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A New Look for HSAs—Retirement Savings

Practice Management

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 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. 

HSAs have been around for more than a decade and a half, but employers and participants are only just coming to appreciate their power as an additional way to save for retirement. Employers need continued support in explaining the unique benefits of HSAs to employees—aligning it with their retirement savings programs rather than solely as a separate health benefit can help overcome some of these education barriers.

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.   

A detailed summary of the results follows. 

Demographics

The survey received responses from 181 organizations that offer an HSA program to employees. Forty percent of employers have offered the HSA-qualifying health option to employees for two-to-five years with one-third offering one for six-to-ten years. Nearly 80% of employers offer health options in addition to the HSA-qualifying option, though there is some variability by organization size. 

Eligibility and Participation

More than 60% (61.3%) of employees enrolled in the HSA-qualifying health option when offered the opportunity. Of those that did, 90.5% had an HSA in 2019 and 91.1 % made contributions to their account. (See Exhibit 1.) 

Exhibit 1: Eligibility and Participation in 2019, by Organization Size

 

Measure 1-49
Employees



50-199
Employees

 

200-999
Employees
1,000-4,999
Employees
5,000+
Employees
All
Plans
%age of Eligible Employees who Enrolled in the HSA-Qualifying Option            * 66.4% 61.7% 52.7% 65.3% 61.3%
%age Enrolled in HSA-Qualifying Options with an HSA 96.0% 94.6% 87.2% 91.1% 86.6% 90.5%
%age of Employees with an HSA who Contributed to it 91.1% 82.8% 84.4% 82.2% 86.1% 91.1%

*Sample size too small to calculate. 

 

The average participant contribution in 2019 was $2,595. The average account balance at the end of 2019 was $5,627 and the median was $3,169—substantially unchanged from the $5,239 average and $3,480 median reported in 2018. 

A third of respondents stated that fewer than a quarter of employees spent their entire HSA balance in 2019. Only a small %age of employees contributed the maximum allowed. 

Employer Contributions 
Nearly 85% of employers contribute to the HSA, and nearly three-fourths provide a set dollar amount based on the coverage level (single or family). More than one-third of employers “front-load” contributions at the beginning of the year while another one-third make contributions each pay period. (See Exhibit 2.) 

Exhibit 2: Timing of Employer Contributions to the HSA  

 

Timing All Plans
Front-Loaded  34.9%
Partially Front-Loaded  5.9%
Semi-Annual  3.3%
Quarterly 9.2%
Monthly 10.5%
Per Pay-Period 32.9%
Other 3.3%
Total 100.0%

 

Investments

The vast majority of responding organizations (83.8%) offer investment options for HSA contributions beyond a cash equivalent or money market. However, 80.4% of organizations require a minimum balance of $1,000 or more before assets can be invested.
 
More than 80% of respondents state that they do not try to mirror the HSA investment lineup with their 401(k) lineup and that doing so is not a goal. Four % of organizations state that some of their HSA funds are the same as in their DC plan lineup, and 15% state that while none of their investments are currently the same, they would like to be able to do so. The largest barrier for organizations that would like to offer the same funds for the HSA as the 401(k) plan is provider capability. 

Education

The majority of organizations (57.4%) primarily educate employees about the HSAs annually during open enrollment. However, another third primarily educate employees about the HSA annually during open enrollment and at other times throughout the year. The primary and secondary topics targeted by HSA education are understanding the tax benefits of HSAs, indicated as primary by nearly half of respondents, followed distantly by contribution limits and the HSA-qualifying health plan. 

Only 10% of organizations use or suggest a default savings rate to employees for their HSA. Fewer than 7% of organizations offer additional education to employees who do not contribute to the HSA or only contribute a nominal amount. 

About half of respondents indicate that they position the HSA as part of a retirement savings strategy to employees (51.5%) with another 7.7% stating they don’t currently, but will. 

Despite the wide variety of topics targeted in education efforts, education remains a top concern for sponsors. More than half of respondents indicated it as a primary concern—however, this is down a bit from 61.4% in 2018. 

Hattie Greenan is the Director of Research and Communications for  the PSCA.