Benefits February 27, 2018

More Than Half of Employees Contributing to Both HSA and 401(k)

Of all factors, salary was found more likely to encourage savings both an HSA and 401(k).

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While some studies show that debt and unforeseen bills are derailing some employees’ efforts to save for retirement, an Alight Solutions study finds an encouraging element—most employees are not foregoing 401(k) contributions to contribute to health savings accounts (HSAs).

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The 2017 study, which fielded responses from over a million people at 34 large employers receiving recordkeeping services from Alight, found 57% of HSA-enrolled participants are contributing to both their HSA account and 401(k), among 61% who are participating in their 401(k) and utilizing employer-sponsored health insurance.

While pay, age, gender and health care plan coverage all play determinants in HSA and 401(k) participation, pay is the chief factor, according to Alight. Participants with higher income will likely contribute to both plans. Seventy-nine percent of those earning $100,000 to $250,000 a year will add to an HSA and 401(k), while only 24% of respondents earning $20,000 will.

While pay leads in influence, age and gender are key contenders when considering participation, says Alight. After witnessing mass financial setbacks during the Great Recession, Millennials are characteristically reported as young, juvenile savers with a head-on approach to retirement saving. However, just 30% of those ages 25 to 29 with earnings of $20- to $40-thousand a year contribute to the two plans, and 44% of those in the same age category but netting $40- to $60-thousand will save in the HSA and 401(k). Yet, the report shows that across the board, all participants are likely to save in both as their age increases, with greater contributions as well. Millennials were also found more likely to enroll in an HSA-eligible plan. Fifty-percent of the generation are currently enrolled in such a plan, compared to 44% of those in Generation X and 39% of Baby Boomers.  

Additionally, Alight found that more women will contribute to their 401(k) and HSA than men—a surprise as women have halted savings because of the gender pay gap and career breaks. Men, though, were reported as more likely to contribute to the 401(k).

A 2017 report from the United Benefit Advisors found HSA use is steadily rising in employer health plans, with 35.1% of sponsors of high-deductible health plans offering the savings vehicle. Another study found more employees are using HSAs as a savings mechanism for future medical needs, although other studies have revealed a lack of participant knowledge about features of HSAs.

To encourage plan usage and educate workers, Alight suggests employers benchmark participant behavior with their plan’s data; add their 401(k) plan into annual enrollment; support HSAs by promoting the plan’s saving or health aspect; and craft modelers to show projected effects from saving in either one or both vehicles.

More information about the study can be found here.

Ask the Experts February 27, 2018

Distributions When Switching Jobs Within Same Denomination

“I work as an administrator in my local church—recently hired in this position after working in the same position for another church of the same denomination.

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“I thought I could withdraw my retirement plan assets from the plan at my prior church, but the person in charge of that plan said I could not, since I still work for the denomination. Is this true?”

 

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Stacey Bradford, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

 

Possibly. Prior to 2015, the controlled group rules, which would have governed whether separate churches within a denomination would be part of the same employer for purposes of whether an employment termination had taken place, did not apply to steeple church plans, such as the plan of your local denominational church, though a “good-faith” standard did apply.

 

However, the Protecting Americans from Tax Hikes (PATH) Act of 2015 established controlled group rules that are applicable to all church plans. All churches, regardless of type (“steeple” church, qualified church-controlled organization (QCCO), or non-QCCO) are aggregated and included in a controlled group if two conditions are satisfied:

One organization provides at least 80% of the operating funds of a second organization during the preceding taxable year of the second organization; and

There is a degree of common management or supervision between the two organizations so that one organization is involved in the day-to-day operations of the other organization.

 

In addition, the PATH Act allows a church or a convention or association of churches to elect to treat its church-related organizations as a single employer for a plan year. Such election, once made, will apply to all succeeding plan years unless revoked with notice provided to the Secretary of the Treasury in such manner as the Secretary prescribes.

 

And finally, aside from the controlled group rules, a lot of denominational plans have special rules in the plan document for whether a transfer from one employer in the denomination to another is considered a termination of employment for distribution purposes—which may be more restrictive than what the Internal Revenue Code would allow. That may be to encourage denominational workers to keep their funds in the plan until retirement. And some denominations will have different rules in that regard for clergy versus lay employees such as yourself.

 

Thus, it is quite possible that your employment at both churches is considered to be part of the same employer for distribution purposes, and if your plan prohibits distributions until termination of employment; this could be the reason the person in charge of the plan stated that a distribution was not permitted in this case. You should carefully review the applicable plan document provision to confirm that a distribution would not be permissible in your situation.

 

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

 

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