Opinions January 29, 2020

How HSAs Can Help Boost Employee Productivity and Retirement Readiness

James Denison, HealthSavings, discusses how an investment-focused HSA can relieve employees’ stress about future finances, as well as help them save for future medical expenses.

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Financial stress doesn’t just take a toll on individuals—employers are feeling the pain too.

According to John Hancock’s 6th annual financial stress survey, nearly half of the 3,500 employees surveyed said worries about their personal finances affect their productivity at work. In addition, one of every 20 employees surveyed noted that, in the past six months, they had missed at least one day of work due to financial stress.

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What’s causing this hurt? According to the survey, saving for retirement is the most prominent cause of financial anxiety; over half of respondents said they were behind schedule on their retirement savings. Specifically, employees’ top retirement-related financial concern is putting enough funds away to cover the health care costs they’ll incur.

As employees struggle to effectively prepare for retirement, employers are also paying the cost due to reduced productivity and increased employee absences. Luckily, employers have a powerful tool at their disposal to help them address these issues and give their employees peace of mind—health savings accounts (HSAs).

HSAs are medical savings accounts that let account holders save money on current and future health care expenses by taking advantage of HSA tax breaks. From a tax savings perspective, there isn’t a better way to pay for retirement medical costs than an HSA.

That’s because contributed HSA funds are tax-free or tax-deductible, earnings and interest grow tax-free, and withdrawals for qualified medical expenses are tax-free as well. Traditional 401(k)s are taxed upon withdrawal and Roth 401(k)s are taxed upon contribution, so neither can match the ability of an HSA to save account holders money on their health care expenses.

In the John Hancock survey, employees noted that seeing projections of retirement expenses would most motivate them to save for the future. Well, according to HealthView, the average married couple retiring at age 65 should expect to pay over $387,000 in out-of-pocket medical expenses during their lifetimes, and much of that will be incurred in retirement. Contrary to what many people think, Medicare is not free and does not cover all medical costs. This means employees need a robust alternative for paying non-Medicare-covered health care expenses, and HSAs are the best way to do that.

Not only do HSAs have valuable benefits for account holders, they also offer powerful benefits for employers. In order to contribute to an HSA, account holders need to be covered by an HSA-qualified health insurance plan. This presents an opportunity for employers, as HSA-qualified plans typically allow them to save money on health insurance premiums.

In addition, employers can set up their HSA offerings so that when employees contribute to their HSAs via payroll withholding, employers and employees avoid FICA taxes on those contributions. That’s an extra 7.65% back to the employer and the employee with no cost or effort needed on their end.

Finally, the John Hancock survey mentioned the importance of financial wellness programs in easing employee stress and boosting morale. Specifically, 64% of employees said a financial wellness program makes them want to stay with their company, and 56% noted it increases productivity. By empowering employees to grow tax-free medical nest eggs to cover their future health care expenses, HSAs are a vital piece of any financial wellness program.

For employers, implementing an investment-focused HSA solution not only benefits their employees, it affects their own bottom line. HSAs enable employers to save money and boost productivity while empowering employees to invest with confidence as they build toward a happy, healthy future.

James Denison is director of marketing for HealthSavings, one of the country’s original health savings account (HSA) providers. HealthSavings empowers consumer-driven health plan participants to invest in institutional-class funds so they can grow their savings tax-free and meet their financial goals for a happy, healthy future. Denison is passionate about HSAs as a retirement strategy, health care consumerism and medical cost transparency.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services (ISS) or its affiliates.
Compliance January 28, 2020

Shell Oil, Fidelity Face Allegations in New ERISA Lawsuit

Among other allegations, the litigation says Shell Oil fiduciaries allowed Fidelity to inappropriately utilize plan data for its own commercial purposes.

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The latest Employee Retirement Income Security Act (ERISA) lawsuit, filed in the U.S. District Court for the Southern District of Texas’ Galveston Division, names as defendants the Shell Oil Company and various business units of Fidelity—along with a handful of Shell executives and named plan fiduciaries.

