Health savings accounts were a hot topic at the NAPA 401(k) Summit – so this week we asked NAPA Net readers if they are already working with these accounts – or are thinking about doing so.
Just over 4 out of 10 (43%) of this week’s respondents currently provide advisory or consulting services on HSAs, while most of the rest (53%) were not. The other 4%? Not yet, but planning to do so in the next 18 months.
By way of comparison, we asked the same questions at the recent NAPA 401(k) Summit, and among those attendees, only about a quarter (23%) currently provided advisory or consulting services.
However, among the respondents to this week’s NAPA Net reader poll, among those who do work with HSAs, more than half (57%) said those accounts are allowing investments other than money market funds, while another third (35%) indicated that some do presently, but not all. As for the remaining 8%, they went with “not yet.” Indeed, while HSAs have been slow to catch on, more than a third of HSAs with investment assets beyond cash ended 2015 with a balance of $10,000 or more, according to a report by the non-partisan Employee Benefit Research Institute (EBRI). It is estimated that in total, there were 16.7 million HSAs holding $30.2 billion in assets as of Dec. 31, 2015.
401(k) Competition?
But then, since pending legislation could boost their visibility and usage, we also asked NAPA Net readers if they were concerned that expanded HSAS limits would result in reductions in 401(k) contributions. The responses were quite varied:
23% - Yes
29% - No
33% - Somewhat
10% - Not really
5% - Not yet
The concerns were more strident among the 401(k) Summit attendees, where 75% said they were concerned. As for an idea floated at the Summit – the possibility of an integrated 401(k)/HSA solution:
62% - Thought that would be better for participants
48% - Thought that would be better for plan sponsors
57% - Thought that would be better for their business
33% - Thought that might be better, but it would be confusing
5% - Thought that would be too confusing
Reader Comments
We got a number of comments from readers on the subject. Here’s a sampling:
“Our firm sponsors an HSA and has since they were enacted into law... we previously matched $2 for $1 so an employee in our HDHP needed only save $1,000 pre-tax to get $2,000 in match money. That just ended as we were clobbered indirectly by ACA with a 30% rate increase in December, 2016. We told our employees we would not absorb this increase alone, kept their costs the same, but financed it by reducing the match. Messaged properly, there was no push back/complaints. BTW, we sponsor a cross-tested 401(k) and cash balance combo arrangement so all NHCEs get about 8% of pay between the plan(s).”
“Health is the number one retirement expense. This is a natural. Why would there be any debate about it?”
“I'm worried they may increase the max contribution limits under Trump and then shrink again under the next administration and become a political pawn.”
“Different states have different health insurance rules. There would need to be uniformity in determining "high deductible" plans.”
“HSAs sound like they are actually a pretty good retirement savings idea, especially given the ‘never taxed’ part. First we were supposed to diversify among investment options/risk. Then it was a recommended to diversify into pre-tax and Roth as well, and now it seems like a good idea to diversify into pre-tax medical too. They always say it’s those unanticipated overwhelming medical expenses that suck up your retirement savings... If given the option, I see folks splitting some of the 6% (or whatever) they are deferring now into the HSA, not deferring more, so it would take away from 401(k), but not necessarily from overall retirement income. I think it would make recordkeeping easier if we could just add that account to the retirement plan and get used to it, the way we did with Roth.”
“I think HSAs could have an impact to the 401(k) retirement industry not sure if positive or negative at this point, however I think people are forgetting the HDHP adoption rates have been slow for example we have a client that has 1,000 employees and has offered a HDHP benefit for 3 years and currently only 86 employees are on it. As in only 86 out of 1,000 employees can save in an HSA or less than 10% of the workforce. Until the adoption rate on HDHP picks up, HSAs won't gain significant interest.”
“HSAs should be incorporated into all advisors’ practices!”
And, of course, one reader noted: “Great idea, but the devil’s in the details.”
As it always is. Thanks to everyone who participated in this week’s NAPA Net reader poll!
