THE TAKEAWAY
Ryan Tiernan
Senior National Accounts Manager
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.
Rising health care costs threaten retirement readiness
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
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.
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.
Factors from DC menu planning such as career stage, goals, financial situation and risk tolerance also influence HSA decisions.
Help savers understand and access the full range of benefits and investment solutions.
Distinguish HSAs from “use it or lose it” flexible spending accounts. Explain tax differences between HSAs and DC plans.
Help savers understand the costs of medical care in retirement and how HSAs can be used to address them.
Outline ways participants can distribute contributions among HSAs, DC plans and other benefits to best meet their needs.
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Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
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