As is the case in many ERISA lawsuits, the plaintiffs filed their proposed class action on behalf of themselves and the Shell Provident Fund 401(k) Plan as a whole. Their suit echoes various fiduciary breach allegations that have been leveled in recent years against other large employers, including Trader Joe’s and Northrop Grumman.

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In this case, plaintiffs allege that Shell failed to use the multi-billion dollar plan’s bargaining power to benefit participants and beneficiaries in the form of lower recordkeeping and asset management fees. They also allege that the Shell defendants allowed unreasonable expenses to be charged to participants for administration of the plan and managed account services, and that they “failed to even monitor numerous funds in the plan at all.”

“Even worse,” the lawsuit states, “Shell defendants allowed the Fidelity defendants to use plan participants’ highly confidential data, including Social Security numbers, financial assets, investment choices and years of investment history to aggressively market lucrative non-plan retail financial products and services, which enriched Fidelity defendants at the expense of participants’ retirement security.”

In its references to data-based cross selling, this latest lawsuit calls to mind various prior cases in which 401(k) or 403(b) plans, as part of fiduciary breach settlements, have agreed to entirely prohibit such cross-selling practices in the future. Plans have further agreed to include questions about providers’ broader use of participant data in the regular request for proposal (RFP) process that commonly unfolds as ERISA plans evaluate potential service providers. In such cases, however, service providers generally haven’t been named as defendants; plaintiffs simply target plan fiduciaries and/or the employer offering the 401(k).

Fidelity shared the following statement with PLANSPONSOR regarding the plaintiffs’ allegations: “The claims against Fidelity are not only legally unsupported, they are based on outright falsehoods about the nature of Fidelity’s business, and how Fidelity interacts with retirement plan sponsors and plan participants. As the leading provider of retirement plan services, Fidelity takes great pride in its transparency, and its commitment to working with plan sponsors concerning the nature and extent of Fidelity’s interactions with the participants in their plans. Fidelity simply does not engage in the type of unauthorized solicitation of plan participants described in the complaint. We fully intend to mount a strong defense against this frivolous lawsuit.”

In the text of the lawsuit, the plaintiffs allege that, since 2014, the Shell defendants have retained more than 300 designated investment options in the plan, “most of which are Fidelity’s proprietary mutual funds.”

“Shell defendants agreed to allow Fidelity to automatically put its mutual funds in the plan without any initial screening process by Shell defendants to determine whether the funds are prudent options for participants to invest their retirement assets,” the lawsuit states. “Shell defendants also retained these funds in the plan without conducting any ongoing monitoring of the funds in the fund window to ensure that they remain prudent. Assembling a haphazard lineup of over 300 options, most that were proprietary to Fidelity—and shifting to participants the burden to screen those options for prudence—reflects an imprudent investment selection and monitoring process.”

The plaintiffs go on to suggest that the Fidelity defendants “are unique in their sales practices in that Fidelity does not have its sales representatives make cold calls to persons who have no relationship with Fidelity, or who were not referred to Fidelity.”

“This is unlike other financial services firms that build their business through cold calls and door-to-door solicitations, without access to confidential plan participant data from retirement plans,” the lawsuit states. “Fidelity forwards confidential plan participant data to its local sales representatives when those participants experience triggering events, such as 401(k) distributable events and other events that Fidelity learns of in its role as the plan’s recordkeeper (e.g., adding a new beneficiary or changing marital status). Fidelity defendants utilize this practice on plan participants. For example … a Fidelity salesperson based in Seattle, Washington, repeatedly called [one plaintiff], who lives in Seattle, Washington, using his confidential plan participant data in an attempt to solicit the purchase of non-plan products.”

The plaintiffs argue the plan participant data that Fidelity receives from the plan is “among Fidelity’s most important and valuable assets.” They argue that Fidelity is using plan data to steer people toward products and services that are not in their best interest.

Shell has not yet responded to a request for comment about the litigation.

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