July 1, 2014 (PLANSPONSOR.com) – While the use of automatic enrollment is increasing in private-sector retirement plans, public-sector plans offered by local governments are slower in adopting the feature.
A brief from the Center for State and Local Government
Excellence, “Using Automatic Enrollment in Local Government Retirement Plans to
Increase Savings,” contends while many local governments have supplemental
savings plans, there are few incentives for employees to enroll in
them.
In addition, Paula Sanford, a researcher with the University of Georgia and
the brief’s author, finds the main reasons local governments have been
slow to adopt automatic enrollment include:
Legal constraints. Only 11 states permit automatic
enrollment for public defined contribution (DC) plans. In a few places, an
exemption to anti-garnishment laws has been written into statute for a
particular retirement system or plan.
Perception. Government leaders worry that automatic
enrollment in a supplemental savings plan might overburden their employees,
especially those who earn modest wages.
Labor questions. There is debate in the labor community
about whether or not automatic enrollment should be supported.
Administrative challenges. Some government DC plans utilize multiple recordkeepers.
The brief examines the experience of local governments that
have successfully adopted automatic enrollment such as: Cobb County, Georgia;
Multnomah County, Oregon; and the city of Los Angeles. Research also looked at the
South Dakota Supplemental Retirement Plan, which serves more than 470 units of
local governments. Sanford notes that working with employees
and focusing on education were key to successful implementation of automatic
enrollment plan features.
A
previous brief by the center suggests one way supplemental retirement savings
plans for public employees could be enhanced is by using automatic deferral
escalation.
A copy of the brief about automatic enrollment can be found here.
Why HSAs Should Be on Your Company’s Health Care Playlist
July 1, 2014 (PLANSPONSOR.com) - If you’re thinking of adding a high-deductible health plan (HDHP) with a health savings account (HSA) feature to your organization’s health care “playlist” this year, you’re not alone.
There
are now more than 15 million Americans covered by HSA-eligible health plans[i] through their employers. Although,
HSAs have been available for more than ten years, it has only been in recent
years that employers have begun to fully realize the many advantages they offer.
One
reason why HSAs are gaining in popularity is health care costs continue to take
a large bite out of the benefits spend apple—despite the slowing pace of
medical inflation in recent years. Since the Patient Protection and Affordable
Care Act (ACA) was upheld by the Supreme Court in June 2012, employers have
been worried about the impending “Cadillac Tax” and how to address it.
In
response, Fidelity is working with many employers to add HSA-eligible health
plans to their plan design to help control health care costs and avoid
potential exposure to the “Cadillac Tax” in 2018. But there are additional
benefits both to the employer and employee than meets the eye.
Short-
and Long-term Benefits for Employees
Beyond
employer savings, there are three key benefits for employees. First, HDHP
premiums are generally lower compared to other types of health plans.
Second,
the HSA can be a more attractive savings vehicle for many employees, as those
with family or employee +1 coverage in an HDHP can set aside up to $6,550 in
2014 tax-free* (plus a $1,000 catch up contribution if they are 55 or older
during the taxable year). This is
because employees pay no tax on the earnings or on the distributions if the
money is used for qualified medical expenses now, to, and through retirement.
Third, lower premiums
and tax-free options can provide employees with greater control over health
care and savings decisions—making them more conscientious health care
consumers.
[i] Nearly
15.5 million Americans are now covered by HSA-eligible health plans, an
increase of nearly 15% since 2012, according to America’s Health Insurance
Plans* (AHIP)
HSA Saving vs. HSA
Spending
Given
the costly health care hit to most families’ pocketbooks over the past several
years, many employees may opt to use the HSA as both a spending and a savings
vehicle.
In our hypothetical
example below, we show how the “average HSA account” might grow over time. The
good news is, even for those who spend approximately 50% of their HSA dollars
on current qualified medical expenses—then save the rest over a ten year period—their
HSAs can potentially grow to more than $21,000. And, for someone who manages to
save 90% of their HSA dollars, their HSA could potentially grow to more than $37,000
over ten years.
Communications
Tips
To
help employees understand how HDHPs/HSAs work, education and communication is
important. According to our research,
confusion between an HSA and a health flexible spending account (FSA) is
prevalent. A full 73% of respondents
said an HSA is pretty much the same thing as a health FSA or were unsure, and
the “use it or lose it” provision of FSAs was one of the most commonly
misunderstood differences between the account types.
Also,
simple and targeted messaging is essential so employees can not only see and
compare pricing in order to make an informed decision on their health care
options, but overcome inertia. It may be helpful to reinforce the positive
features of HSAs (carryover, tax advantages, portability, and use in
retirement) while dispelling common myths and misconceptions about HDHP
coverage and potential total costs.
Remember:
Your employees must be covered by an HDHP in order to open and contribute to an
HSA, so it’s important to educate them about the process of opening the HSA account
so they can qualify for any employer contribution.
A Longer-Term
Horizon
Many HSAs now offer an array of
investment choices so longer-term HSA savings can be invested as part of the
individual’s retirement savings strategy. Fidelity research has shown most HSA
dollars are held in cash. However, for the 16% of account holders** who are
invested in options such as mutual funds, stocks, or bonds, they have the
ability to think of HSAs as a “savings, not spending” vehicle that is aligned
with their 401(k) retirement savings strategy.
Overall, as more organizations look
for ways to save on health care expenses, HDHPs with HSAs have an important
position on the health care playlist and can be embraced and appreciated by
employers and employees alike.
Jeff
Munn, vice president of Benefits Policy Development at Fidelity Investments in
Boston
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.
Any
opinions of the author(s) do not necessarily reflect the stance of Asset
International or its affiliates.
*
Contributions, investment earnings, and distributions are tax free for federal
tax purposes if used to pay for qualified medical expenses and may or may not
be subject to state taxation. For additional information see IRS Publication
969. The administration of an HSA is an
individual responsibility; see a tax professional for more information.
**
Fidelity HSA/DC Savings Report, November 2013
Views expressed are
as of the date indicated and may change based on market and other conditions.
Unless otherwise noted, the opinions provided are those of the author, and not
necessarily those of Fidelity Investments.
