RESOURCES / PARTICIPANT EDUCATION
Use Health Savings Accounts (HSAs) to help enhance retirement security
8-minute read
THE TAKEAWAY
Position HSAs as a complement to a DC plan
Overview
Ryan Tiernan
Senior National Accounts Manager
More than a health benefit, Health Savings Accounts (HSAs) can help improve retirement outcomes
Although HSAs were originally introduced as a cost-saving measure, many employers are realizing that these accounts can work effectively with a defined contribution (DC) plan to promote better retirement outcomes. Ideas from DC menu planning can apply to HSA menu arrangements. Similarly, factors that influence HSA investment decisions – such as career stage and risk tolerance – follow well-established patterns used in DC planning. With support and guidance from plan sponsors and financial professionals, savers can learn to view HSAs as not simply a health care benefit, but a critical pillar of retirement security.
The problem
Rising health care costs threaten retirement readiness
A potential solution
HSAs offer triple-tax free status, penalty-free withdrawals for qualified expenses. Moreover, assets can be invested to help build savings for health care expenses
Impact
HSA assets are growing
As of August 2019, there were 26 million HSAs holding $61.7 billion in assets, a year-over-year increase of 12% for accounts and 20% for assets. Over one million of those accounts are investing a portion of their assets.
Source: Devenir Research, August 2019.
Tips for success
Create an HSA investment menu
Consider target date series or mirroring the options offered in the 401(k) menu. Offer a mix of options to address varied financial situations and risk.
Consider an age-based framework
Factors from DC menu planning such as career stage, goals, financial situation and risk tolerance also influence HSA decisions.
Encourage a holistic approach to saving
Help savers understand and access the full range of benefits and investment solutions.
Differentiate
Distinguish HSAs from “use it or lose it” flexible spending accounts. Explain tax differences between HSAs and DC plans.
Highlight costs
Help savers understand the costs of medical care in retirement and how HSAs can be used to address them.
Help optimize
Outline ways participants can distribute contributions among HSAs, DC plans and other benefits to best meet their needs.
Participant education is key to success
Adapt our educational materials to create custom communications for your participants.
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