HSA through HealthEquity to have the option to access a consolidated view of their financial picture. The Retirement Wellness Planner currently allows people to link to information for other investment accounts to see their full financial picture in one quick snapshot, but this move will bring health care savings into the picture.

“There’s a tremendous benefit in being able to take a holistic view of your financial picture,” said Joleen Workman, vice president of customer care at Principal. “And with health care costs being a top concern for employers, employees and retirees, it’s an important piece of overall retirement planning.”

Like Murphy at Franklin Templeton, Workman said Principal will continue to work with other leading HSA providers to bring a simplified approach to more employees in the workplace. She also noted that, in addition to the HSA enhancement, Principal Milestones, a new plan-focused financial wellness offering from Principal, now includes educational resources on HSAs “to help people use them to their fullest, which may include using the funds for retirement health care costs.”

“More than seven in 10 workers say it would be helpful if their workplace offered education on planning for health care expenses in retirement,” Workman said.  

Data and Research January 18, 2019

DC Plan Sponsors Still Shunning Annuities

The top reason cited for not offering an annuity-type product in defined contribution plans is being uncomfortable or unclear about the fiduciary implications.

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Half of defined contribution (DC) plans surveyed by Callan offered some sort of retirement income solution to employees, in 2018, with the most common solutions providing access to a defined benefit (DB) plan (27.4%) or offering a managed account service (14.2%).

Only 12.3% of the 106 respondents to Callan’s 2019 Defined Contribution (DC) Trends Survey indicated they provide an annuity as a form of distribution, 3.8% said they use an annuity placement service and 3.8% offer an in-plan guaranteed income for life product. The rate of plan sponsors that reported offering qualified longevity annuity contracts (QLACs) or longevity insurance in their plans remains low, at 1.9%, despite a 2014 Treasury Department ruling making it easier to do so.

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Asked why they do not offer an annuity-type product in their DC plans, plan sponsors reported being uncomfortable or unclear about the fiduciary implications. Legislation has been introduced to try to address this problem.

Plan sponsors also report that an annuity-type product is unnecessary or not a priority and that there is a lack of participant need or demand. However, studies have shown that participants would prefer retirement income certainty.

Other reasons for not offering an annuity-type product in their DC plans cited by respondents include the difficulties in communicating to participants and concern over insurer risk. 

Full survey results may be found here.

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