Are HSAs Ready for Retirement?

More than half of employers (51.5%) now position the health savings account (HSA) as a retirement savings vehicle, according to the Plan Sponsor Council of America’s (PSCA) second annual HSA benchmarking survey, sponsored by Empower Retirement, reinforcing the notion that HSAs can be a powerful retirement savings tool. 

However, employers remain concerned about how to best explain HSA benefits to employees—employee education topped the list of HSA concerns for the second year in a row, though the percentage indicating so did drop five points this year to just more than half of respondents. While the top education priority for nearly half of survey respondents is explaining the HSA tax preferences, 20% target contribution limits as the primary goal. 

Offering the same, or some of the same, investment options in the HSA program as in the 401(k) plan can help ease the education barrier around HSAs. However, only 4% of employers are currently doing so. Among the 15% that would like to, provider capability (or lack thereof) is the primary reason they are unable to at this time. This is an opportunity for continued innovation with HSAs and retirement plan providers.  

“Employers and employees are still learning about the advantages of using HSAs as a retirement savings vehicle,” said Tina Wilson, Senior Vice President Chief Product Officer at Empower Retirement. “As healthcare costs continue to rise, we want to help employees understand the best way to use these healthcare savings accounts and to begin saving specifically for their healthcare expenses in retirement. Our challenge is helping workers understand that HSAs can be part of a multi-pronged retirement plan.”

Additional survey findings include:

• The average participant contribution in 2019 was $2,595, the same as in 2018, while the average account balance at the end of 2019 was up slightly from a year ago, at $5,627. 
• The vast majority of responding organizations (83.8%) offer investment options for HSA contributions, though more than 80% require a minimum balance of at least $1,000 to invest assets.
• Nearly a third of organizations automatically enroll employees in the HSA if they enroll in the HSA-qualifying health option, but fewer than 10% of organizations use or suggest a default savings rate.
• While education occurs primarily at open enrollment for the vast majority of respondents, a growing number are doing so at other times throughout the year.

The data reported is from 181 employers that offered an HSA-qualifying health option in 2019. The full report is available at: https://www.psca.org/research/2020_HSASurvey.